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Investing by formula plans in the securities of selected investment companies

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Investing by formula plans in the securities of selected investment companies

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Content IHYESTIHG BY FGBMULA PLANS IN THE SECURITIES
OF SELECTED INVESTMENT GOMPANISS
A T h e s is
P r e s e n te d to
th e F a c u lty o f th e School o f Commerce
The U n iv e r s ity o f S o u th e rn C a li f o r n ia
I n P a r t i a l F u l f i ll m e n t
o f th e R eq uirem en ts f o r th e Degree
M a ste r o f B u sin e ss A d m in is tr a tio n
by
W ilson B o b ert H aig
A ugust 1947
U M I Number: EP43192
All rights reserved
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C ,!T )y» Ynda W i +ct
This thesis, written by
under the guidance of Faculty Committee,
and approved by all its members, has been
presented to and accepted by the Council on
Graduate Study and Research in partial fulfill
ment of the requirements for the degree of
M a ste r o f B u sin e ss A d m in is tr a tio n
f / D
Dean
Secretary
August 1947
Faculty Com m ittee
TABLE OF CONTENTS
CHAPTER PAGE
I . THE PROBLEM AND DEFINITIONS OF TERMS USED • i • ♦ ' I
TH @ problem ♦ 2
S ta te m e n t o f th e problem . . . . . . . . . . 2
Im portanoe o f th e stu d y • • • « # # • • • « • Z
Method o f p ro c e d u re • Z
D e f in itio n s o f term s used . . # * .............................. 3
The form ula m e t h o d ........................♦ . ..................... 3
The in v estm en t company , • . • • # • • • . » 3
C h ief so u rc e s o f in fo rm a tio n . . , . .................... 3
O rg a n iz a tio n o f rem ain d er o f th e t h e s i s ♦ ♦ • . 4
I I . INVESTMENT TIMING . . . . . . . . . . . . . . . # 5
Im p o rtan ce o f tim in g . . . . • • • « • * • * # 5
V a r ie ty o f tim in g c o n c e p tio n s 5
A ssum ptions o f th e form ula m ethod 7
P s y c h o lo g ic a l b a r r i e r s to s u c c e s s f u l i n v e s ti n g 7
Timing by form ula p la n s « * • # , • • • * . . . 8
I I I # MARKET FORECASTING # ....................... ♦ . # . , # * 10
The d e lu s io n o f s u c c e s s f u l f o r e c a s t i n g • • * # 10
C h art re a d in g # # # # • • • • . # • • ; • # # 11
The Dow th e o ry # . • • . . . • • # . ; ; # # • IE
L im ita tio n s o f th e Dow th e o ry 16
C o n c lu sio n s on c h a r t re a d in g • . # • « . # * 17
CHAPTER PAGE
C o n c lu sio n s o f th e Cowles Commission stu d y * * 18
The tr e n d tow ard fo rm u la p la n s • « . . * « * • 20
IT* THE INVESTMENT COM PANY . *. . *. * .; * .. . 23
The s e l e c t i o n o f in d iv i d u a l sto c k i s s u e s * . * 23
A dvantages o f i n v e s ti n g in in v e stm e n t company
s e c u r i t i e s * . . * 4 * * * * * » * * * * * * 24
F in a n c ia l h i s t o r y 25
The modern in v e stm e n t company • • • * • * • • 26
C l a s s i f i c a t i o n s • • * • • • * . * • • * • • 29
In v e stm e n t p o l i c i e s • • * * . * • * • • • * 30
L everage * * * * * * ........................ .... .. 32
/
Lehman C o rp o ra tio n * • * * * * • • * • * • * 35
S t a t e S t r e e t In v e stm e n t C o rp o ra tio n • * . * 35
G e n era l Am erican I n v e s t o r s , Inc* * • • * • * 36
T r i- C o n tin e n ta l C o rp o ra tio n * * * * * * * * 3?
T* TEL CONSTANT PATIO PLAN . < * . * * * • * • . * 38
N a tu re o f th e p la n * * * * * * » • * • * • • « 38
D e te rm in a tio n o f o r i g i n a l sto c k -b o n d r a t i o ♦ 39
R eadju stm ent l i m i t s * * * * * * * * * * * * 40
Methods o f re a d ju s tm e n t * * * * * * * * * * 41
Income from th e h y p o t h e t i c a l fu n d s ***** 43
P r e s e r v a tio n o f c a p i t a l in th e h y p o t h e t i c a l
fu n d s * * * * * * * * * ............................ . . 44
L everage in a c tio n • • < ; • * ; * • * * . * • 45
iv
CHAPTER PAGE
C o n c lu sio n s . * • • * « • * , • • • » • * » • • 48
71* THE MODIFIED CONSTANT RATIO PLAN ♦ * * * * , * . 49
The Y ale P la n 49
P la n employed in th e o p e ra tio n o f th e hypo
t h e t i c a l fu n d s . . . . . . . . . . . . . . . 50
A dvantage of th e p la n . . . . . . . . . . . . 52
Income from th e h y p o t h e t i c a l funds * ♦ ♦ . ♦ 52
P r e s e r v a tio n o f c a p i t a l in th e h y p o t h e t i c a l
fu n d s * * * * < ; * • * • * * ; » • * * » • * 53
711* THE SLIDING SCALE PLAN . . . . . . . . . . . . . 55
The 7 a s s a r P la n 55
P la n employed i n th e o p e r a tio n o f th e hypo
t h e t i c a l fu n d s * * * * • • • . * « * * « » * 57
L im ita tio n o f t h e p la n . . . . . . . . . . . 61
Income from th e h y p o t h e t i c a l fu n d s » » * » * 62
P r e s e r v a tio n o f c a p i t a l in th e h y p o th e tic a l
fu n d s * * * * ; * . * * * ♦ . . * * * ♦ . * 62
T il l * SUM M ARY AND CONCLUSIONS . . . . . . . . . . . . . 64
b ib lio g r a p h y 66
APPENDIX ♦ * ♦ ♦ * ♦ ♦ f * * • * . . ^ * * ♦ • * * * . * ; ; * 70
LISO? OF TABLES
TABLE FAGS
I* |I 0 0 ,0 0 0 In v e s te d by th e C o n sta n t R a tio F la n in
G en eral Am erican I n v e s t o r s Common S to c k
1937-1945 71
I I * §100,000 I n v e s te d by th e C o n sta n t R a tio F la n i n
Lehman C o rp o ra tio n Common S to ck 1937-1945 * * 72
I I I . #100,000 i n v e s te d by th e C o n stan t R a tio F la n in
S t a t e S t r e e t i n v e s t o r s S tock 1937-1945 * . . 73
IV* #100,000 I n v e s te d by th e C o n sta n t R a tio F la n in
T r i- C o n tin e n ta l C o rp o ra tio n Common S to ck
1937-1945 ♦ . * * f . 74
V* #100,000 I n v e s te d by th e M odified C o n sta n t
R a tio F la n i n G eneral Am erican I n v e s t o r s
Common S tock 1937-1945 * ♦ ♦ ♦ * * * • . . * 75
VI* #100,000 I n v e s te d by th e M od ified C o n sta n t
R a tio F la n in Lehman C o rp o ra tio n s to c k
1937-1945 • * w ; * i . 76
VII* #100,000 I n v e s te d by th e M odified C o n sta n t
R a tio P la n in S t a t e S t r e e t I n v e s t o r s Stock
1937-1945 ‘ * 77
V III* #100,000 I n v e s te d by th e M o d ified C onstant
R a tio F la n i n f r i - C o n t i n e n t a l C o rp o ra tio n
Common S to ck 1937-1945 78
v l
TABLE PAGE
IX , #100,000 In v e s te d by th e S l i d i n g S o a le P la n i n
G en eral Am erican I n v e s t o r s Common S tock
1937-194$ . * 79
X* #100,000 I n v e s te d by th e S lid i n g S c a le P la n in
Lehman C o rp o ra tio n S tock 1937-1945 ♦ ;. • . * 80
XI* 1100,000 In v e s te d by th e S l i d i n g S c a le P la n i n
S t a te S t r e e t I n v e s t o r s S to c k 1937-1945 * * * 81
XII* |1 0 0 ,0 0 0 In v e s te d by th e S lid in g S c a le P la n i n
T r i- C o n tin e n ta l C o rp o ra tio n Common S tock
1937-1945 ♦ . . . * • 82
X III* C o n sta n t R a tio P la n Bond Income . . . . . . . . 83
XTV* C o n stan t R a tio P la n D ividend s P a id ; . * • . * 84
XV* M o d ified C o n sta n t R atio P la n Bond Income . . . 85
XVI* M o d ifie d C o n stan t R a tio P la n D ividends P a id * * 88
XVII* f e d e r a l R eserve Board A d ju ste d Ind ex o f
I n d u s t r i a l P ro d u c tio n 1937-1945 # * ♦ * * * , 87
