Thirty Years After . . . October 1959  
Difference No. 1: How We Buy  
Difference No. 2: Who Is Buying  
Difference No. 3: The Institutional Investor  
Difference No. 4: The "Rhythm" of Buying  
Difference No. 5: Regulations  
Difference No. 6: We Know What Happened Once  
Difference No. 7: The Basic Economy  
Difference No. 8: A New Attitude  

Thirty Years After . . . October 1959

It was thirty years ago that a world began to crash. It was on October 4, 1929, that the stock market suddenly went into a wild down-spiral and Wall Street was hit by the first of a series of violent selling attacks which were to culminate in the convulsion of October 29.

That date marks the thirtieth anniversary of Black Tuesday in Wall Street. For that was the climactic day during which 16,410,000 shares changed hands, billions of dollars of stock values were wiped out in five hours, millionaires became paupers between breakfast and lunch, the savings of both the sophisticate and the innocent simply disappeared into nothingness. In the history books, October 29 always will symbolize the end of the gold-plated prosperity of the 1920s, the start of the worst depres­sion ever known to man.

But October 29 didn't happen without warning. Actually, the stock market reached its all-time peak on September 3, 1929. After that, it was rocked by successive avalanches of selling—on October 4, October 21, October 23, and October 24. With 20-20 hindsight, we now know that each of these breaks was flashing the signal that the boom was dead.

Although I personally am convinced there never will be an­other "1929," in contrast to the tenth anniversary of the holocaust in pre-World War II’s quiet 1939 and the twentieth anniversary in post-World War II’s recession 1949, there are some disturbing similarities between 1959 and then.

Once again, gambling in stocks has reached a pitch new to an entire generation. We are seeing nothing approaching the gam­ bling orgy of 1929, of course, but the evidences of fringe specula­tion, get-rich-quick gambling by the greedy ignorant, and stock market swindles cannot be shrugged off. Some of the most sensational stock price rises have been in "penny" stocks; the upswings in many of the so-called "glamour" issues have been spurred by suspicious rumors.

Once again, stock prices have been bid up to dizzying heights, and as a result the income available on dividends from most stocks at today's prices is less than that available from highest-grade bonds. This upside-down relationship between returns on stocks and bonds existed in 1929. In 1929, for instance, a buyer of stocks could obtain, on average, an annual return of 3½ per cent against an average annual return of 4% per cent on high-grade bonds. In most years since, stock yields have topped bond yields. In midsummer, though, the return from stocks was down to around 3 per cent, the return from high-grade bonds up to around 4½ per cent. The spread is striking—and chilling.

Once again, the stock market has been going through some sharp price slumps. The visit of Soviet Premier Khrushchev was used as an excuse for the most recent drop, but regardless of excuses the fact is that between August 31 and September 22 the Dow-Jones average of industrial stocks cracked 48 points, the most severe price plunge in two years. Some stocks are down 30 to 50 per cent from their 1958-59 tops.

And once again, there is tremendous public interest in stocks, price fluctuations are front-page news, and there is talk of a "new era" of permanent prosperity. Once again, money is tight—the tightest since 1929—and the Federal Reserve System is clamping down on credit in an effort to curb the business upswing.

Because of the parallels on this anniversary, I've been digging into the story beneath Wall Street's surface. But while I can foresee painful stock price dips, I believe strongly that the differ­ences dwarf the similarities.

Difference No. 1: How We Buy

On October 6, 1929, my young widowed mother had just about every penny of her nest egg in the stock market. Her cash invest­ment was comparatively modest but her stake in the market was quite impressive. For Mother was in Wall Street on a 10 per cent margin, meaning that behind every $10,000 of stock she "owned," she had only $1,000 of her own money. With that sort of borrowing power, she was able to load up with the get-rich-quick stuff.

By October 29, 1929, Mother's nest egg was a bitter memory and we were flat broke. As stock prices plunged under the avalanche of selling, she simply couldn't raise the cash demanded to keep her margin up to 10 per cent. Along with millions of other speculators she was sold out, and as long as I live my viewpoint will be colored by the depression which formed the background of my adolescent years.

