Showing papers in "Financial Analysts Journal in 1960"

Price-Earnings Ratios

Abstract: WITHIN THREE TO TEN YEARS, will the better price performance be in common stocks, with the current price earnings multiples of over 25 times, or in those under 12 times? Answers to this question as posed to sophisticated Financial Analysts and business men, in the past year, have been nearly ten-to-one in favor of the high multiples. It is assumed they are bought for growth, and the low multiples only for income. The results of certain studies, covering data for past years, would indicate a contrary conclusion; i.e., that on the average the purchase of stocks with low priceearnings multiples will result in greater appreciation in addition to the higher income provided.

The Case for an Unmanaged Investment Company

Abstract: An "unmanaged investment company" is one that is dedicated to following a representative average. The need for such firms has arisen because of the tremendous growth in investment firms—to the point that the average investor has difficulty finding a firm that can do better than the market average. With the rise in open-end mutual funds, investment firm assets rose from $1,062 million in 1940 to $9,924 million in 1957. The findings to date indicate that, on average, however, these funds have provided performance that is inferior to the broad stock indexes. We recommend that investors use the DJIA as the basis for an unmanaged approach to equity investing that aims to match the market's performance, and we discuss the issues involved in doing so. Based on our conclusions, we wonder why the unmanaged investment company has not yet come into being.

The Case for Mutual Fund Management

Abstract: (1960). The Case for Mutual Fund Management. Financial Analysts Journal: Vol. 16, No. 3, pp. 33-38.

Stock Values and Stock Prices: Part Two

Abstract: (1960). Stock Values and Stock Prices: Part Two. Financial Analysts Journal: Vol. 16, No. 4, pp. 53-64.

What a Security Analyst Wants to Know

Abstract: (1960). What a Security Analyst Wants to Know. Financial Analysts Journal: Vol. 16, No. 6, pp. 71-77.

Rate of Return on Common Stocks

Abstract: today, what rate of return can he reasonably expect to receive? No one can give an unqualified answer. But as long as the future continues to resemble the past, the Financial Security Analyst can develop some clues to the answer. For he can ask and answer a related querry: What rate of return did people receive during the great bull market of the past decade? The top panel in Figure I shows the Dow Jones composite average of 65 stocks from June 1947 through March 1960.' From a low of 59 in mid 1949, the average climbed to a peak of 226 in mid 1959. Some components of the average reached relatively higher levels; others did not attain this peak ( See Table I). For our purposes however, the rate of change in the D-J composite average is more important than its absolute rise. For during the great bull market, the rate of change fluctuated widely, and as a consequence, the rate of return moved through wide ranges. Panel 2 of Figure I shows the change in the D-J composite average from same month one year ago. This figure should be interpreted as follows: if an investor bought the entire D-J average in January, 1947, and sold his holdings one year later-ignoring commissions and taxes-he would have realized neither a gain nor a loss. For the D-J average was 65 in both months. If he had purchased the average in May 1947, and sold in May 1948, however, his securities would have appreciated by almost 16%. During the great bull market, the rate of return on investment measured by price changes in the D-J average from year ago levels2 moved through three distinct cycles. Dating the cycles from trough, to trough, the first run from June 1949 through September 1953. The peak return, reached approximately one year after the cycle began, was about 28%. The lowest return, marking the end of the cycle, was a negative 5%. The second cycle lasted from September 1953 to December 1957. The peak return, over 34% came approximately one year after the cycle began. The lowest return was a negative 15%. The third cycle began in January 1958. It has not as yet ended. The peak, which again came approximately one year after the cycle began, was passed in March 1959. The terminal trough however has not been defined.

Alaska: The Economic Outlook

Abstract: THE FUTURE PROGRESS OF THE ECONOMY and development of our 49th State is more difficult to chart than that of any other state of the Union. This vast land area of almost 600,000 square miles, with a present population of 220,000 people (of which 50,000 are military personnel), intrigues the imaginative inquirer but baffles the rational Analyst. On the one hand, the lure of the unknown brings visions of vast, untapped resources; on the other, the hard facts of operating life in this last frontier often are discouraging but to the venturesome. Frontier development, historically, has reflected the same patterns. If the breaching of the West had been left to the arithmetic of its promises, as then visualized by the prudent analyst, one might retrospectively conclude that nothing would have happened: no railroads, no frontier towns, no mineral development, no cutting of timber and plowing of virgin soils. To be sure, the winning of the West-as that yet to be achieved in Alaska-may have been an inefficient process, wasteful of men and capital resources. However, in the balance, the eventual total gains have been immeasurably large. A realistic, hard-headed appraisal of Alaska's potentials can lead to no assured conclusion of fact. For instance, merely looking at the market potential in terms of less than a quarter of a million population-and that alone -is simple and essentially negative; there are dozens upon dozens of communities in the more developed states which contain that much population within a radius of a very few miles. However, if this population is viewed in terms of its unsatisfied needs for goods and services (relatively isolated from supply by distance and transportation costs), in terms of high standards of living, and in terms of specific and sometimes peculiar needs, the opportunity picture comes into some focus. As in the fruition of the West, natural resources furnish an important even though not always clearly defined base. Again the pattern for Alaska is repetitive of that historical for the West: early accent on gold and precious metals, leading to exploitation of base metals; opening operations in forests and lands, and drilling of vast areas for oil and gas. However, it is Ivan Bloch heads a private industrial and economic consulting practice, under the name of Ivan Bloch & Associates in Portland, Oregon. For the past 20 years he has done economicindustrial analysis work in the Pacific Northwest and Alaska. He has carried on similar work in the Philippines, Jamaica and Chile. Born in Switzerland, Mr. Bloch received his engineering training in the U. S.

