Tabell’s Market Letter – November 27, 1970

TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE MEMBER AMERICAN STOCK EXCHANGE November 27,1970 Mr. Eric Hoffer, the distinguished longshoreman-philosopher, has a provocative article in – — …-l .- York TimesM''igjlzine. .- – – – – It is part of Mr. – — Hoffer's thesis that –A-me. rica-,… in……t-he second half of the Twentieth Century, is entering 01'1 a post''industrial age. The mid-19th Century through the mid-20th Century, he feels, constituted the era of industrial revolution, a revolution of which this country was in the vanguard and which resulted in unprecedented levels of affluence measured in terms of production of goods. This revolution, however, may now be complete and, having mastered its techniques, we may be in the process of reverting to many of the cultural patterns of pre-industrial society. In Hoffer's words We are returning to the rutted highway of history, which we left 100 years ago in a mad rush to tame a savage continent and turn it into a cornucopia of plenty. We see all around us the lineaments of a pre-industrial pattern emerging in the post-industrial age. We are rejoining the ancient caravan, a caravan dominated by the myths and magic of elites, and powered by the young . There is statistical substantiation for much of Mr. Hoffer's thesis. Industrial production has, in the past 30 years, become a less and less important component of our economy. Total manufacturer's sales, as a percentage of G. N. p have been declining ever since World War II, and a smaller and smaller percentage of the American work force is now engaged in the tradi- tional blue-collar occupations. Meanwhile, the provision of services rather than goods tends to assume a greater and greater role on the economic scene. The transition is even greater than that reflected in the available statistics. Many of today's fastest growing occupational categories bear an interesting similarity to the crafts which characterized pre-industrial society. Consider, for example, the computer programmer ,..,..-..,,,….1 – skills are ap'plicable in almost any and his tends toward those skills rather than toward his employer. He is, in essence, a skilled laborer, not at all unlike the journey- man carpenter of the 18th Century. Now societal change is inevitably reflected in the stock market, and the decreasing importance of industrial production is no exception. It is probably no accident that the Dow- Jones Industrial Average has performed worse than the market as a whole for a good part of the past five years. Moreover. as classic heavy-industry stocks assume a less and less important investment role, the investor increasingly is being offered participation in a whole host of service industries, industries not available in the public market place a decade or two ago. It is now possible to purchase equity mterests in advertising agencies, stock exchange firms, tax preparation services, computer software concerns, and real estate brokers, and it will probably be not too long before doctors and law firms are permitted to incorporate and offer securities to the public. As securities of this nature become more and more prevalent, it becomes incumbent on the investor to recognize both the potentialities and the problems. Let us consider for a moment, purely as an example, H. & R. Block, Inc., the tax preparation service. Over the past ten years, the company's revenues have increased more than 100 times. Earnmgs per share have moved from 2 to 1.17, and the price of the stock 1S 200 times its price at the beginning of the decade. It should also be noted, however, that Block, now selling in the market place -for 55 per,share-,-had a.book,value,-as of last April'30throf-I,S9;- – -, — — Thus, both the opportunities and the pitfalls become obvious. A serV1ce company unlike, let us say, an electric utility, has little need for capital. The opportunity for growth in an industry which requires large amounts of brick and mortar is, of necessity, limited by the ' equity d11ution ultimately necessary to pay for those bricks and mortar. Such a limitation is not present in a company which, with a fixed capital requirement of a few square feet and some desks, can turn out a highly expensive product. On the other hand, should the demand for given service be reduced or the service itself be obsoleted — or, and this is a totally new factor in security valuation, should key personnel leave — the stock holder is left with only a miniscule asset value to protect his investment. We are, in short, creating a whole new class of security in which both the rewards and risks are inherently greater than those to which we have become accustomed. The challenges. that this sort of security possesses for investment policy will be formidable indeed. Dow-Jones Ind. (1100 a.m.)774.64 ANTHONY W. TABELL S&P (1100 a.m.) 85.13 n1ArT'fflfl DELAFIELD HARVEY TAB ELL I, l I '40 statement or expression of Opinion or any other molter herein conlcllned IS, or IS 10 be deemed to be, directly or indirectly, on offer or the s.ollcllol10n of an offer to buy or sell any security referred fa or mentioned The molter IS presented merely for the convenience of the subscriber While we bel,eve the sources of our information to be rehable, we In no way represent or guarontee the accuracy thereof nor of the statements made herein Any action to be token by the sub- SCriber should be based on hiS own InvestigatIOn and information Montgomery, Scott & Co, as a limited portnershlp, and Its partners or employees, may now have or may later lake posilions or trades 1n respect to any secuflltes menl!oned In this or any future Inue, and such pOSItIOn may be different from any views now 'or hereafter In this or any other Issue Montgomery, Scoll &. 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