Today, I, too, have a thumping percentage of my nest egg in stocks but there is a vital distinction. Everything I own, I really own. At most, I'm borrowing five dollars against every hundred dollars of stock in my portfolio. I can sell out but I cannot be sold out. I can be hurt by a poor choice of stocks or a price crash but I cannot be financially destroyed.

Think back for a moment to what was going on in 1929. While no one knows how many millions were speculating in stocks, there is no doubt that the nation was wallowing in a gambling orgy. Do you realize what a margin of 10 per cent meant? It not only meant that a man with $10,000 could buy $100,000 of stocks; it also meant that, even after the slightest price decline, he could be called upon to maintain his 10 per cent margin with more cash. As stock prices collapsed, hundreds of thousands of calls for more margin went out to the slap-happy gamblers. The stocks of those who couldn't raise the margin were simply dumped. The selling added to the selling, the weakness bred more weakness, margin calls intensified margin calls.

In 1929, firms belonging to the New York Stock Exchange were borrowing $8,500,000,000 or close to 10 per cent of the total $89,700,000,000 value of stocks then listed. In 1929, the turnover ratio of stocks reached an amazing 119 per cent—the equivalent of saying that every share listed on the Big Board was traded at least once during the year!

But the holocaust of 1929 led to a 1934 law which gave the Federal Reserve Board power to set margin requirements (down payments) on listed stocks. Under that law, down payments have ranged from 25 per cent to 100 per cent in 1946 and as of this October 1959, they are now at 90 per cent. A buyer of listed stocks now must put up ninety dollars in cash for every hundred dollars of stocks purchased.

In 1959, borrowings by Stock Exchange member firms are averaging $2,800,000,000, one-third the 1929 volume and compar­ing with a total value of listed stocks of over $300,000,000,000. In 1959, the turnover ratio is running around 11 per cent, equiva­lent to trading of about one of every ten shares listed per year.

And in 1959, the New York Stock Exchange released its ninth public transaction study, disclosing that margin transactions by the public are around 17.6 per cent of total volume, the lowest in seven years, and that almost half of these margin deals repre­sent a long-term investment.

Yes, we can lose plenty in stocks. But most of us today are not speculators playing with borrowed cash. We are middle-income investors using our own money. The market is, as the New York Stock Exchange says, resting "largely on a cash foundation" and that is a sound foundation. This distinction in "how we buy" is basic, and it is a heartening safeguard against a repetition of 1929.

Difference No. 2: Who Is Buying

Shortly after the stock market collapse of October 29, 1929, Rollin Kirby drew what has become a historic cartoon. It showed a man sitting in a chair, holding his head between his hands, staring into nowhere. Behind him stood his wife, terror revealed in every line of her body. On the floor was a newspaper black with headlines about Wall Street. Beneath the cartoon was the simple caption: "Sold Out."

Who was this man? He was the chauffeur who picked up a stock tip as he drove his boss downtown and the shoeshine boy on the corner of Wall Street who begged for pay in the form of the name of a stock instead of cash. He symbolized the young married man who risked the $50.00 of precious rent money to buy $500.00 of stock on the thinnest of margins and the widow who plunged with every penny of her insurance money into un­known securities.

He also stood for the tycoon who ran a million dollars in paper profits into tens of millions of dollars in paper profits. But above all else, he was a gambler who mistook the glitter of 1929's gold-plated prosperity for the real thing and who thought of Wall Street only as a place in which to get rich quick. No one knows how many millions of "him" were in the market in 1929. But when he was wiped out in the holocaust of thirty years ago this month, his disaster marked the end of an entire era.

Who is today's holder?

(1) He is primarily a middle-income individual with extra
money to put into the stock market. The word "extra" is crucial,
for this means stockholders today are not playing with rent
money. Of the 13,500,000 individual shareholders in our nation
today, almost half are in the $5,000-$ 10,000 bracket and the
average stockholder has a household income of $7,000.

And in the lower-income brackets, the typical stockholder is an employee of a corporation who is buying stocks under an employee payroll savings plan, emphasizing that the money repre­sents savings.

• If he is trading actively, he is generally an upper-income
  individual, which suggests he can afford to take some risks. This
  most significant point is highlighted in a new study by the New
  York Stock Exchange. It discloses that the volume of trading on
  the Exchange by the $10,000-$2 5,000 individual now accounts for 40 per cent and the volume by the $25,000-and-over individual now accounts for 34.5 per cent of all trading by individuals. This is hardly the "shoeshine boy" class.
• He is mostly investing, not speculating, and he is mostly
  sticking to the high-grade, world-famous stocks.