) 1
XVIII. Sliding Scale Plan Bond Income . . . . . . . . 88
XIX* S l i d i n g S c a le P la n D ividen ds P a id • 89
XX* #100,000 In v e s te d by th e ”Buy and H old’* P la n ,
T o ta l Income * ; * * . * * ; * * * « * » * • 90
XXI* C om parative C a p ita l A p p re c ia tio n and R e tu rn on
O r i g i n a l In v estm en t Form ula Method and f,Buy
and H old” P la n 91
XXII* C o n sta n t R a tio P la n Commission E xpense, G en eral
vii
TABLE PAGE
A m erican I n v e s t o r s Fund 1937-1945 * # . ♦ ♦ ♦ 98
X H I I i C o n stan t R a tio P la n Commission E xpense, Lehman
C o rp o ra tio n fu n d 1937-1945 . . . . . . . . . 93
XXIV# C o n sta n t B a tio P la n Commission E xpense, s t a t e
S t r e e t I n v e s t o r s Fund 1937-1945 94
XXV# C o n sta n t B a tio P la n Commission E xpense, T r i -
C o n tin e n ta l C o rp o ra tio n Fund 1937-1945 * # f 95
XXVI# M odified C o n sta n t B a tio P la n Commission Expense,
G en eral Am erican I n v e s t o r s Fund 1937-1945 # . 95
XXVII# M o d ified C o n sta n t R a tio P la n Commission Expense,
Lehman C o rp o ra tio n Fuad 1937-1945 » # • • • • 97
XXVIII# M od ified C o n sta n t R a tio P la n Commission E xpense
S t a t e S t r e e t I n v e s t o r s Fund 1937-1945 # ♦ • . 9B
XXIX# M od ified C o n sta n t B a tio P la n Commission Expense,
T r i- C o n tin e n ta l C o rp o ra tio n Fund 1937-1945 # 99
XXX# S l i d i n g S c a le P la n Commission E x p en se* G e n era l
Am erican I n v e s t o r s Fund 1937-1945 » ♦ l # # # 100
XXXI# S lid in g S c a le P la n Commission E xpense, Lehman
C o rp o ra tio n Fund 1937-1945 ; # # # ; ♦ # . # * 101
XXXII# G lid in g S c a le P la n Commission E xpense, S t a te
S t r e e t I n v e s t o r s Fund 1937-1945 ♦ # ♦ # * ; « 108
XXXIII# S l i d i n g S c a le P la n Commission E xpense, T r i-
C o n tin e n ta l C o rp o ra tio n Fund 1937-1945 # * # 103
XXXIY. L i s t o f S to ck s i n The DHA ; * # # • ; # ♦ * : 104
XXXV# L i s t o f Bonds I n The £&: 40 BA # # # . # ♦ ♦ * # 105
THE QBUBCTIYB OF THE STUDY MD DEFIMITIGNS
OF THE T IM S USED
The a t t r a c t i o n o f l a r g e p r o f i t s t h a t a re to he r e a l
i z e d from i n v e s t i n g in th e stoGk m ark et h a s lo n g been a
f a s c i n a t i n g s u b je c t to th e Am erican p u b lic * Many i n v e s to r s
have so u g h t a p la n o r fo rm u la f o r su c c e ss in th e sto c k
m a rk e t, and s c h o la r s have p r o f f e r e d p r i n c i p l e s o f in v estm en t
to s e rv e a s c r i t e r i a in th e f o rm u la tio n and p u rsu an ce o f a
sound in v e s tm e n t program* Hot by any means have th e s e
s ta n d a r d s been c o n s ta n t; even th e th e o ry o f common s to c k
in v e stm e n t h a s been to th e A m erican i n v e s t o r a changing
c o n c e p t; P r i o r to World War I th e th e o ry was p r e d ic a te d
upon s t a b i l i t y o f e a rn in g power* W ith th e c lo s e o f World
War I t h e r e e v o lv ed a new c o n c e p t, one in which th e p rim a ry
em phasis was on a f a v o ra b le t r e n d o f e arn in g s* P r im a r ily
t h i s change was due to th e f a i l u r e o f th e p r e - f o r l d War I
co n cep t to m easure a d e q u a te ly i n i t s a p p li c a t io n sin c e
i n s t a b i l i t y o f e a rn in g power has been c h a r a c t e r i s t i c o f so
many e n te r p r is e s * The tre n d o f e a r n in g s co n cep t n e c e s s a r i l y
im p lie s an e x am in a tio n o f th e f u t u r e m ark et outlook * A lthough
f o r e c a s t i n g m ark et tr e n d s h a s to many i n v e s to r s c h a r a c te r iz e d
sound in v e s tm e n t management, many o t h e r s have deemed a c a r e f u l
s e l e c t i o n o f s e c u r i t i e s th e c r i t e r i o n f o r s u c c e s s f u l in v e s tin g *
D uring r e c e n t y e a r s in c r e a s in g em phasis h a s been
a tta c h e d to th e problem o f buying and s e l l i n g a t th e r i g h t
tim e as d i s tin g u is h e d from th e c a r e f u l s e l e c t i o n o f s e c u r i
ties*. The q u e s tio n a r i s i n g th e n , i s , what i s th e r i g h t
tim e , and how i s i t to be d eterm in ed ? T here h a s g ra d u a lly
emerged in r e l a t i v e l y r e c e n t y e a r s a new p h ilo s o p h y of
in v e stm e n t management r e p r e s e n ti n g a compromise between th e
d iv e rg e n t s c h o o ls o f thought* I n d i c a t i v e o f t h i s compromise
a r e th e in v e stm e n t managements who concede th e i m p o s s i b i l i t y
o f p r o t r a c te d s u c c e s s f u l f o r e c a s t i n g , b u t who have n e v e r th e
l e s s le a rn e d to p r o f i t from m arket f l u c t u a t i o n s r e g a r d l e s s o f
t h e i r d i r e c t i o n and e x te n t* Both th e l a r g e and sm a ll i n v e s to r
have grown to re c o g n iz e th e in a d e q u a c ie s o f m arket f o r e c a s ti n g .
I n e n d ea v o rin g to answ er th e q u e s tio n as to "w hen,” v a rio u s
fo rm u la p la n s have been o f f e r e d as a s o lu tio n t o t h e tim in g
problem * Gan th e s e form ula p la n s be u t i l i z e d as an e f f e c t i v e
means o f su c c e e d in g in th e s to c k m arket?
I t i s th e p u rp o se o f t h i s t h e s i s to m easure th e o p e r
a t i o n o f fo rm u la p la n s by em ploying them as g u id in g i n v e s t
ment p o l i c i e s . S p e c if i c fo rm u la p la n s w i l l be u t i l i z e d in
th e o p e r a tio n o f h y p o t h e t i c a l funds i n v e s ti n g in th e s e c u r i
t i e s o f s e l e c te d o p e n -e n d , and c lo s e d -e n d in v e s tm e n t companies
d u rin g th e p e r io d 1937 th ro u g h 1945. I t i s n o t th e i n t e n t
o f t h i s t h e s i s to p r e s e n t and compare th e wide v a r i e t y o f
p la n s t h a t would be n e c e s s a ry to m eet th e re q u ire m e n ts o f a l l
c l a s s e s o f i n v e s t o r s , but to examine and compare th e more
g e n e r a l l y re c o g n iz e d c o n s ta n t r a t i o p l a n , th e m o d ified
c o n s ta n t r a t i o p la n , and th e s l i d i n g s c a l e p la n , These
s p e c i f i c p la n s w i l l a ls o be compared w ith th e "buy and h o ld ”
p la n and a p la n o f in v e s tin g in th e stocks co m prising th e
Bow Jo n e s I n d u s t r i a l A verage.
The fo rm u la method h as been r e f e r r e d to by many
v a rio u s t i t l e s such a s " a c t u a r i a l , ” " a u to m a tic ," "h e d g in g ,"
" m a th e m a tic a l," " m e c h a n ic a l," and " n o n f o r e c a s tin g ." Form ula
p la n s may be d e fin e d a s th o se s p e c i f i c fo rm u la s f o r i n v e s ti n g
such as th e c o n s ta n t r a t i o p la n , th e m o d ified c o n s ta n t r a t i o
plan* th e s l i d i n g s c a l e p la n , th e c o n s ta n t sto c k fu n d , th e
Y ale P la n , and th e V a ssar P la n which fo llo w th e g e n e ra l
fo rm u la m ethod o f ta k in g ad v an tag e o f m arket f l u c t u a t i o n s
r e g a r d l e s s o f t h e d i r e c t i o n o r e x te n t o f such f l u c t u a t i o n s .
