Nearly 12,500,000 people in the United States today own common stock.
This fact, so briefly stated, is of first-rank importance. For it summarizes one of the profound and far-reaching shifts in American social and economic life in the twentieth century. Never before in our history have so many of us owned so much of the nation's industrial wealth, so much of its pro­ductive capacity, so much of its profit potential.

Many elements have combined to bring this about. Until the end of World War II in 1945, stock ownership was for all practical purposes the privilege of the well to do. Only the man of wealth could afford to buy stock in significant amounts. Only the man with surplus funds could afford to ride out market slumps and the temporary loss of income and value. And only the few initiates were really educated and informed about the behavior of markets and the ground rules of investment.

In the minds of most, the stock market was a vast trap for the unwary. Like all public images, this was inexact, but not without a basis in reason. Time and again in the tumultuous capital expansion of the nation that began after the Civil War, small investors had been whipsawed in the market strug­gles of the tycoons, and panics and depressions had shriveled their bright dreams of prosperity. Sober citizens were ap­palled by the insanity of the rampant speculation of the Twenties. Everybody knew someone who had been scorched in the holocaust of the Crash, and those who were not wiped out were nonetheless inclined to blame Wall Street for the de­pression which followed.

For most people, capital investment meant buying a home. If there was anything left over, it went into insurance and the savings bank.

The myth died slowly. Recovery from the depression con­sumed most of the Thirties. The Second World War lasted until the middle Forties. Throughout this period, the stock market continued to do business at the old stand, but at a greatly reduced volume. Reflecting the times, it pulled itself back uphill to a respectable peak in 1936, considerably short of the 1929 summit, but still the highest point since the Crash. It dropped sharply in the 1937 recession, staggered up and down uncertainly for several years, and then retreated under the impact of the war. From 1942 on, however, despite occasional setbacks such as the 1957 recession, the trend has been steadily upward.

The nation emerged from the war hardly conscious of how greatly the basic economy had changed. Production for war had forced a gigantic expansion of industrial plant, much of it with the aid of Government funds. High tax rates and controlled profits encouraged further investment in facilities. And liberal postwar settlements enabled corporations to buy Government-built plants cheaply or to depreciate them quickly, thereby reducing or eliminating what might otherwise have been a burden of long-term debt. The net result was a stu­pendous increase in the book value—in the fundamental assets—of a great number of companies.

Furthermore, consumer wants were ravenous. Having gone without for five years, Americans were ready to buy every­thing in sight. Industry, untouched by so much as a single enemy bomb, was able to convert swiftly to peacetime produc­tion. The boom began. New automobiles, new houses, new electrical appliances began to fill up the empty spaces in American lives. And with these familiar, much-missed items came new ones, virtually undreamed of before the war: tele­vision, hi-fi, sports cars, antibiotics, tranquilizers, frozen foods, synthetic fibers and fabrics, plastics, electronics, and—for the on-rushing future—peacefully applied atomic energy. Radio Corporation of America announced that four-fifths of its current sales volume derived from products that were non-existent a decade before. By the Fifties, economists were es­timating that more than a third of the nation's gross national product—the total value of all its goods and services—was due to research and development of the past ten years.

Perhaps never in history were a people so rich in material things. By 1956, 37 million families owned automobiles—a rise of 61 per cent in eight years. By 1956, 37 million married couples were living in their own households—an increase of 28 per cent over the total of ten years before. The $5,000-a-year income, that mystical dividing line between scraping and comfort, had been achieved by 23 million families or indi­viduals—a jump of 153 per cent in ten years.

Inflation, subtle and invisible, had also set in and had begun to erode the value of a dollar. Yet it was not the catastrophic, runaway inflation of Germany in the Twenties, but a benign, "creeping" inflation—the kind of mild stomach distress that accompanies rich living. Prices have risen inexorably. The generation of war babies is growing up in a world of $5,000 cars, $30,000 houses, $8 theater tickets, $5 books, 28-cent milk, and $85 suits. A nickel buys almost nothing. Even the candy bar has jumped 20 per cent to six cents—and a mighty small candy bar it is, too.