The gambling fringe has grown dangerously and this is a frightening similarity between 1929 and 1959. But the fringe is still only a fringe. The fact is that two-thirds of today's trans­actions on the Big Board are for the long term. The fact is that American Telephone, General Motors, and General Electric remain among the favorite stocks of individuals. The in-and-outer in Wall Street is in the minority today; he was in the majority in 1929.

There can be painful stock price slumps. The break in stock prices in September 1959 was the sharpest since 1931! But it's hard to see a stock market resting largely on a cash foundation and dominated by investors going into a wild, uncontrollable dive. In this sense, the markets of 1929 and 1959 are simply not parallel.

Difference No. 3: The Institutional Investor

In October of 1929, there were no giant corporation pension funds in Wall Street buying stocks for income and profit. For odd as it may seem to the millions of younger Americans who think we've always had pensions to protect us in our older years, as a practical matter, there were no pension funds in our land as recently as 1929. Now, though, corporation pension funds alone hold over $9,000,000,000 of stocks listed on the New York Stock Exchange. In the past decade, pension funds have increased their ownership of stocks 1,720 per cent!

Thirty years ago, there were no mutual funds in Wall Street investing day after day the savings of millions of us in long lists of stocks for income and profit. The investment company move­ment had been born but it was an infant, and it was to be all but destroyed in the stock market collapse of 1929-32. Now, mutual funds alone hold $10,600,000,000 of stocks listed on the Big Board in New York, 620 per cent more than they owned a decade ago. Other investment companies hold another $4,400,000,000.

In the blackest month of Wall Street's long history, it was the individual who dominated the stock market. Big or small, investor or speculator, professional or amateur, the stockholder in 1929 was primarily an individual. Now this is no longer true. A great and growing force in the stock market is the institutional investor —the pension fund, the mutual fund, the savings institution, the life insurance company, the personal trust fund, the foundation.

Here is another of the fundamental distinctions between the markets of 1929 and 1959. Although no one can yet grasp the full significance of this development, we know it is of towering importance. On an average day, institutional investors now account for almost one-quarter of all trading on the New York Stock Exchange (against practically zero in 1929). Last year, institutional investors bought $3,000,000,000 more shares of stock than they sold. Right now, institutional investors hold $51,000,000,000, or 16.6 per cent, of the $308,000,000,000 of stock listed on the Big Board. Just pension funds and investment companies own 9.4 per cent of this amount. And dwarfing even these types of institutional investors are the commercial banks which in their personal trust accounts hold $37,000,000,000 of common stocks.

What sort of operators in the stock market are these? They are typically buyers for the long term, choosing stocks that they expect will grow in value over the years as the nation grows. They are typically indifferent to intermediate, temporary price fluctuations and are not under pressure to sell in any particular market. They are typically holders of high-grade securities, representing estab­lished corporations which have proved their worth. They are typically continuous buyers, investing funds as they receive them and buying both on price rises and declines.

Each characteristic emphasizes more than the last how dramat­ically different the institutional investor is from the individual— particularly from the individual speculator.

What, then, does this development imply? It suggests that a new, professional force has entered the stock market since 1929 which should help stabilize prices. During last month's stock price break, for instance, many mutual funds went on a buying spree. It suggests that the individual is being replaced in many instances by the institution and this too should be a force for stability, since the institutional investor buying for a ten-twenty-year pull pre­sumably will be less volatile than the individual buying for a one-two-year pull.

Difference No. 4: The "Rhythm" of Buying

Perhaps if the stock market slide which began this past summer continues for some time, countless numbers of little fellows who have been buying stocks regularly will become thoroughly disenchanted. And they'll stop putting any percentage of their savings into "Wall Street." Perhaps. . . .

Perhaps if the stock price decline of September—the sharpest in more than a quarter century—turns into a severe crack-up, countless numbers of Americans who until now have been claim­ing they're not concerned with week-to-week fluctuations will become panicky. And these will begin dumping what they own. Perhaps. . . .