The in v e stm e n t company as i t i s known to d a y i s
d e fin e d by A rth u r W iesen b erg er a s :
W hether i t be c a l l e d , as fo rm e rly , an in v e stm e n t t r u s t
(a misnomer s in c e few were r e a l l y t r u s t s ) , o r i n v e s t
ment company, t h i s f i n a n c i a l e n t i t y i s e s s e n t i a l l y a
fund o f money b e lo n g in g to a l a r g e body of i n v e s to r s
o f m oderate means f o r th e p u rp o se o f o b ta in in g c o l l e c
t i v e l y th e ty p e o f in v e stm e n t s e r v ic e a v a i la b l e
i n d i v i d u a l l y o n ly to t h e w ealthy.*1 ’
The c h ie f s o u rc e s o f in fo rm a tio n f o r t h i s t h e s i s have
been H a rry C a r p e n te r ’ s In v estm en t Tim ing by Form ula P l a n s ,
* * • A rth u r W ie se n b erg e r, In v estm e n t Companies (New York:
A rth u r W iesen b erg er and C om pany,1 9 4 6 ), p . I I .
L u o ile T om linson’ s s e r i e s o f a r t i c l e s , " S u c c e s s fu l I n v e s t in g
by Form ula P l a n s ," which ap peared in B a rro n ’ s N a tio n a l
B u sin e ss and F in a n c ia l W eekly, and A rth u r W ie se n b e rg e r’s
In v e stm e n t Com panies, 1946 e d itio n * O ther v a lu a b le so u rc e s
were th e F e d e ra l B eserve B u l l e t i n , B a rro n ’ s Bow Jo n e s
A v e ra g e s, and numerous books on th e developm ent and manage
m ent p o l i c i e s o f Am erican in v e stm e n t companies*
C h a p te r I I w i l l em phasize th e im portance o f i n v e s t
ment tim in g in a s u c c e s s f u l in v e stm e n t program* The
in a d e q u a c ie s o f m arket f o r e c a s t i n g and th e tre n d s tow ard
th e g e n e r a l fo rm u la method w i l l be p o in te d o u t i n C h apter
I I I * C h a p te r IT w i l l be devoted to th e in v e stm e n t company,
i t s developm ent, b a s ic c l a s s i f i c a t i o n s , v a r i e t y o f in v e stm e n t
p o l i c i e s , and th e r e c o g n itio n o f i t s i s s u e s as a sound media
f o r in v e s tm e n t by b o th th e i n s t i t u t i o n a l and sm all in v e s to r*
The c o n s ta n t r a t i o o r p a re n t p la n w i l l be in tro d u c e d in
C h a p te r 7 by p o in tin g o u t what th e p la n i s , i t s l i m i t a t i o n s ,
and th e f a c t o r s fa v o rin g i t s success* The o p e r a tio n o f
h y p o t h e t i c a l fu n d s i n v e s ti n g i n s e c u r i t i e s o f s e le c te d
in v e stm e n t com panies a c c o rd in g t o th e c o n s ta n t r a t i o p la n
w i l l be e v alu a te d * A s i m i l a r p ro c e d u re w i l l be fo llo w e d in
C h a p te rs 71 and 711 r e s p e c t i v e l y in e v a lu a tin g th e o p e ra tio n
o f h y p o t h e t i c a l funds i n v e s ti n g in accordance w ith th e t e n e t s
o f th e m o d ifie d c o n s ta n t r a t i o and th e s l i d i n g s c a le p la n s*
The c o n c lu sio n s o f th e stu d y w i l l a p p ear in C h ap ter 7 m *
CHAPTER I I
m m s m m T tim in g
In v e stm e n t in v o lv e s p r i m a r il y two c o n s id e r a tio n s —
"w hat" and "w hen.” The im p o rtan ce o f th e " w h a t,” s e c u r i t y
s e l e c t i o n , m ust he em phasized, h u t o f much g r e a t e r s i g n i f i
cance to t h i s t h e s i s i s th e "w hen,” when to buy and s e ll#
E s p e c ia lly in th e case o f common s to c k s , b ecau se o f t h e i r
v o l a t i l i t y , i s tim in g o f g r e a t e r s i g n i f ic a n c e th a n th e "w hat"
problem# T h is "when" prob lem , more a p p r o p r i a te ly r e f e r r e d
to as " tim in g ," may be d e s c rib e d a s:
F o r e v e ry i n v e s to r , sound in v e s tm e n t p ro c e d u re r e q u ir e s
a s e r i e s o f s e p a r a te b u t r e l a t e d d e c is io n s in each o f
whieh " r i s k s and rew ards" must be w eig h ed * Of th e s e
d e c i s i o n s , a l l in v e s tm e n t e x p e rie n c e p ro v e s t h a t "when
to buy" ra n k s e q u a lly i n im portance w ith "what t o , b u y ."
S i m i la r ly , th e a l e r t i n v e s to r w i l l re c o g n iz e t h a t th e r e
i s no s e c u r i t y w hich can be "bought and f o r g o tte n " and
t h a t s u c c e s s f u l in v e s tm e n t r e q u ir e g keen ju d g m e n t,in
tim in g s a l e s as w e ll as p u r c h a s e s.*2
The c o n c e p tio n o f tim in g may mean d i f f e r e n t th in g s to
v a rio u s in d iv id u a ls # U n le ss q u a l i f i e d , th e term can become
v e ry m isle a d in g # T here a re b o th extrem es and & m iddle ground
to th e tim in g problem *^ At th e one extrem e i s th e ty p e o f
i n v e s t o r who r e g a r d s common s to c k s as lo n g term in v e s tm e n ts ,
p
John E. P rim e, In v estm e n t A n a ly s is (New York;
P r e n t i c e - H a l l , In c # , 1946j , p . 166#
3 H arry G. C a rp e n te r, The L e t t e r s o f an In v estm e n t
C ounsel to Mr# and M rs. John Sm ith (New York; H arper and
B ro th e rs T u b li's h e rs ^ T T $ 40}, p. 23#
th e i n v e s t o r who buys s to c k s and h o ld s on to them* In th e
l a t t e r 1920*s tim in g o f p u rc h a s e s urns n o t of th e marked
im p o rtan c e t h a t i t i s c u rre n tly * The lo n g -te rm u p tre n d in
s e c u r i t i e s was c e r t a i n to c o r r e c t any m ista k e in tim in g w ith
each s u c c e s s iv e m arket re c o v e ry to a h ig h e r le v e l* The need
f o r c o n s ta n t s u p e rv is io n p r e c lu d e s buying good s e c u r i t i e s ,
p u t t i n g them away, and f o r g e t t i n g them. B e p r e s e n ta tiv e o f
th e o t h e r extrem e i s th e s p e c u la to r o r t r a d e r who h as an
e n t i r e l y d i f f e r e n t c o n c e p tio n o f tim in g — th e p e rs o n who i s
in and o u t o f th e m arket ho p in g to p r o f i t from th e s h o r t -
term sw ings o f th e m arket*
B e s tin g betw een t h e s e two extrem es i s th e concept
t h a t tim in g g e n e r a lly sh o u ld be th o u g h t o f in term s o f y e a rs
r a t h e r th a n i n term s o f d a y s, w eeks, o r m onths. S in ce 1929
th e s e o u r i t y m ark ets have been c h a r a c te r iz e d by wide f l u c t u
a ti o n s w ith no pronounced u p tr e n d ; th e c h o ic e o f th e p ro p e r
moment to buy and s e l l m ust n e c e s s a r i l y be coupled w ith a
sound in v e stm e n t p o lic y * T h is m iddle ground con cept i s
p r e d i c a t e d upon a r e c o g n itio n o f p e rio d s o f g e n e r a lly r i s i n g
v a lu e s and t h e i r d i s t i n c t i o n from p e rio d s o f g e n e r a lly
f a l l i n g v a lu e s* Some w i l l p r o f e s s th e i m p o s s i b i l i t y o f
e s tim a tin g f u t u r e economic change w ith dependable accuracy*
The f i n d i n g s of an e x h a u s tiv e stu d y made by P r o f e s s o r
G a r f ie ld V. Gox, U n iv e r s ity o f C hicago, i n re g a rd to f o r e
c a s t i n g th e c o u rse o f g e n e r a l b u s in e s s were t h a t th e f o r e -
7
c a s t i n g s e r v i c e s would be r i g h t c o n s id e r a b ly o f t e n e r th a n
th e y would be w ro ng.^
fo rm u la p la n s a re p r e d ic a te d upon th e assum ption t h a t
common s to c k s w i l l f l u c t u a t e more w id ely th a n bonds; t h a t i t
i s more p r o f i t a b l e to buy when p r i c e s a r e low , and to s e l l
when th e y a r e high# E en ce, th e tim e -a c c e p te d p ro c e d u re f o r
su c c e ss i n th e s to c k m arket i s found i n th e sim p le r u l e o f
b uying low and s e l l i n g high# I n a c t u a l p r a c t i c e th e d e te rm i
n a ti o n o f s a t i s f a c t o r y buying and s e l l i n g l e v e l s i s a much
more d i f f i c u l t m a tte r th a n th e r u l e would im p ly . When th e
m ark et i s c o n tin u o u s ly d e c lin in g and a p e s s i m i s t i c atm osphere
p e rm e ates f a l l S t r e e t , th e u s u a l p s y c h o lo g ic a l r e a c t i o n p r o
duces a d e s i r e to l i m i t l o s s e s by s e l l i n g . I t r e q u i r e s a
g r e a t d e a l o f f o r t i t u d e to th in k and a c t d i f f e r e n t l y from th e
m asses, and to p u rc h a se as p r i c e s d e c l i n e . Yet w ith s t e a d i l y
r i s i n g p r i c e s f o r a few weeks o r m onths, t h i s pessim ism w i l l
r a p i d l y tu r n to o p tim ism . Too o f te n th e u n a v o id a b le r e s u l t
i s t h a t p u rc h a s e s a r e made l a t e in a s t e a d i l y r i s i n g m a rk e t.