The end is not yet. The Sixties are here, and it may be— it could be—that the shooting pains of inflation will be diagnosed as ulcerous. But for the present, the vigor of the economy seems generally to be overcoming the drags and resistances.

People have not only been spending more, but saving more. "Discretionary income," that pleasant bulge over and beyond the budget for necessities, is at the command of most families. Consumer credit, which in the past has expanded dangerously beyond people's ability to pay, has reached astronomic heights with an astonishingly low percentage of defaults.

The enormous and unremitting flow of dollars into the market place has returned unexampled profits to industry. Cor­porations have assiduously strengthened their underpinning, invested hugely in research, laid away cash surpluses, and still distributed the highest dividend totals in history.

The combination of these forces and these events—and of many others, as well—has been faithfully noted by the stock market. It has surged upward strongly, scaling peaks like a mountain goat, past the frayed rope ends and roken ice axes marking the high point of  1929, and into the rarefied atmosphere beyond. As noted, about 12,500,000 people are making the trip.

Who are these people and what do they want? They are, for the most part, plain old American citizens who want a piece of the American future. They work, they earn, they put something by, and they believe they know a solid, rea­sonably safe, capitalistic investment when they see one. For nearly fifteen years, American business has been doing hand­somely, as anyone with half an eye can tell. It's a meager little town that hasn't acquired an assembly plant, a parts depot, a retail outlet, a branch sales office, or some other piece of one industrial complex or another in the past decade. There is a fine glow of prosperity about these places, and if you can't see it, your local friends who work there will be happy to tell you about it.

What doesn't pop up under one's nose is in the air. Never has industry seemed so glamorous. This is not to say that strikes and unemployment and other stubborn problems of the capitalistic pattern have been eliminated, but that there is a new gloss and glitter to industry's ability to perform and produce. The accelerated technology of the postwar period has plunged stodgy old business into the frontiers of the universe. Missiles, rockets, electronic miracles of a thousand kinds are now meat-and-potatoes business not only for es­tablished giants like General Electric but for fresh young sprouts like Texas Instruments, Tracerlab, Ampex, Polaroid, and many other fast-growing corporations.

Ordinarily, such excitement would be noted almost ex­clusively by business and financial publications, except for the occasional rocket whose manufacturer's name makes the front page of the paper. But through television, industry is now in every home. Not alone to sell foods, drugs, cosmetics, cigarettes, and appliances; radio had—and has—plenty to say about these, too. But to sell industry itself—its resourceful­ness, its inventiveness, its enormous concern with creature comforts and with national welfare. With tremendous visual impact, the institutional commercials of Westinghouse, U.S. Steel, duPont, Alcoa, and the rest are telling the success story of American business for all to hear.

Two prime requisites of an active stock market are hereby established. Across the country, people with "discretionary income" are becoming acquainted with the sweet smell of corporate success. There are buyers and something to buy.

But why pick the stock market? Is everyone's memory so short that 1929 has been forgotten? Do these innocents want to get taken to the cleaners, playing an expert's game?

No. Times have changed here, too, and the word is getting around. Millions of people had their first investment expe­rience with war bonds, and found it good. The bonds were issued in denominations small enough for people to handle easily. There was no fluctuation in their price, so you could put them away and forget them. They grew in value steadily, and could be cashed without fuss or trouble. If these con­ditions could be duplicated in the stock market, investment might make very good sense.

Of course, in the market, price fluctuation was inevitable. Common stock could never have the stability of a Govern­ment obligation like the E-bond. Still, it had become a very respectable piece of merchandise. Workers learned that their union pension funds included large blocks of sound common stocks. And frequently the company they worked for offered them an opportunity to acquire its stock through one sort of monthly purchase plan or another. Various state commis­sions took a fresh look and decided that common stocks were safe enough to be incorporated in widows' and orphans' trust funds, traditionally the most conservative type of port­folio.

And, on top of everything else, common stocks in the rising postwar market were paying off well. Interest on savings accounts was no more than 3—3¼ per cent. Stocks were paying at least 4, often 5, and in some instances 6 and 7. When they paid less than that, it was usually because their price had appreciated, which reduced the yield but pleasantly increased value. Nothing wrong with that either. There were nuts and raisins in the cake, as well: splits, stock dividends, extra cash returns.

