For many the decline of the stock market the past three years
has had a negative impact. People have seen their retirement funds
slowly dissolve, loans secured by securities have been called and for
many businesses their equity position has plunged.
What will tomorrow bring and will the market
recover? The answer is we don’t know for certain what will happen
tomorrow but the market will probably recover because history has
proven that it will. The following is an article I happened upon while
doing some research for a client. For those of you with experiencing
feelings of despair, you may find this of interest.
question, what has gone wrong in the market? There can only be one
real answer: The market came down because it had gone too high.
It fell precipitously, and for some people ruinously, because
so many stocks had so far to fall before they would reach any firm and
solid foundation. It was
such a vast bull market, rising so spectacularly, that anybody with
eyes was bound to see it, and anyone with a normal quota of human
greed was bound to hanker to climb aboard.
Over the past eight years, millions of new investors jumped
into the market for shares listed on the New York Stock Exchange.
When they ran out of stocks on the Big Board or the American
Stock Exchange, people turned to new issues traded over the counter.
There were new companies with untried management, small
earnings and dubious prospects – with nothing but a prayer and a
catchy space age name – which were bid up as much as 400% within a
From time to
time some of the experts had their doubts.
“The reason stocks are so popular”, one securities analyst
said, “is that we’ve got a whole new generation of investors who
don’t know that stocks can do dirt.”
But the investors kept pouring in and anybody who wanted to
have money in the market had to ride along with their optimism.
Those who showed the biggest profits were those who took the
biggest risk. Even some
of the most astute money managers were finally persuaded that they
could pay outrageous prices for stocks, on the assumption that the
prices would go still higher.
It is strange
how rapidly, once the trend turns, an optimist can become a pessimist.
The glamour stocks began falling early last year, the more
conservative stocks measured by the Dow Jones Industrial Average, in
December. They have since
fallen steadily – and sometimes with such rapidity as to make
front-page headlines, regardless of all business or political
developments. “ The
market was badly in need of correction, “ a market analyst said
self-critically, “the trouble was that we got away from any real
study of security values and into a numbers game.”
This article was written in the summer of 1962,
over 40 years ago, for Life Magazine.
At the time this article was written, the Dow Jones Industrial
Average had plunged from a high of just over 700 to around 550 on May
28th, 1962. The
NASDAQ did not exist. Stocks not listed on the New York or American
Stock Exchange were known as “over the counter” trades. Even with
current conditions the Dow is trading at 14-15 times higher then it
was in May 1962. Needless to say, things got better and if history is
an accurate barometer it will get better.
I wish you well.
information is provided as information only and not legal advice. Legal
advice should be obtained from a competent, licensed attorney, in good
standing with the state bar association.