W ith r e f e r e n c e to th e g e n e r a lly a c c e p te d p r i n c i p l e o f tim in g
p u rc h a s e s o n ly a f t e r a d e f i n i t e l y pronounced upswing*
Benjam in Graham and David L. Dodd co nclude t h a t such p o l ic y
5
i s b a s i c a l l y opposed to th e e s s e n t i a l n a tu r e o f in v e s tm e n t.
* A lfre d I*. Bernheim* The Be c u r l ty M arkets (New York;
T w e n tie th C entury Fund, I n c . , 1 9 3 5 ), p . 6 3 l.
5 Benjamin Graham and David L. Dodd, S e c u r ity A n a ly s is
(New York; M cG raw -H ill Book Company, I n c . , 1 9 4 0 ), p . 1 0 .
a
The s i g n i f i c a n t f a c t i s t h a t to o o f te n th e s e p u rc h a se s
a re made a t o r n e a r th e peak o f a b u l l m arket* Such a m is
ta k e l i e s i n th e assu m p tio n t h a t a b u l l m arket m il l p e r s i s t ,
w hereas e x p e rie n c e h as shown t h a t th e pendulum u s u a lly sw ings
i n th e o p p o s ite d i r e c t i o n p r i o r to th e i n v e s t o r ’ s r e a l i z i n g
on th e o p p o r tu n ity p re s e n te d w ith th e m arket f l u c t u a t i o n .
The ten d en cy a p p e a rs to be t h a t o f w a itin g f o r th e pendulum
to re a c h th e top b e fo re s e l l i n g , and to w a it f o r i t to re a c h
th e botto m b e fo re p u r c h a s in g . Such p sy ch o lo g y c o n ti n u a l l y
r e s u l t s i n p a s s in g o p p o r t u n it i e s to p u rc h a s e a d v a n ta g e o u sly
i n a d e c lin in g m a rk e t, and to s e l l i n a r i s i n g m a rk e t.
A n o th er f a c t o r t h a t c o m p lic a te s th e a p p a r e n tly sim ple
r u l e f o r su c c e ss i n th e s to c k m arket i s a la c k o f p a tie n c e
to w a it f o r o p p o r t u n it i e s t h a t may be spaced a y e a r o r more
a p a r t . The d e s i r e to r e a l i z e b o th l a r g e and q u ick p r o f i t s
p re c lu d e s w a itin g f o r th e m ajor m ark et swings*
Tim ing by fo rm u la p la n s p r e c lu d e s th e i n v e s t o r ’ s
r e l i a n c e upon ’’c a l l i n g th e m arket t u r n s * ” Both p u rc h a se s
and s a l e s a re tim ed by adherence to p r e -a rr a n g e d s c h e d u le s ,
th e re b y e li m in a ti n g th e p r e v a i l i n g p sy ch o lo g y o f th e moment
from d e te rm in in g th e p ro p e r tim e to buy and s e l l . T here
a re two bro ad c a te g o r ie s o r groups o f p la n s , th e f i r s t
r e q u i r i n g no f o r e c a s t i n g , and th e second w hich does r e q u i r e
a lim i te d amount o f f o r e c a s t i n g o f th e m ajor tr e n d s in
s e c u r i t y p r i c e s . The c o n s ta n t r a t i o p la n and i t s m o d ifie d
Y e rsio a r e q u ir e no f o r e c a s t i n g , b u t some s l i d i n g s c a le p la n s
do n e c e s s i t a t e a m oderate m easure o f f o r e c a s tin g * fixe
a s s o c i a t io n o f a s l i d i n g s c a le p la n w ith m ark et f o r e c a s ti n g
m i l be developed i n C h a p te r V II, fh e S lid i n g S c a le P la n .
CHAPTER I I I
MARKET FORECASTING
There i s among th e Am erican p u b lic a w id e sp rea d b e l i e f
and m ixed hope t h a t th e coming e v e n ts o f th e s to c k m arket can
be e i t h e r s c i e n t i f i c a l l y a n t i c i p a t e d from economic s t a t i s t i c s
and b u s in e s s i n d ic e s , o r r e a d from c h a r t s , o r i n t e r p r e t e d from
a w e ll inform ed judgm ent o f f a c t o r s re c o g n iz e d a s c o n t r o l l i n g
a t th e tim e , o r j u s t p l a i n guessed* T h is p o p u la r b e l i e f i n
th e p r e d i c t a b i l i t y o f coming s to c k m arket tu r n s i s a p tly
term ed by P r o f e s s o r Henry W. Bunn a s a p e r s i s t e n t d e lu s io n
th e w a r e l i a b i l i t y o f s to c k m ark et p r e d i c t i o n s as a b a s i s f o r
in v e stm e n t u s u a l l y i s a le s s o n ta u g h t by lo n g , h a rd , o f t e n
b i t t e r e x p e rie n c e * The f o r e c a s t i n g s e r v ic e s have p la y e d no
sm a ll p a r t in n u r t u r in g t h i s b e l i e f t h a t s e c u r i t y p r i c e s can
be p r e d i c t e d w ith dependably a c c u ra c y , i l l u s t r a t i v e o f such
f a l l a c i o u s re a s o n in g a re th o s e i n v e s t o r s who, la c k in g a
s u f f i c i e n t knowledge to form t h e i r own judgm ents, th o u g h t
t h a t em ploying t h e s e r v ic e s o f an e x p e rt was a l l t h a t need
be done. The wide fo llo w in g o f th e v a rio u s ty p e s o f c h a rt
re a d in g t h e o r i e s , o f which th e Bow th e o ry i s th e most
c o n sp ic u o u s, i s f u r t h e r in f lu e n c e in f o s t e r i n g th e d e lu s io n .
& H enry 1 . Bunn, " P e r s i s t e n t D e lu s io n ,” The In v e stm e n t
C ounsel A n n u a l, tNew York: The in v e s tm e n t Counsel A s s o c ia tio n
o f A m erica, 193 9 ), p . 25*.