Perhaps if national attention shifts seriously from inflation to deflation, countless families will decide that dollars in the bank are the best thing after all. And they'll start hoarding every penny they can in cash. Perhaps. . . .

Any of these things could happen. For the startling fact is that 6,000,000, individuals who have been added to the stockholder lists in America just since 1952 have known only a market going up most of the time. (The 100-point break in the Dow-Jones stock price average in 1957 was so short-lived that it was over before most little investors were aware it had occurred.) We can't be sure how these new stockholders will respond to a prolonged, painful decline.

Still the odds are against these things happening on anything approaching a calamitous scale for the stock market, and one reason lies in the "rhythmic pattern" of buying developed by so many millions of America's new investors.

What was the pattern of stock buying by the individuals who dominated the market before the catastrophic crash of thirty years ago? Not only was the buying on the thinnest of margins, it also was erratic. It was frequently emotional. It was mostly uninformed. It was often hysterical as the stock market roared toward its historic 1929 top. It's hard to describe the pattern—there really wasn't any.

Today? Today, there is a rhythm to stock buying by the mil­ lions—and this, I submit, is another distinction between 1929 and 1959. Today, a vast and growing army of stockholders consists of employees of corporations buying shares in their own companies through payroll savings plans. Under these plans the employee generally puts a percentage of his pay in stocks, and a most significant point is that many of the plans have major provisions safe­guarding the employee's nest egg against a stock market slump. At the last count, 1,340,000 individual stockholders in the country were buying under employee stock purchase plans. A full 27 per cent who had become stockholders between 1956 and 1959 had begun their buying through these plans. Is this type of stockholder likely to panic? I'd guess "no."

Today, millions of little investors are buying through programs which stress regular, month-after-month buying of highest-grade stocks. The devices for this buying both in periods of price rise and price fall are many and varied, but the basic angle is that these millions are deliberate long-term buyers, investing a com­fortable percentage of their savings in confidence that over the years they'll come out okay. Is this type of stockholder likely to panic? I'd guess "no."

Today, an increasing volume of stocks is going into the hands of children via new State laws making it easy to give gifts of stocks to minors, and as a result stock ownership is coming early to the new generation. Are these stocks likely to be dumped? I'd guess "no."

This "rhythm" is not as fundamental as some of the other distinctions, of course, but it is important; it has no parallel in previous eras and it might be a much more important stabilizing factor than we suspect.

Difference No. 5: Regulations

Even if you recall the cataclysm in Wall Street thirty years ago and the national degradation and despair to which it led, surely you find it hard to believe now how wild and unrestricted manipu­lation in the stock market was then. There were simply no rules to guide or protect the public. The few requirements the New York Stock exchange had were so lax, so indifferently adminis­tered, that they were worse than nothing.

Pools of operators could (and did) send the price of a stock skyrocketing by selling shares to each other. When they had their millions in paper profits, they would unload on the gullible.

Utterly unscrupulous businessmen could (and did) issue new stock to the public and lie in their teeth without fear about what the stocks were worth. There was no law forcing them to tell the truth. Famous corporations could (and did) refuse to tell reporters or stockholders an iota about their affairs. There was no law saying they had to give out any information.

Each illustration is hair-raising and I submit them with pertinent reason. For while the stock market collapse of Black October 1929 reflected the fundamental rot in our economy, there is no doubt the almost unbelievable thievery in Wall Street then aggravated and prolonged the disaster.

Today, a significant distinction between the markets of 1959 and 1929 is that there now are basic laws and regulations which do guarantee that any price drop will not be made worse by illegal manipulation. For as a direct result of the 1929 holocaust, on our statute books are the securities acts of 1933 and 1934, the utility act of 1935, the investment company and investment ad­visers acts of 1940.

Now we do have a Securities and Exchange Commission which is a watchdog over the securities markets and while, as the SEC Chairman modestly puts it, the law cannot prevent price gyra­tions, it has helped control "the sinister influences" which in 1929 caused so much "distress and tragedy."

Now pool operations and bear raids on stocks by ruthless short selling have been outlawed. Now corporations are compelled to reveal all key facts when they issue new securities and to publish regularly adequate financial statements certified by independent accountants. Also as a direct result of the 1929 crash, the securities industry is policing itself as never before. In many ways, the New York Stock Exchange's rules on disclosure of vital information and on regular reports by listed companies are far more severe than the SEC's.

