Tabell’s Market Letter – November 11, 1966

Tabell’s Market Letter – November 11, 1966

Tabell's Market Letter - November 11, 1966
View Text Version (OCR)

Walston &Co. ———lnc——— MUNICIPAL BONDS UNDERWRITERS MUTUAL FUNDS Members New York Stock Exchange and Other Principal Stock and Commodity Exchanges OFFICES COAST TO COAST AND OVERSEAS TABELL'S MARKET LETTER November 11, 1966 One of the favorite formulas for success in Wall Street is Buy growth stocks. It is a sentiment with which this letter, certainly, would have no quarrel. We do not, however, possess the certainty,so prevalent in many quarters, that we know what a growth stock is. The typical advocate of the growth stock school, when pressed for a definition, will probably answer that a growth stock is one whose earnings are, in fact, in a long-term uptren Very often he will supplement this definition with a statistical passion play which demon- strates how well the i,nvestor would have fared over the previous five years or ten years had he only been clever enough to buy a group of selected growth issues. Presentations of this nature have one minor fault.Theselectiqn.of-the.growth stocks is, invariably, made atthe end of the period rather than at the beginning. It is a relatively easy matter to pick stocks' whose earnings are, tOday, up substantially over their levels of five years ago. Manyana- lysts seem to believe, at least implicitly, that it is an equally easy matter to pick stocks whos earnings are going to be sharply higher five and ten years hence. It is, unfortunately, hard to find anything in Wall Street's record which justifies such confidence. The following table presents a list of growth stocks with prices as of December 31,195 and today, together with percentage changes. All 1954 prices have been adjusted for subse- quent splits, and the current DuPont price has been adjusted for the General Motors distri- butions. Included also are the same figures for the Dow-Jones Industrial Average. This growth stock list has one feature not usually found in such presentations, i. e. , the selection was made at the beginning of the period and appeared in this market letter as part of a statistical study on January 14, 1955. It was selected by an ad- visory firm specializing in growth issues, and the issues -fa 're those which the financial community considered to have the 12/31/54 Recent Change q t n la 1\ 1/54 Recent Change Alcan Alum. 26 27 4 – 13 79 507 Amerada 62 74 19 ons 28 40 43 Dow Chemical DuPont El Paso Natl G Goodrich, B. F. Honeywell Intern'l Bus. M. w437 0 27 31 6 7 352 9 12 5 111 1035 Pfizer, Chas. 13 Radio Corp. 11 Rohm & Haas 70 Scott Paper 21 Shell Oil 26 Union Carbide 44 Dow-Jones Ind. 412 80 69 49 90 26 68 49 818 128 430 345 28 24 161 11 99 The list may be surprising to some readers. Of the 20 stocks, IBM is probably the only one that would have any certainty of being selected in a similar list to be compiled in 1966. It will be difficult for many to believe that Amerada, Dow, El Paso, Goodrich, National Lead or Rohm & Haas were considered to be the premier growth issues of their day, but any in- vestor with a memory of the 1954-56 period will recall that this was, in fact, the case. Of greatest interest, of course, is the performance of the list. Overall, its average appre- ciation is 161, which is, admittedly, some 60 better than the Dow over the same period. It is interesting, however, that this performance is due almost solely to the top few stocks. If on for example, removed IBM and Minnesota Mining; the two best acting issues;the performance would have been somewhat worse than the Dow-Jones Industrials. It is interesting to note that of the 20 stocks, 12 have, in fact, done worse than the Dow over the same period. The lesson to be learned from this, of course, is that there is nothing much wrong with the concept of buying growth stocks per se. It is, in fact, highly probable that any list of growth issues selected today may well contain one or two stocks whose performance will duplicate those of IBM, Minnesota Mining or Pfizer in the list above. The implication, however, that the selection of growth issues is an easy process, or that there is necessarily any correlation between past growth and future growth, can only be a disservice to the investor. Dow-Jones Ind. 819.09 Dow-Jones Rails 200. 53 ANTHONY W. TABELL WALSTON & CO. INC. AWT'a mb Thl. market letter I. pubUlhed tor your convenience and Information nnd 18 not an ofter to edl or a .wleltatlon to buy any &eeurltJea dllCuaaed. The In- formation wu obtained from .ources we believe to be reliable, but we do not guarantee Ita accuracy, Walaton & Co.. Inc. and Its officers director B'nploy. . mu ha'9!1 an int.eYftt in OT 'Pul'ehaae and Bell Ut.e aeclJr\tlt'B referred to hereln. ' or -. – –

Download PDF