Furthermore, the market was coming within the reach of the person of modest means. By monthly payments to a mu­tual fund one could acquire a pro rata share of a massive stock portfolio whose individual items would have been far too expensive to buy. And in 1954, the New York Stock Exchange pioneered the revolutionary Monthly Investment Plan (See Chapter 11) which permits purchase of fractions of shares of stock, regardless of price, on a regular, cumulative basis. Brokers awakened to the great untapped army of po­tential investors, smilingly invited the  small  account,  and spent thousands of man hours educating anyone who would listen in the essentials of common-stock investment.

But all of this would have had no effect if people had not begun to trust the market. This trust was a long time coming. The exchanges actually had been laboring mightily since the 1929 debacle to put their house in order and to persuade people of the honesty and sobriety of their operation. But few listened except the professionals, the sophisticated traders, and the institutional buyers who didn't need to be told. Still, the effort went on. Federal and state regulations went into effect; floor procedures were tightened by the exchanges themselves to outlaw manipulation and sharp practice by insiders. By the time the postwar horde descended, the market had been swept clean and was ready to do business.

The people had cash. The merchandise was attractive. And the market place was open, aboveboard, and bright with sun­light. By this sequence, it appears, some 12,500,000 Americans have become investors.

So far, all is relatively serene. Although no market goes up forever, the present one seems to have every intention of trying. The 1957 recession was watched apprehensively by the experts to see whether it would crack the foundations and topple the market. But either the foundations are solid all the way to bedrock, or the jolt just wasn't big enough. The market—and business—began to retrieve itself in 1958. Now, 1960 finds it on the track again, chugging along and making happy noises about the prospects for the new decade ahead.

No market goes up forever. No market is impervious to poor business and bad earnings. All markets are human and subject to human fears. These truths cannot be said often enough, particularly in times of great optimism.

Yet there is another unique feature of today's investor and his market which so far has been a powerful force for stabil­ity. This is the fact that most investors are apparently in for the long pull. They are buying their stocks and socking them away, content that they have chosen wisely, and prepared to wait for the long-term appreciation that historically has re­warded the patient investor.

There are persuasive reasons for following such a course. The market's favorite fables concern the folks who bought, hung on, and lived happily ever after. If, for instance, begin­ning in 1933, you had invested $1,000 a year in a composite stock made up of the 425 issues in the Standard & Poor's Industrial Index, you would in twenty-five years have ac­quired 1,699 shares worth $81,858 and received $46,874 in dividends. Had you reinvested the dividends, less taxes, you would have an additional 1,466 shares worth $70,632. Of course, there is no such composite stock, but the point is that a good proportion of the industrial list has enjoyed quite spectacular success since Mr. Roosevelt's second year in office—and the inference is that, barring cataclysm, the next twenty-five years will be pretty good, too.

More specifically—and instances like this abound—there is the case of the Long Beach, California, couple, who received $1,000 each as a gift at their wedding in 1896. Some of it was invested in 10 shares of William Seward Burroughs' American Arithmometer Company, starting point of the Burroughs Corporation, now one of the leading manufacturers of busi­ness machines. Over the years, the couple diversified their holdings, but the essential element of their portfolio was Bur­roughs. At the death of the wife, the surviving partner, in 1958, the estate was valued at between $1 and $1.5 million.

Likewise, $10,000 invested in General Motors fifty years ago would now be worth about $6 million.

There is the doctor who never looked at the stock tables from one end of the year to the other, but who faithfully invested $1,000 in duPont every December 1. He bought high, he bought low, always following the dictates of the calendar alone. A more haphazard system of investment— except for its regularity—would be hard to find. But because the stock was duPont, he made a fortune.

Something like this seems to be in the minds of many investors today. The New York Stock Exchange's periodic tabulations of the "Favorite Fifty" stocks of Monthly Invest­ment Plan buyers must delight the hearts of even the most conservative investment advisors. All by themselves, people are choosing the finest grade of security to rest their future hopes on. No wildcatting here.
A glance at current trading values does not seem to bear this out. Action is at a high peak. Three-million-share days are not at all unusual. It would seem that short-term trading is the rule. Part of this, however, is due to the fact that there is a vastly increased number of shares outstanding, and part due to the fact that most trading is being done with about 12 per cent of the lot. Some 88 per cent, in effect, have been withdrawn from circulation and sit in someone's safe-deposit box, as an anchor to windward.

