The era of permanent change
The 1950's were a lot different than the subsequent decades. People were more conservative and lots of them were fearful of stocks, worrying that a depression would come back. It was a given that stocks, because of their risk, should always yield more than bonds, a condition that existed since the 1930's. A story in the New York Post in Cindy Adams column about the early 1950's noted that you could get a courtside seat at Madison Square garden to see the Knicks for $4. Courtside seats today are $3,000 a game. I went to lots of Knicks’ games back then, but could never justify that price now. Cindy also noted that in the early 1950's you could see Broadway Shows like "South Pacific" with Ezio Pinza and Mary Martin, or "Guys and Dolls" with Robert Alda, the father of Alan for just $2. I certainly did. Cindy noted. In the late 1950's I got to see Robert Preston and Barbara Cook in "The Music Man", Basil Rathbone in "J.B.", Jackie Gleason, Walter Pidgeon, Robert Morse and Eileen Herley in "Take Me Along" and many more shows. The prices had gone up, but were still low. One of my regrets now is that I did not wait by the Stage Door for 15 minutes or so to meet these great stars, something we do all the time now and is highly recommended. This started when I went with a friend of mine to see Sammy Davis Jr in "Stop the World, I want to Get Off" at Lincoln Center in the late 1970's. When it was over, my friend and I went to the Stage Door where she sent a note back to Mr Davis saying she had been in an Off Broadway production of that Show. The next thing, we were in Sammy Davis' dressing room where he autographed our Playbills, and was very, very nice.
The 1957 Bear market that I had mentioned last time continued in the Fall of that year and I patiently waited for the downtrend line that I drew on the Wall Street Journal chart of the Dow Industrials to be broken. That finally happened at the end of the year and I bought some Westinghouse. In January, 1958 the Federal Reserve reduced margin requirements to 50% and that helped set the Bull market ‘off to the races’. Back then, this was a very important indicator to many people and it helped the market surge over 50% by the middle of 1959. Later that year they tried to slow things down by raising margin requirements to 70% in August and 90% in October. There were many subsequent changes until January, 1974 when the Fed made its last margin change to 50% where it remains today.
A fundamental shift that took place in the late 1950's was that bond yields dropped below stock yields. Many ‘knowledgeable’ people at that time would never buy stocks when they yielded less than bonds and they would wait for the stock yields to go back above bond yields. After more than 40 years, they are still waiting.
During the same period great damage was done to a very well-intentioned investment strategy operated by Yale University's "Yale Plan". The plan was started in 1940 or 1941 and was set up so that the endowment funds would always be 80% in bonds and 20% in stocks. If stocks went up, they sold and bought more bonds. The notion of selling what was doing well and buying what was doing badly resulted in the loss of hundreds of millions of dollars by the late 1960's. I mentioned this once at a seminar in Boston, when Richard Band, an excellent market letter writer and a Yale graduate, asked me if I knew what happened after that. I said I didn't and he told me that right at the top of the Stock Market in late 1968, Yale realized the error of their ways and decided that the allocation should now always be 80% stocks and 20% bonds. The moral here is that indicators change and you have to change your methods and indicators over time.
© Chartcraft Inc, January 18, 2002