No honest observer would even pretend that the crooks have been banished or that the protective laws and rules are yet ade­quate. Stock swindles again are on a deeply disturbing scale. Nevertheless, a vital safeguard for Wall Street and for us in 1959 lies in the laws, rules, and machinery we have created since 1929 to curb manipulation and prevent fraud.

Difference No. 6: We Know What Happened Once

In a speech a while ago, Keith Funston, president of the New York Stock Exchange, told of an elderly gentleman who surprised his friends by taking off suddenly on a tiger hunt. "You can't realize the excitement," the gentleman remarked later, "of walking through a thick jungle and never knowing when a tiger is going to leap out."

"How many tigers did you shoot?" he was asked.

"None," he said.

"Then your safari was a failure!"

"Listen," retorted the old fellow, "when you're hunting tigers, none is plenty!"

Funston used that anecdote to drive home a point he has been making with appropriately mounting urgency recently—that "no abuses are plenty" in any of the securities markets. Now Funston is no Sir Galahad of the financial world. None of the individuals in power in Wall Street or Washington today—and that goes for the head of the Securities and Exchange Commission, the presi­dents of the various securities exchanges, the heads of the securi­ties self-policing organizations, etc.—is trying to act this role. Mr. Funston, though, is acutely aware that "excesses in any direction will hurt the Exchange far more than any other institution." All the authorities are on the lookout for any threat of another "1929," are determined to avert the danger of a routine stock market decline being turned into a rout by illegal manipulation. This is another difference between the eras.

Today, reckless speculation in the thousands of stocks listed on the nation's exchanges and the tens of thousands of stocks listed nowhere (traded over the counter) again is alarming. But serious efforts are being made to curb it. Pressures are increasing for greater controls and supervision over the unlisted securities markets. Legislation has been introduced into Congress to end the "double standard" between corporations with shares listed on an exchange and corporations which do not have to obey exchange rules.

This past spring, unreasoning, almost hysterical gambling in the so-called glamour stocks again roared to a terrifying speed. But warnings immediately went out from the New York Stock Ex­change to member firms against encouraging the speculation and warnings went out from the firms to the public cautioning against the speculation. The gambling has calmed down.

In recent months, stock tipsters again have been operating on a disturbing scale. But policing authorities are moving against the fringe tipsters. You are being repeatedly told to avoid any dealings with "boiler room" operators, strangers soliciting stock orders by phone. In New York, the Attorney General's office is asking for a law to control fringe "investment advisers."

In the past couple of years, some sickening scandals and weird manipulations involving well-known companies have hit the news­papers. But the scandals have been broken by alert reporters and regulatory authorities able to get information from which they were barred thirty years ago. The manipulations haven't multiplied into great disasters and new, tighter controls are likely to come.

The crooks haven't been banished; our protective laws and rules are far from adequate. But the significant point is our aware­ness of the existing pitfalls and our determination to build barriers against them in time. In 1929, all Wall Street was the equivalent of a gigantic pit. But the nation didn't know it—not even after it fell in.

While the stock market surged through the roof in 1928 and early 1929, the American economy was heading straight for the cellar. When the climactic convulsion occurred in Wall Street thirty years ago, it didn't set off the world's most violent depres­sion, as most of you probably think. The stock market crack-up simply belatedly recognized and mirrored a depression that had long been in the making.

Nothing I've written so far in comparing the stock markets of 1929 and 1959 even approaches in importance the differences in the American economy. On the surface, the America of 1920-29 looked great, I suppose. The over-all statistics, for instance,, showed personal income rising, industrial production climbing, employ­ment increasing, prices dipping, profits zooming, and mass con­sumer markets developing. But the prosperity was gold-plated, the glitter was phony. For beneath the over-all statistics, certain things were happening.

Personal incomes were being concentrated more and more at the very top. Between 1920 and 1929, the share of the income pie going to the upper 1 per cent of Americans actually increased by half.

The rise in wages and salaries was lagging far behind the pro­ductivity of workers and the rise in corporate profits, rents, and interest. In that decade, hourly wages rose only 2 per cent while productivity of workers in factories skyrocketed 55 per cent.