X X
A dvocates o f c h a r t re a d in g a s s e r t t h a t i t i s th e m ost
s a t i s f a c t o r y m ethod o f stu d y in g th e p a s t and c u rr e n t a c tio n
o f th e m arket* What a re g e n e r a lly known i n b ro k e ra g e c i r c l e s
as c h a r t s a r e a s p e c i a l a d a p ta tio n o f th e g e n e ra l te c h n iq u e
o f draw ing curves* G hart r e a d in g h a s become sym bolic o f a
system f o r p r e d i c t i n g s e c u r i t y p r i c e s . The system i s th e
stu d y o f th e c h a rte d co u rse o f p r i c e s and volume o f tr a d i n g
o v e r a lo n g p e r io d in o r d e r t o d is c o v e r t y p i c a l co n fo rm atio n s
r e c u r r i n g i n th e p a s t t h a t m ight be employed i n th e p r e s e n t
a s a b a s is o f ju d g in g im pending s e c u r i t y p r i c e changes*
G hart r e a d in g h as g a in e d q u ite a l a r g e fo llo w in g and h a s been
s u b je c t to c o n tin u o u s re fin e m e n t in i t s te c h n iq u e th ro u g h o u t
th e y ears* The bew ild erm ent o f m ost m arket f o r e c a s t e r s d u rin g
th e d e p re s s io n y e a rs a p p e a rs t o have f o s t e r e d th e growth o f
th e sy stem . D uring th o s e y e a rs many p re c e d e n ts upon w hich
th e a v e ra g e W all S t r e e t o b s e rv e r r e l i e d were b ro k e n . Doubts
developed a s to th e t r u t h of much o f th e in fo rm a tio n t h a t was
b e in g f u r n is h e d , and th e good f a i t h o f many i s s u e r s o f p u b lic
s ta te m e n ts was q u e stio n e d * S u sp ic io n was w id esp read t h a t th e
i n s i d e r s ta lk e d one way and a c te d i n a n o th e r way*
V a rio u s term s such a s wdouble t o p s* 1 and ”double
b o tto m s” a re u sed to d e s c r ib e c o n to u rs made by p r i c e changes
when p l o t t e d in th e u s u a l m anner. To th e i n v e s t o r c h a r ts a re
o f h ig h ly q u e s tio n a b le v a lu e . G hart r e a d e r s th em selv es a re
c o g n iz a n t t h a t when c h a r ts a r e used alo n e t h e r e i s an in h e r e n t
1 z
d an g er t h a t more fundam ental f a c t o r s may he o v e rlo o k e d th e re b y
in d u lg in g i n a f a l s e sen se o f s e c u r ity #
Of a l l th e c h a r t re a d in g t h e o r i e s th e D o ts th e o ry i s
p e rh a p s th e most w id e ly renowned# C h a rle s H* Dow was th e
fo u n d er o f th e Dow-Jones f i n a n c i a l news s e r v ic e in New Y ork,
and a ls o th e fo u n d e r and f i r s t e d i t o r o f th e W all S t r e e t
J o u r n a l # He was alm ost to o c a u tio u s to come o u t w ith a f l a t ,
dogm atic s ta te m e n t o f h i s theory# I n 1901 and i n th e f i r s t
h a l f o f 1902 he w rote a number o f e d i t o r i a l s co n ce rn in g
m ethods o f s to c k s p e c u la tio n # I t i s rem a rk ab le t h a t h i s
th e o r y m ust be e x tr a c t e d from th e s e e d i t o r i a l s in which
e le m e n ts o f h i s th e o ry a re i l l u s t r a t i v e and i n c i d e n t a l ,
n e v e r th e main s u b je c t o f d is c u s s io n # One o f h i s e a r l i e s t
s ta te m e n ts in r e g a r d to th e p r i c e moyement was made w ith o u t
th e w e a lth o f d a ta now a v a i l a b l e f o r a n a ly s is o f th e p r i c e
tre n d s # In th e W all S t r e e t J o u r n a l o f Ja n u a ry 4, 1902, he
s a i d ;
N o th in g i s more c e r t a i n th a n t h a t th e m ark et has
t h r e e w e ll d e fin e d movements w hich f i t i n to each o th e r#
fh e f i r s t i s th e d a il y v a r i a t i o n due to l o c a l cau se s
a^d th e b a la n c e o f b uying o r s e l l i n g a t t h a t p a r t i c u l a r
tim e# fh e seco n d ary movement co v ers a p e rio d ra n g in g
from te n days to s i x t y d ay s, a v e ra g in g p ro b a b ly betw een
t h i r t y and f o r t y days# fh e t h i r d swing i s th e g r e a t
move c o v e rin g from fo u r to s i x y e a rs
fh e o n ly p r i n t e d re c o rd o f th e o r i g i n a l Dow th e o ry i s to be
found i n th e s e e d i t o r i a l s from which h i s th e o ry h a s been
7 W illia m P e t e r H am ilto n , fh e Stock M arket B arom eter
(New York; H a rp er and B ro th e rs P u b l i s h e r s , 1 9 2 2 ), p . 23# '
13
r e c o n s tr u c te d *
Bow d id n o t d e s ig n a te h i s o b s e r v a tio n s as th e Bow
th eo ry # I t was h i s f r i e n d , S# A. N elso n , who f i r s t a tte m p te d
to e x p la in i n a p r a c t i c a l m anner Dow’ s m ethods i n f h e A B O
o f S to c k S p e c u la tio n , a f t e r h a v in g f a i l e d to p e rs u a d e Dow to
w r i t e th e book*® S u b se q u e n tly W illia m P e t e r H am ilton c a r r i e d
on th e stu d y and i n t e r p r e t a t i o n o f th e th e o ry th ro u g h th e
means o f e d i t o r i a l f o r e c a s t s which became one o f th e m ost
p o p u la r f e a t u r e s o f th e W all S t r e e t J o u rn a l u n t i l h i s d e ath
in 1929;
fh e Dow th e o r y i s composed o f th e th e o ry o f th e th r e e
movements o f th e m a rk e t, th e th e o ry o f th e c o n firm a tio n o f
th e a v e ra g e s j th e th e o ry o f th e " l i n e , ” and th e th e o ry o f
"d o uble t o p s1 1 and "double b o t t o m s . S l i g h t l y m o d ifie d from
th e im p lic a tio n s o f Bow’ s e d i t o r i a l s , th e m ajor movement o f
th e m arket i s now c o n sid e re d to be one t h a t l a s t s from n in e
m onths to a b o u t two y e a r s , and i s e i t h e r a b u l l o r a b e a r
tre n d * A b u l l m ark et i s a m ajo r movement in w hich each
su c c e e d in g h ig h p o i n t o f t h e a v e ra g e s i s an advance o v e r th e
p re v io u s h ig h ; a b e a r m arket i s a m ajo r movement in which
each su c c e e d in g low p o in t i n th e a v e ra g e s i s low er th a n i t s
® B o b e rt Hhea, fh e Bow Theory (New York: B a rro n ’s ,
1 9 3 2 ), p . 1 .
9 C h a rle s Amos B ice and W ilfo rd John B item an, fh e
S tock M arket (New York: M cCraw -H ill Book Company, I n c . ,
1 9 1 1 1 , p* 348*
14
p r e d e c e s s o r ; I t i s i n r e f e r e n c e to th e m ajor m arket sw ings
t h a t th e th e o r y makes i t s p o s i t i v e c la im s ; th e p rim a ry u se
i s to i n t e r p r e t th e a v e ra g e s as to w hether th e y i n d i c a t e a
tu r n up o r down t h a t h a s come o r i s about t o come* A f t e r
e v ery p rim a ry movement h a s gone on f o r some p e rio d o f tim e ,
a seco n d ary movement w i l l a p p ea r c a r r y in g a b u l l m arket
down o r a b e a r m arket up f o r a s h o r t p e rio d o f tim e , T h is
seco n d ary movement may l a s t p e rh a p s a week o r a few m onths.
These r e a c t i o n s and r a l l i e s a re a r e g u l a r p a r t o f th e m arket
and may be e x p ec te d to go a t l e a s t t h r e e - e i g h th s o f th e
p r e v io u s r i s e o r d e c lin e o f th e m a r k e t.1^
I t i s acknowledged t h a t th e m arket i s c o n tin u o u s ly in
a flu x * C u rre n t f l u c t u a t i o n s in th e a v e ra g e s i n d i c a t e th e s e
day to day c h an g e s. T h e o r is ts adm it t h a t day to day changes
in th e a v e ra g e s cann ot be p r e d i c te d and t h a t such f l u c t u a t i o n s
cann ot be u se d to p r e d i c t any fu n d am en tal change*
Bow t h e o r i s t s u se a number o f d e v ic e s i n c o n ju n c tio n
w ith t h e main th e o ry o f th e t h r e e movements o f th e m arket*
The c o n firm a tio n o f th e a v e ra g e s , " l i n e s , " and "dou ble to p s"
and "d ou ble bottom s" may be c o n sid e re d to be such a u x i l i a r y
d e v ic es* Thus in ev ery p rim a ry movement o f th e a v e ra g e s ,
th e r a i l and i n d u s t r i a l a v e ra g e s m ust confirm one an o th er*
I n a b u l l m arket i f th e i n d u s t r i a l a v e ra g e makes a new h ig h ;
10 • p*
15
i t i s a s s e r t e d by th e t h e o r i s t s t h a t th e r a i l a v e ra g e vsi 11
a ls o soon make a new h ig h .
A " l in e " i s a p r i c e movement e x te n d in g two o r th r e e
weeks o r lo n g e r d u rin g w hich the p r i c e v a r i a t i o n o f b o th
a v e ra g e s move w ith in a ra n g e o f a p p ro x im a te ly f i v e p e r cent*
S im u ltan eo u s advances o f t h e a v e ra g e s above t h e l i m i t s o f th e
^ l i n e ” i n d i c a t e h ig h e r p r i c e s ; c o n v e rs e ly , sim u lta n eo u s
d e c lin e s o f th e a v erag e s below th e " l in e " im ply low er p r i c e s
a re to fo llo w . C o n c lu sio n s drawn from th e movement o f one
a v e ra g e , u n le s s confirm ed by th e o t h e r g e n e r a l l y p ro v e to be
i n c o r r e c t .