Backstopping this trend are the institutional investors—the insurance companies, mutual funds, personal trust and pen­sion funds, mutual savings banks, college endowments, and non-profit foundations, all the great agglomerations of money which control about 16 per cent of all listed common-stock values. Such funds are never static. They switch their port­folios constantly. But since, as professionals, their scale of values is much like that of other professionals, they have all invested heavily in Blue Chips and do not trade capriciously in the hopes of finding something better. They are not rock­ing the boat, either.

What would happen if today's sunny optimism were blighted by black fears is hard to say. The vision of several dozen institutions dumping stock in a panic—and of any significant number of the individual investors following suit—is quite dismaying. The market's plunge on the news of President Eisenhower's heart attack was one indication of what can happen. Other events obviously could trigger off a similar response, or a worse one.

On the other hand, the market has also shown tremendous resilience. It has come back strongly after each upset. As long as investors retain a fundamental faith in America's economic prospects, disaster can very likely be averted.

This book is a guide to common-stock investment for new­comers to the market. It will go fairly deeply into theory and practice, and into the technical workings of the market, pri­marily because a grounding in fundamentals is essential to any degree of success. It cannot be stressed strongly enough that the operation of the capitalistic system, as reflected in the stock market, is a subtle and sophisticated thing. Econo­mists are still puzzled by the invisible forces to which it is subject.. For investors the problem is compounded by the necessity, not to explain the past or evaluate the present, but to probe the future in an effort to determine the possibility of profit. The interaction of the system and the human beings seeking to understand its pattern and dimension takes place in a market which acts and reacts with bewildering swiftness and paralyzing confusion. Only the investor who learns to take his bearings, and to reduce the array of alternatives con­fronting him by knowing beforehand what he is trying to achieve, will come out ahead.

For it is historically true -that new investors appear after a trend has been established. The current bull market is well into its second decade. Yet 48 per cent of our 12,500,000 in­vestors have entered the market only since 1952. The vast majority have never known anything but a bull market and the happy accumulation of profit. The savage, dollar-destroy­ing reversal, the bitter despair of a prolonged slump, the cruel retribution of overstaying a market—all these, for these people, are no more than theoretical.

Yet they are normal occurrences of the stock market, and will be again. When the break comes, it will be the inexpe­rienced investor who will react too slowly, react in confusion, and thereby lose—and suffer—most.

This is not Old Testament prophecy. It is simply an em­phatic statement of the necessity of learning the ground rules. For these apply every minute of every trading day, whether the market is behaving well or poorly.

This is a fascinating and fabulous period in which to be entering the market and acquiring your share of American business. The projections of America's growth in the years ahead are staggering. We are expected to be 200 million people by 1975. Our needs and requirements will, in all probability, be enormously in excess of anything we have been used to in the past. If business and industry respond appropriately, the holder of soundly selected common stocks should do extremely well.

And yet, as a concluding note to this introductory chapter, it seems that the greatest service that can be offered the new investor is a word of caution. Stocks are not magical. There are no guarantees attached, no assurances that if you play the game right and study hard and use your head ample rewards will be yours automatically.

Behind every share of stock there is a company attempting to earn money by selling a product people are eager to have at a price beyond the cost of making it. If it is a popular product, like the zinc bathtub, horse collars, trolley cars, fireless cookers, or the lovely Marmon automobile, all well and good. Not everyone chooses so wisely. Some of us are still wondering what happened to whale oil, buffalo robes, silver shoe-buckles, and gentlemen's swords.

Every age has its dinosaurs and its crowd of confident insiders who ride them to oblivion. Every age endures the acts of God or men which upset its truths and devastate its certainties

Learn the ways of the market. Study the company behind the stock. Invest with care. Be ready to make a graceful exit. And cultivate courage and discrimination. The personal qual­ities you bring to investment will have a considerable bearing on the dividends you take out.