WALL STREET: Every Man a Capitalist

• Share

(3 of 9)

Last week two more industrial giants announced their future plans. Chrysler President Lester Lum ("Tex") Colbert said his company will spend more than $1 billion over the next five years for new plants and automated equipment. To express "our confidence in the economic outlook," Standard Oil (N.J.), the world's biggest oil company, announced that in 1956 it will spend a record $1.1 billion on expansion: 50% on searching for new oil, 25% on refineries, and the rest for new transportation and marketing facilities to get its products to consumers. Little Man Beware. In Wall Street there are still some experts who distrust the supposedly uninformed small investors; they like to quote the old saw that "when the little man comes in, it is time for the professional to get out." Actually, thanks to President Funston and the vigorous campaigning of brokerage houses that conduct stock-market classes all over the U.S., the small investor is an increasingly well-informed buyer. He has done about 19% of all the buying and selling in recent years, as judged by trading in odd lots (less than 100 shares).

The total amount invested in mutual funds, which are designed for small investors, has passed $7 billion, and the funds are growing at the rate of $1 billion annually. Some 50,000 small investors have joined the Stock Exchange's Monthly Investment Plan, the favorite stock-selling device of President Funston, and they now own 600,000 shares worth $24 million. Another 2,000,000 are investing in stock-purchase plans set up by 350 companies in almost every industry.

Inevitably, with the market some 25% above the 1929 peak on the Dow-Jones industrial average, there are comparisons to '29—and the disaster that overtook small (as well as big) investors. But there is as little resemblance between the '55 and '29 markets as there is between the dynamic expansion of the American economy in 1955 and the static economy of 1929, when more and more stocks were floated on the same productive base. Furthermore, most of the rules of the game are different.

Changing the Rule. In 1929's wide-open trading, brokers had wide latitude, could set margin requirements as low as 20%. Stock pools, and a hundred other maneuvers to manipulate the market, were part of the game. Even companies themselves helped pyramid the shaky market, dumping in funds for margin buying. When the funds were pulled out, it helped bring on the collapse.

In today's market, the Federal Reserve Board sets all margin requirements. Now fixed at 70%, they have discouraged excess speculation. Customers' margin-buying debt was $2.9 billion last week, only 1.4% of the value of all listed stocks. The SEC and the exchange itself keep a sharp eye out for any market manipulation. Exchange members (and their firms) who break the rules can be hauled up before the New York Stock Exchange's board of governors, where they get a stern grilling, and punishment if found guilty. Last year 20 or 30 brokers were disciplined; in extreme cases, they can be drummed out altogether.