"Double to p s " and "double b o t t o m s " ^ a re o f b u t l i t t l e
v a lu e in f o r e c a s t i n g th e p r i c e movement and have proved to
be d e c e p tiv e more o f t e n th a n n o t; H am ilton a tta c h e d l i t t l e
im p o rtan ce to t h i s , and Bhea e x p re sse d c u r i o s i t y as to who
was f i r s t r e s p o n s ib le f o r c o n v in c in g th e p u b lic t h a t such
was an i n t e g r a l p a r t o f th e th e o ry ;
In a c o n s id e r a tio n o f th e b e h a v io r o f i n d iv id u a l
s to c k s , i t may be s a id t h a t a c t iv e and w e ll d i s t r i b u t e d
s to c k s g e n e r a lly d e c lin e and r a l l y w ith th e a v e ra g e s , b u t
i t m ust a ls o be re c o g n iz e d t h a t any i n d iv i d u a l s to c k may
r e f l e c t c o n d itio n s t h a t a re n o t a p p lic a b le to th e av erag e
p r i c e o f any d i v e r s i f i e d l i s t o f s to c k s ; F loyd F. B u r tc h e tt
1 1
Bhea, 0£ . c i t . , p . 93*
16
h a s lik e n e d th e Dow th e o ry in f o r e c a s t i n g in v e stm e n t and
s p e c u la tio n to "mass a n a l y s i s " i n th e f i e l d o f w e ath e r f o r e
c a s tin g ,.* ^ b ecau se when a p p lie d to i n d iv i d u a l i s s u e s i t s
a c c u ra c y i s n o t to be depended upon f o r th e v a lu e s o f i n d i
v id u a l i s s u e s a re to a l a r g e e x te n t in flu e n c e d by such
s p e c i a l f a c t o r s as w ar, l i t i g a t i o n , and im proved technology*
C on seq u en tly i t does n o t alw ays fo llo w t h a t i n d iv i d u a l i s s u e s
w i l l fo llo w th e averages*
A dvocates o f th e Dow th e o r y no lo n g e r h o ld i t to be a
s c i e n t i f i c a l l y c o n s tru c te d f o r e c a s t i n g device* As e x p re sse d
by C h a rle s Amos D ice, th e Dow th e o r y i s sim ply a t o o l to
acco m p lish th e end o f g iv in g an i n d i c a t i o n o f th e r e l a t i v e
s t r e n g th o f th e su p p ly o f sto c k s coming upon th e m arket and
th e r e l a t i v e demand f o r t h e m * T h e l i m i t a t i o n s o f th e
th e o ry a re s e v e r a l f o l d ; I t a p p e a rs t h a t th e assu m p tio n s
u n d e rly in g t h e th e o r y a r e th o s e o f a norm al economic tim e
w ith th e w orking o f th e th e o ry im p a ire d d u rin g war and o t h e r
abnorm al tim e s such as d e p re ssio n * I t i s p o s s i b l e , though
p e rh a p s n o t p r o b a b le , t h a t m a n ip u la tio n o f a sm a ll number o f
s to c k s can be e ffe c te d * A lthough conceding th e p o s s i b i l i t y
o f m a n ip u la tio n o f day to day movements and th e seco n d ary
r e a c t i o n s , Rhea concluded t h a t th e p rim a ry tr e n d could n e v er
F loyd F. B u r t c h e tt , In v e s tm e n ts and In v e stm e n t
P o l i c y (New Yorks Longman, (ireen, and Company, 1 9 38), pT 684*
12 D ice, 0£ . c i t *, p* 355*
17
he r e g u l a t e d * ^ No s a t i s f a c t o r y method o f d i s t in g u i s h in g
betw een p rim a ry and secondary moves h as been e s ta b lis h e d #
Rhea a tte m p te d t h i s d i s t i n c t i o n by r e l a t i n g th e volume o f
a c t i v i t y to th e te r m in a tio n o f p rim a ry and seco n d ary move
m e n ts. H is a s s e r t i o n raas t h a t b u l l m a rk e ts b e g in isith a
c o m p a ra tiv e ly l i g h t volume o f t r a n s a c t i o n s , and te r m in a te
i n a p e rio d o f e x c e s s iv e a c t i v i t y *^5 T here i s a ls o evid ence
o f a p o p u la r b e l i e f i n s e a s o n a l v a r i a t i o n i n s e c u r i t y p r i c e s ,
b u t t h i s h a s n e v e r been s u b s ta n t ia t e d by perfo rm an ce o v e r a
r e p r e s e n t a t i v e p e rio d o f y ears#
Graham and Dodd have p o in te d o u t q u i te l u c i d l y i n t h e i r
c o n c lu s io n s on c h a rt re a d in g t h a t i t i s n o t a s c ie n c e , t h a t
i t s p r a c t i c e can n o t be c o n tin u o u s ly s u c c e s s f u l, and t h a t
i t s c o n c lu s io n s a re n o t a s a r u l e d e p e n d a b le # ^ I t i s t h e r e
f o r e s i g n i f i c a n t t h a t t h e r e can be no such th in g a s a
s c i e n t i f i c p r e d i c t i o n o f e v e n ts under human c o n tro l# A l
though a d v o c a te s o f t h e Dom th e o ry c laim t h a t i t h a s been
s u c c e s s f u l f o r a g r e a t many y e a r s , th e t e s t o f th e th e o r y ,
i t s a p p l i c a t i o n , h a s n o t p ro v id ed c o n c lu s iv e p ro o f* As i t
h a s p r e v io u s ly been a llu d e d , th e t h e o r e t i c a l b a s i s i s
q u e s tio n a b le * The p re m ise t h a t th e a c t i o n o f th e m ark et
"" ^ Rhea, 0£ . c i t «, p . 12#
15 I b i d *, p* 15*
Graham and Dodd, 0£ . c i t *, p . 715*
r e f l e c t s th e a t t i t u d e s and a c t i v i t i e s o f th o s e i n t e r e s t e d
i n d iv i d u a ls does n o t n e c e s s a r i l y h e a r o u t th e c o n c lu sio n
t h a t a p r e d i c t i o n o f what i s g o in g to happen n e x t in th e
m ark et can he made from stu d y in g th e re c o rd o f p a s t m arket
a c tio n * The t h e o r e t i c a l h a s i s , th e r e f o r e , r e s t s on
a s s e r t i o n * ^ A lthough c h a r t re a d in g p o s s e s s e s an advan tage
o v e r ram pant s p e c u l a t i o n , th e ad v an tag e d im in ish e s as th e
number o f c h a r t s tu d e n ts in c re a s e * As th e more people
fo llo w in g th e same system r e c e i v e th e same s i g n a l to buy a t
th e same tim e , c o m p e titiv e buying w i l l f o r c e th e average
p r i c e p a id up 5 th e converse would he a p p a re n t in s e llin g *
B a th e r th a n a s c ie n c e , m arket f o r e c a s t i n g would be more
a c c u r a te ly d e s c rib e d as an a r t t h a t r e q u i r e s n o t o n ly
t a l e n t , but rem a rk ab le judgment and i n t u i t i o n *
T here have been two s c h o la r ly s t u d i e s o f th e e f f e c
t iv e n e s s o f f o r e c a s ts * f u r n is h e d by f i n a n c i a l se rv ic e s*
M ention h a s a lr e a d y been made o f P r o f e s s o r Goxf s stu d y i n
re g a r d to f o r e c a s t i n g th e co u rse o f g e n e r a l b u sin e ss* The
o t h e r s tu d y , t h a t o f A lfr e d Cowles, 3 r d , c o n c e n tra te d upon
f o r e c a s t s o f s e c u r i t y p r ic e s * Cowles s tu d ie d th e r e c o rd o f
s i x t e e n f i n a n c i a l s e r v ic e s making r e g u l a r recom m endations
c o n ce rn in g i n d iv i d u a l common s to c k s f o r in v e s tm e n t. He
a n a ly s e d th e m arket f o r e c a s t s o f W illiam P e t e r H am ilton,
17 2£icU» p*
th e n e d i t o r o f th e W all S t r e e t J o u r n a l, c o n c e rn in g g e n e ra l
movements i n p r ic e s * D e ta ile d s t a t i s t i c a l stu d y and a p p r a i s a l
l a s made o f tw e n ty -fo u r g e n e ra l f i n a n c i a l p u b l i c a t i o n s engaged