A Not-So-New-Era in the Stock Market

Abstract: In an article written on the stock market which appeared in early 1956, I made the following statement: "It would appear that stock prices at the present time are rising in a manner which partakes of both cyclical and secular influences. The cyclical component of current stock market prices is subject to reversal. The secular component, however, promises further growth -a possibility to be recognized by newspaper writers and others dramatizing the stock market whenever it reaches higher levels."'

Outlook for the Soft Drink Industry

Abstract: IN 1959, THE PEOPLE OF THE UNITED STATES consumed a volume of soft drinks equal to almost 200 bottles per person. Presently, this rate of per-capita consumption is even higher, a pattern of growth which has characterized the soft-drink industry almost without interruption since its beginnings. Last year, carbonated beverage manufacturers sold 1,500,000,000 cases, each of 24 bottles, for $1,500,000,000. With allowable variances of high and low periods, despite wars, recessions, inflations and depressions, the industry has grown steadily and continuously for over 100 years-at a rate averaging out to about five percent each year. And all this may be said to have begun with man's search for pure water. Prior to 1800, pure water was regarded as the only refreshing liquid. For centuries, the search for pure water-with no disease and death-carrying germs-was a constant quest, often determining the moving and settling of whole tribes and nations. About 1800, artificially carbonated waters were advertised and sold in England. Though not conclusive, evidence indicates that the addition of flavors, such as fruit juices, ginger ale, or vanilla extracts, to artificially carbonated water, was an American innovation, first compounded and dispensed for immediate consumption -the beginning of the fountain drink. Later, the successful bottling of waters of the famous Saratoga Springs in New York, previously available only at the Springs, led to experiments with the bottling of flavored drinks in the United States. The earliest available records show the appearance of carbonated beverage bottling establishments in the United States about 1835. It did not take long for the industry to be officially noted by the U. S. Census. In 1850, 64 non-alcoholic beverage bottling organizations were reported. Aggregate production for the year was valued at $760,000, and total capital at $228,650. By 1875, 512 bottling plants were making products valued at $4,740,000, a figure exceeded today by many individual plants. In the Nineteenth Century touring medicine-man shows criss-crossed the nation, offering entertainment and selling cure-all concoctions that promised to cure almost everything; many of the present-day patent medicines got their start during this era. In 1880, with no real market for any refreshment, except pure water, the soft drink industry got its initial foothold through the already established patent medicine field. Jamaica ginger, herbs and roots, the coca leaf, cola nut and citric acids-already in use in patent medicines-were blended with pure carbonated water and sugar, and sold oftentimes for both their refreshing and their therapeutic values. Thus, a new industry was born, featuring cure-alls containing magic ingredients, advertised as "delicious." This was the prevailing atmosphere into which PepsiCola made its entrance at the turn of the century in New Bern, North Carolina-and, of course, at the soda fountain. Many other drinks featuring the flavoring of extract of cola nut also came into being in this period of 50 to 75 years ago. For instance, Coca-Cola was first sold in Georgia in 1886.

Investment Theories and Applications

Abstract: Is it possible for investors to formulate a theory of investing? Is there a way of rationalizing the investment process to reduce to a manageable level the flow of services, newspapers, articles and plethora of corporate detail apparently so necessary to investment decisions? Is there a point of view, an approach, which will provide a coherent framework for investing? There is a superabundant concern with levels of stock prices. There is concern with economic background and forecasts. There is concern with corporate information and field trips. But little effort has been made to classify the underlying reasons for selecting various securities. With the thought that some codification may be useful in sharpening our investment decisions, a few theories are set forth.

Are Analysts’ Techniques Adequate for Growth Stocks?

Abstract: Not only are certain facts not readily apparent, but they also tend to be precisely those fundamental to a decision on the company as an investment. It would seem that a great deal of knowledge would be current about a company that is attracting a great deal of attention-and this is nominally true. However, the very essence of being a "growth" company tends to make analysis more difficult. In addition, the techniques of most Financial Analysts seem better fitted to well-established companies directed by experienced executives and operating in industries marked by strong competition. The result is that key information about growth companies often will be overlooked in the casual analysis and may even escape the conscientious, dedicated assayer of financial values. Several months ago I visited a well-known Eastern "growth" company that is very familiar to the financial community. My visit coincided with that of a well-known ,Analyst from a respected banking house. We visited with the same company executives, witnessed the same things and looked at much of the same data.

Trend of the Military Market

Abstract: TIIE LARGEST SINGLE CUSTOMER of American business today is the Department of Defense. Purchases by the Armed Forces currently account for almost one-tenth of the total output of our economy. In addition to its size, the military market is characterized by volatility, technological advancement, long-run nature, and budgetary control. The volatility of the military market is only too well known. Even in the period since the end of World War II, the trend of military spending has fluctuated much more sharply than the civilian economy.' These fluctuations have arisen from such factors as developments in the international situation, changes in military requirements, and shifts in administration policies. These factors are difficult to assess and to forecast. However, knowledge of technical developments and military procurement trends, and an insight into the nature of military planning, can serve as important guides to the market researcher.

Public Service Industries and the Capital Markets

Abstract: THE ESSENTIAL DISTINCTION between public service and other industries today, lies in the fact that prices in the former are truly administered-not by management, but by a regulatory agency operating in the public interest. Other matters, such as service and financial structure, may also be subject to regulation, but basically the problems of these industries stem from outside regulation of pricing. This regulation has been such as to prevent the public service industries from taking advantage, profit-wise of a favorable trend of demand for their services where such a trend exists. As a consequence, distortion in the allocation of capital (and thus of productive resources) between the regulated and non-regulated areas is the likely result. In addition, price regulation may well operate as a deterrent to greater efficiency and better service through discouraging innovation aimed at cost reduction, or service improvement in the regulated areas.