The growth in our population was shrinking. Farm prices were declining. The pace of auto sales was slowing. In the late twenties, the housing and major durable goods industries went into a tailspin.

Everything was set for a classical business downturn—when suddenly the gambling fever hit and the stock market took off on the wildest credit-happy upsurge ever known in history. And this, as Fortune magazine remarked some years ago, "postponed the inevitable reckoning and converted what might have been a routine recession into a cataclysm. . . ."

You know that the spurt in wages and salaries in this decade has outpaced the rise in just about anything else. And most important, you know we have unemployment insurance and social security to keep billions flowing into the business stream in good times and bad. We have insurance to protect our banks and minimum wage laws to raise the standards of our lower-income groups. None of these reforms was in existence in 1929; they were unthinkable to our nation then.

Behind the stock market of 1929 was economic rot, a steady shrinkage in buying power of the majority, and an attitude that the government's best role was the least role. Behind the stock market of 1959 is a broadening in buying power of the majority, and an entirely new attitude toward the responsibility of govern­ment. I do not say that this protects us against stock market slumps. Last month saw the biggest percentage decline since 1931. But I do believe that America on the threshold of the sixties bears no resemblance to America on the threshold of the thirties.

Difference No. 8: A New Attitude

When the torrential waves of selling that repeatedly rolled over the stock market in October of 1929 finally receded for a while and America's titans had a chance to survey the monstrous dam­age, Andrew W. Mellon, our world-famous Secretary of the Treasury throughout the decade of the twenties, came up with a "hope" for the nation. "Liquidate labor," said he. "Liquidate stocks, liquidate the farmers, liquidate real estate. . . ."

From the vantage point of October of 1959, it's hard to imagine any government official saying anything so withering, isn't it? Yet, not only did Mr. Mellon suggest this as the "only" solution (and, incidentally, he came pretty close to describing what happened in 1931-32), he also expressed what was the general viewpoint among all income classes in that era.

During those calamitous months of stock market collapse and ever-deepening depression, no one in authority rose to shout, "We can do something about this! We don't have to be 'liquidated' if, instead of acting as millions of frightened individuals, we act as a unit through our government to halt this creeping paralysis!"

But no one in power rose to shout this message because in 1929 we believed that the less government meddled with business, the less government would muddle business. And so the adults of that era sat, numbly watched their jobs disappear, their homes being foreclosed, their savings become debts, their dreams turn into nightmares, and mumbled, "We have to go through it."

Can you see yourself accepting a similar calamity without protesting so vehemently that no one could dare ignore you? Can you visualize organized labor in this country permitting joblessness to soar to tens of millions without demanding (and getting) actions to reverse the trend? Or America's vast numbers of home­owners allowing wholesale foreclosures without demanding (and getting) protection?

Of course you can't—and herein, I submit, is the key distinction between 1929 and 1959 which transcends all others. The difference lies in you and in me and in our attitudes.

I'm not going to befuddle the point I'm trying to make here with a single statistic and there isn't any that could truly express its significance. Here, though, are illustrations of what I mean.

The 1929 stock market collapse had its foundation in economic depression and it was fed by depression. But since the twenties, we have built into our economy great stabilizers—unemployment insurance, social security, minimum wage laws, bank deposit in­surance, housing insurance, etc. These stabilizers have been cushioning us against downturns ever since. And if need be, we can improve and expand these and we can create new stabilizers within the framework of a free economy. We would have done so by now had the recessions of post World War II not been as mild and short-lived as they have been.

Since the twenties, we have built up a huge national budget and a towering tax structure and both are now vital forces in our economy. Now we know that a national budget deficit can be a vital stimulant when business turns down because it pours billions into the spending stream. Now we know a tax cut can be an electric force because it places spending cash directly in the hands of spenders.

We have used budget deficits and tax cuts to halt past recessions. We can do so when and as they are needed again.

Perhaps I am naive to believe that our greatest safeguard against another "1929" is that we won't allow another "1929" to happen. But I do believe this because I believe fundamentally in us, in our dedication to our system, and our determination to preserve it by molding it as necessary to conquer our enemies within as well as without.

As of this date in 1961, I wouldn't take back a single line of what I wrote above in October 1959. If anything, events in the stock market and our economy have added emphasis to the distinctions.