i n m ark et f o r e c a s tin g * The c o n c lu s io n s o f th e Cowles Com
m is s io n stu d y w ere:
1* S ix te e n f i n a n c i a l se rv ic e s * i n making some 7 , CO O
recom m endations o f i n d iv i d u a l common s to c k s f o r i n v e s t
ment d u rin g th e p e r io d from Ja n u a ry 1 , 1928, to J u ly 1 ,
1932, com piled an a v erag e re c o r d t h a t was w orse th a n
t h a t o f th e a v e ra g e common s to c k by 1*43 p e r c e n t
a n n u a lly * S t a t i s t i c a l t e s t s o f th e b e s t in d iv i d u a l
r e c o r d s f a i l e d to d e m o n stra te t h a t th e y e x h ib ite d s k i l l ,
and i n d ic a t e d t h a t th e y more p ro b a b ly w ere r e s u l t s o f
ch an ce;
2; W illiam P e t e r H am ilto n , e d i t o r o f th e W all S t r e e t
J o u r n a l, p u b lis h in g f o r e c a s t s o f th e s to c k m arket based
on th e Dow th e o r y o v e r a p e rio d o f 26 y e a r s , from 1904
to 1929 i n c l u s i v e , a ch iev e d a r e s u l t b e t t e r th a n what
would o r d i n a r i l y be re g a rd e d as a norm al in v e stm e n t
r e t u r n , b u t p o o r e r t h a n th e r e s u l t o f a c o n tin u o u s o u t
r i g h t in v e stm e n t in r e p r e s e n t a t i v e common s to c k s f o r
t h i s p e rio d * On 90 o c c a s io n s he announced changes i n
th e o u tlo o k f o r th e m arket* f o r t y - f i v e o f th e s e p r e
d i c t i o n s were s u c c e s s f u l and 45 u n s u c c e s s f u l;
3* T w enty-four f i n a n c i a l p u b l ic a t i o n s engaged i n f o r e
c a s t i n g th e sto c k m ark et d u rin g th e f o u r and a h a l f y e a rs
from Ja n u a ry 1 , 1928 to June 1, 1932, f a i l e d as a group
by 4fa p e r annum t o a c h ie v e a r e s u l t a s good a s th e a v erag e
o f p u r e ly random perform an ces* A review o f th e v a rio u s
s t a t i s t i c a l t e s t s , a p p lie d to th e re c o rd s f o r t h i s p e r io d ,
o f th e s e 24 f o r e c a s t e r s , i n d i c a t e s t h a t th e m ost su c
c e s s f u l re c o rd s a re l i t t l e , i f any, b e t t e r th a n what
m ight be e x p e c te d to r e s u l t from p u re chance* T here i s
some e v id e n c e , on th e o th e r hand, to i n d i c a t e t h a t th e
l e a s t s u c c e s s f u l r e c o r d s a re worse th a n w hat co u ld
re a s o n a b ly be a t t r i b u t e d to chance*IB
The Cowles stu d y i s p ro b a b ly c o n sid e re d to be th e most
e x h a u s tiv e as w e ll a s c a r e f u l stu d y a v a i la b l e o f th e su c ce ss
IB B ernheim , o £ . c i t *, pp; 631-2*
o f p r o f e s s i o n a l m ark et f o r e c a s t e r s ; The c o n c lu sio n s o f th e
Gobies stu d y a re c o n s id e ra b ly l e s s fa v o r a b le to m arket f o r e
c a s t e r s th a n th o s e o f th e Cox stu d y to f o r e c a s t e r s o f changes
i n g e n e r a l b u s in e s s c o n d itio n s* I t i s n o ta b le t h a t C obles
s tu d ie d th e a c c u ra c y o f p r e d i c t i o n s o f r e l a t i v e l y s h o r t- te r m
movements o f sto c k p r ic e s *
The recom m endations of th e s i x t e e n f i n a n c i a l s e r v ic e s
g iv in g a d v ic e to r e a d e r s i n r e g a r d to i n d iv id u a l commitments
i s e s s e n t i a l l y a stu d y in f o r e c a s t i n g ; The c o n c lu s io n s were
based upon th e p r o f i t s o r l o s s e s in c u r r e d in th e p u rc h a se
and s a l e o f th e s e c u r i t i e s recommended* I t fo llo w s from a
c o n s id e r a tio n o f th e c o n c lu sio n s o f th e Cowles stu d y t h a t i t
would be f a l l a c i o u s to assume t h a t th e uninform ed i n v e s to r
can p u rc h a se a s e r v ic e which w i l l e n a b le th e s u b s c r ib e r to
make a c o n s i s t e n t p r o f i t t r a d i n g in th e s e c u r i t y m a rk e t.
F o r e c a s tin g s e c u r i t y p r i c e s w ith a c o n s i s t e n t l y dependable
d eg ree o f a c c u ra c y i s im p o ssib le in view o f th e e x i s t i n g
f o r e c a s t i n g mediums.
The f u t i l i t y o f f o r e c a s ti n g has ben a b ly expounded
by A lfre d Cowles, 3 rd , and Henry W. ininn, but a t th e same
tim e th e y have su g g e ste d no s a t i s f a c t o r y a l t e r n a t i v e *
In v estm e n t tim in g by fo rm u la p la n s h a s been growing in
fa v o r in r e l a t i v e l y r e c e n t y e a rs w ith in v e stm e n t m anagers
who have come to c o n c lu s io n s s i m il a r to th o s e re a c h e d by
Cowles and Dunn; hay M o rris and Lawrence G* Tighe were th e
21
f i r s t fwo in v e stm e n t m anagers to endorse p u b l ic l y th e
fo rm u la m ethod o f in v e stm e n t tim in g ;
Form ula p la n s a re n o t s p e c u la tiv e d e v ic e s ; t h e i r
p u rp o se i s to p ro v id e a s u b s t i t u t e f o r th e n e c e s s i t y o f f o r e
c a s t i n g th e tr e n d o f t h e m arket when making in v e s tm e n ts .
Such a p o in t o f view as t h i s i s sh a red by th e t r u s t e e s o f
Y a ssar C o lle g e , who in 1938 adopted a common sto c k c o n tr o l
p la n . I n e x p la in in g why Y a ssa r took t h i s s t e p , Hay M o rris ,
chairm an o f Y a s s a r’ s Committee on In v e stm e n ts and F inance
d e c la re d :
I v e r s in c e th e r e have been s e c u r i t y m ark e ts th ey have
been a f f e c t e d by p e r i o d i c waves o f optim ism and o f
pessim ism . W ithout some s o r t o f a p la n which con
c e n t r a t e s on th e lo n g run view o f th e m a rk e t, and more
o r l e s s ig n o re s what i s happening c u r r e n t l y , i t seems
to be human e x p e rie n c e t h a t t r u s t e e s , l i k e in d iv id u a ls
te n d to buy s to c k s when th e y a re doing w e ll and to
s e l l them when th e y a re doing b a d ly . But i t r e q u ir e s
a superhuman degree o f a l e r t n e s s to o p e ra te a fund on
t h a t b a s i s w ith o u t s h rin k in g i t in th e p r o c e s s . Common
s to c k s r i s e to g r e a t h e ig h ts and s in k to g r e a t d e p th s ,
and i t seems ob vious t h a t i f th e y a re to be used in
i n s t i t u t i o n a l work th e y should n o t be c a r r i e d th ro u g h
p e r io d s o f o p t i m i s t i c e x c ite m e n t, and t h a t th e y sh o u ld
o n ly be bought in th e low er p r i c e r a n g e s .19
As p r i c e s r i s e Y a ssar re d u c e s i t s h o ld in g s o f common
s to c k s , and as p r i c e s d e c lin e , Y assar buys a d d i t i o n a l common
s t o c k . The r e s u l t s o f th e o p e r a tio n o f th e Y a ssa r C o lleg e
P la n a r e e n co u rag in g to th o s e i n d iv i d u a ls and o t h e r i n s t i -
19
L u c ile T om linson, ’’Y assar C o lle g e ’ s P la n f o r
Common Stock C o n t r o l ,’ 1 B a rro n 1 s N a tio n a l B u sin e ss and
F in a n c ia l W eekly, 2 3 :1 8 , A ugust 16, 1943.
