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Down Memory Lane with Portfolio Manager Steve Singiser

In this article, the first of three parts, I plan to write a brief history of the stock market starting in 1962 and ending in the present year. This time span represents about a half century and, coincidentally, it is the span of my working career. Beginning in 1962, this article will be divided into four approximate ten-year time periods, each with distinctive in-vestment characteristics and watershed events. The final fifteen-year time period begins with the new millennium.

When World War II ended in 1945, the United States was the dominant power in the free world both politically and economically. To wage a successful war against the Axis countries we constructed a massive and efficient industrial complex that at war’s end was converted from producing wartime armaments to peacetime consumer products. The demand for these consumer products came from returning veterans looking to complete their educations, start a new business, get a good job, get married and start a family, and buy or build a home, all with an urgency to make up for time lost. Thus the table was set for a period of economic growth and a strong stock market that lasted nearly thirty years from 1945 until 1972. Our history starts at the beginning of the final decade of that period, or 1962, to be precise.

John Kennedy was President of the United States in 1962. The Cold War with Russia was anything but ìcoldî with ongoing crises in Berlin and Cuba. The President was given authorization to activate Army Reserve units. The Deep South was in turmoil as increasing pressure to move toward actual integration was met in several states with open rebellion. The President called out the National Guard in both Alabama and Mississippi to restore order.

Cigarettes cost about 20 cents a pack and you could purchase a brand new V W Beetle for just under $2,000. A ride on the New York City Subway cost 15 cents. Better yet, you could enjoy a draft beer for a dime. They were the good old days and a salary of $100 a week was considered high pay.

I started working in the Trust Department of the Chemical Corn Exchange Bank in 1962 at exactly that pay. I may have been overpaid.

I remember overhearing a conversation among my coworkers discussing Xerox. I thought they were talking about a new antifreeze from DuPont or Union Carbide. I knew very little about investing in the stock market then. I donít want to know how wealthy I might have become had I bought 100 shares of Xerox at that time.

In 1962 the Dow Jones Industrial Average, DJIA, was the most widely recognized benchmark for how ëThe Marketí was doing. Of the 30 stocks listed in the 1962 DJIA only AT&T, Chevron, DuPont, General Electric, Proctor &Gamble, Exxon Mobil, and United Technologies remain. Many of the present Dow Jones companies were not even in business in 1962. In fact, this March Apple replaced AT&T. Apple was founded in 1977.

During most of this twenty-year period the stock market traded mostly between 750 and 1000, actually reaching 1000 several times. In spite of this overall lackluster performance, there were several opportunities to make a lot of money in stocks or lose even more. It was rarely dull.

In retrospect, the 60s up until the December 1972 high of 1050 was a very favorable period to own almost any stock. The economy was strong in terms of disposable personal income, retail sales, and industrial production. Although interest rates trended upward, the stock market was driven by rising corporate profits and consumer spending. The ëNifty Fiftyí became a popular name for a group of widely held stocks with consistent earnings growth of 15% or more. There were many more than fifty. IBM, Xerox, Polaroid, Baxter Labs, Avon Products were just a few of the favored investments.

The backdrop of this period was less appealing. There was much civil and social unrest as the “baby boomers” came of age. Notable events such as the Bay of Pigs invasion, Cuban Missile Crisis, and John Kennedy’s assassination impacted our lives. And the unpopular war in Vietnam was front page and TV evening news every day. One very positive diversion was the successful space program and ultimately landing men on the moon.

The 1970s

Bull markets, however, do not last forever and this one ended in January, 1973 ñ not that anyone knew it at the time. By June 1974, only a year and a half later, the DJIA had lost nearly one half its value. Many of the Nifty Fifty stocks declined much more than that, as they had risen to irrational heights. Avon Products, for example, rose in price from $55 a share in March, 1965 to $140 a share, its all-time high in March, 1973. By September, 1974 it had collapsed to $19 a share. It was a very scary time to own stocks. Even worse was managing other peopleís investments. It took years for many stocks to recover to their previous highs; some, for example Polaroid, never did. The more conservative DJIA, as you can see on the chart, recovered to 1000 in 1976 and again in 1982. President Nixon was elected in 1968 and re-elected in 1972. He was forced out of office in 1974. He has been blamed for many things, but so far not for the 1973-74 stock market collapse. I believe good old-fashioned greed played a role.

Other notable events during the 1970s were the end of the Vietnam War in 1973 and the Arab embargo on shipments of oil to the United States. As the decade wore on there was a dramatic increase in the rate of inflation and a commensurate increase in interest rates/bond yields. Much of this was the result of higher energy costs. The 10 year US Treasury Bond yield rose from approximately 8% in 1970 to 16% in 1981. Double digit mortgage rates hammered real estate values, as financing became unaffordable.

Before closing this installment I will cite one more event, the full impact of which is far from over. Within a few days of taking office in January, 1969, President Nixon began planning the establishment of a relationship with China. Almost exactly three years later, February 27, 1972, President Nixon visited China and met with Mao Zedong. Who could have possibly predicted where this would lead? It would be only a matter of time before the most frequently printed three-word phrase in the English language would be: Made in China.

Look for Part II: The 1980s, 1990s & The New Millennium, in our July newsletter.

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