t u t i o n s a d v o e a tin g i n v e s ti n g by form ula*
I n an a d d re s s d e liv e r e d to tlie Am erican B anker*s
A s s o c ia tio n , L aurence G r* T ighe made p u b lic announcement o f
th e fo rm u la p la n employed by Y ale in th e management o f a
p o r t io n o f th e Y ale endowment* Mr* T ighe s a id ;
I f th e c a p i t a l i s t i c system i s th ro u g h , n o th in g can be
done and th e problem s o f t h e i n v e s to r a r e a u to m a tic a lly
s e t t l e d f o r him . I f i t i s to c o n tin u e , th e r e w i l l be
f l u c t u a t i o n s in th e p r i c e o f e q u it i e s * The main o b j e c t
sh o u ld be to s e t up some p la n w hich works a u to m a tic a lly
and i s n o t dependent upon th e judgm ent o f one in d iv i d u a l
o r a group o f i n d i v i d u a l s *2°
H a rry G r* C a rp e n te r in h i s book, In v e stm e n t Tim ing by
fo rm u la f l a n s , h a s c i t e d o t h e r I n s t i t u t i o n s u s in g fo rm u la
p la n s n o t so w e ll known a s th e p la n s used f o r m anaging th e
Y a ssar and Y ale endowmentSi A grow ing number o f in v e stm e n t
m anagers have tu rn e d to th e fo rm u la m ethod; some i n s t i t u t i o n s
have adopted i t , a lth o u g h th e y have n e v e r announced p u b l i c l y
th e a d o p tio n . At l e a s t one l a r g e New York t r u s t company and
a medium s iz e d New England l i f e in s u ra n c e company a re u s in g
form u la p la n s f o r tim in g p u rc h a s e s and s a l e s o f common s to c k s
These exam ples a re i l l u s t r a t i v e o f what a p p ea rs to be a
tr e n d o f i n v e s t o r s tu r n in g to w ard some k in d o f form u la m ethod
H arry G r* C a rp e n te r, In v e stm e n t Timing by fo rm u la
F la n s (New York; H a rp er and B ro th e rs P u b l i s h e r s , 19'4 ‘ 3 }, "
p m *
CHAPTER IV
fHE INVBSMMT CGM PAHY
W ith th e lo n g -te rm downward tr e n d i n bond y i e l d s ,
more and more i n v e s to r s a re tu r n in g to common s to c k s f o r
p r o t e c t i o n a g a in s t a r i s i n g p r i c e l e v e l , and f o r lo n g -te rm
c a p i t a l a p p r e c ia tio n a s w e ll as incom e. The employment o f
th e fo rm u la method o f in v e stm e n t tim in g does n o t im ply t h a t
sound p r i n c i p l e s o f s e c u r i t y s e l e c ti o n may be ig n o re d . f i‘ he
b e t t e r th e s e l e c t i o n o f s e c u r i t i e s , th e more p r o f i t a b l e w i l l
be th e r e s u l t s o f tim in g by a u to m a tic p la n . An extrem e ex
ample would be th e s e l e c t i o n o f s e c u r i t i e s t h a t c o n tin u o u s ly
s in k to lo w er l e v e l s w ith no u l ti m a t e reco v ery * Form ula
tim in g o f p u rc h a se s and s a l e s o f what tu r n s o u t to be a
w o rth le s s i s s u e w i l l n o t p ro v id e s a t i s f a c t o r y r e s u l t s *
V o l a t i l e i s s u e s o f th e le a d in g companies in e s s e n t i a l i n
d u s t r i e s sh o u ld p ro v id e good r e s u l t s from i n v e s ti n g by
fo rm u la ;
The s e l e c t i o n o f a sound i n i t i a l p o r t f o l i o o f common
s to c k s i s n o t n e a r ly so d i f f i c u l t as th e problem o f co n tin u o u s
s u p e r v is io n o f th e p o r t f o l i o ; However, th e c o st o f t h i s
s u p e r v is io n i n tim e , e f f o r t , and money i s u s u a lly must g r e a t e r
th a n th e a v e ra g e i n v e s to r can a f f o r d ; For th e i n v e s to r who
canno t a f f o r d c o n tin u o u s in d iv i d u a l in v estm en t a d v ic e , both
a d e q u a te d i v e r s i f i c a t i o n o f r i s k and c o n tin u o u s c o u n se l may
24
be a c h ie v e d th ro u g h th e p u rc h a se o f t h e common s to c k o f
in v e stm e n t companies# S in ce an in v estm en t company a c t u a l l y
r e p r e s e n ts t h e p o o lin g o f th e fund s o f many in d iv i d u a ls
u n d e r t r a i n e d management, a p u rc h a s e r o f i t s s to c k may o b ta in
a sh a re i n Am erican i n d u s t r y , and a s e c u r i t y w ith a b ro ad
m arket i s o b ta in e d to g e th e r w ith th e s e r v ic e s o f th e e x p e rts#
The in v e s tm e n t company now h as become an im p o rta n t
f a c t o r i n th e Am erican in v e stm e n t f i e l d # E# 0# Harwood and
B obert L# B l a i r have s t a t e d :
A s k i l l f u l l y drawn and p r o p e r ly managed in v estm en t t r u s t '
o r r a t h e r s e v e r a l o f them in o r d e r to av o id p u t t i n g a l l
fu n d s i n one b a s k e t, i s th e l o g i c a l answer to th e problem
o f th e sm all i n v e s to r # 2!
I t i s much e a s i e r f o r th e i n v e s to r to fo llo w s e v e r a l i n v e s t
ment com panies th a n a d i v e r s i f i e d l i s t o f s e c u r i t i e s in an
a v erag e p o r t f o l i o o f numerous common sto c k s# I n a d d itio n i t
i s much l e s s e x p e n siv e to o b ta in a d v ic e co n cern in g a few
in v e stm e n t com panies th a n to employ p r i v a t e in v e stm e n t c o u n se l
to s u p e rv is e an a d e q u a te ly d i v e r s i f i e d p o r t f o l i o #
A lthough th e o f f i c i a l name o f th e b u s in e s s was changed
to " in v e stm e n t com panies" some y e a rs ago, t h i s f i n a n c i a l
i n s t i t u t i o n i s s t i l l w id e ly known and r e f e r r e d to a s " i n v e s t
ment t r u s t s # " The Am erican p u b lic has a s s o c ia te d th e word
21 E# 0# Harwood and B obert L. B l a i r , "In v estm e n t
T ru s ts and Funds from th e I n v e s t o r ’ s P o in t o f-Y iew ,"
Am erican I n s t i t u t e f o r Iconom ic B e s e a rc h , (Gam bridge,
M a s s a c h u s e tts : 1 9 3 9 ), p # 46#
25
" t r u s t ” w ith th e bad re c o rd o f "in v e stm e n t t r u s t s ” d u rin g
th e 1920*s and e a r l y 1930*s ; The in d u s t r y d e s ir e d to av o id
£ h is by o m ittin g th e word from th e o f f i c i a l t i t l e , b u t
d e s p i te t h i s a c t io n th e term "in v e stm e n t t r u s t ” s t i l l r e s t s
in th e Am erican mind*
B efore d is c u s s in g th e p o l i c i e s o f t h e in v e stm e n t
company, i t may be d e s i r a b l e to c o n s id e r b r i e f l y i t s f i n a n
c i a l h is to r y * The th e o ry o f d i v e r s i f i e d in v e s tm e n t seems to
have o r i g in a te d i n Belgium i n 1822 when K ing W illia m o f th e
N e th e rla n d s formed what a p p e a rs to be th e f i r s t t r u s t a t
B ru sse ls* I t s p u rp o se was to f a c i l i t a t e sm all in v e stm e n ts
i n f o r e ig n governm ent lo a n s which th e n o f f e r e d b e t t e r y i e l d
and s e c u r i t y th an d id B e lg ia n i n d u s t r y T h e grow th o f
th e in v e stm e n t t r u s t as i t was fo rm e rly known was slow to
g ain momentum upon th e c o n tin e n t o f E urope; Two o th e r
companies were in c lu d e d i n th e e a r l y h i s t o r y o f th e movement
in E urope*2^ The f i r s t o f th e s e was o rg a n iz e d in 1849 a t
Geneva to h a n d le th e in v e stm e n t p r o p e r t i e s o f p r i v a t e Swiss
bankers* The second was known a s th e C re d it M o b ilie r , th e
fr e n c h company formed i n 1852* These com panies a re s i g n i f i
c a n t o n ly from a h i s t o r i c a l view p o in t f o r th e y soon d i s -
22 Theodore f . G rayson, In v estm e n t T r u s t s , T h e ir
O r i g i n , Development and O p e ra tio n (New fork": rJohn ITTey and
S ons, I n c . , 1 9 2 8 ) , p . 11*
Harwood and B l a i r , 0£ . c i t *, p* 12*
26
ap p eared from th e European s c e n e . The p o v e rty o f th e
p o p u la tio n s to g e th e r w ith sm a ll s a v in g s g e n e r a lly n o t w id e ly
d i s t r i b u t e d among th e m asses o f th e p e o p le s a c c o u n ts in no
sm a ll m easure f o r th e slow grow th on th e c o n tin e n t.
The developm ent o f th e modern e r a in v e stm e n t company
a c t u a l l y began ab o u t 1860 in G reat B r i t a i n . W eaknesses and
ab u ses o f th e e a r l y e r a were r e v e a le d by th e d e p re s s io n o f
th e e a r l y 1890*s . Most o f th e t r u s t s were hand icapped by
p o r t f o l i o s w hich in c lu d e d too many u n m ark etab le s e c u r i t i e s
p u rch a se d a t e x c e s s iv e ly h ig h p r i c e s . D i v e r s i f i c a t i o n as
to ty p e o f s e c u r i t y and g e o g ra p h ic a l d i v e r s i f i c a t i o n r e p la c e d
th e p o l ic y o f c o n c e n tr a tio n in p a r t i c u l a r c la s s e s o f i s s u e s .
D uring t h i s e a r l y t r u s t movement, th e f ix e d t r u s t was v e ry
p o p u la r w ith th e p u b l i c . A t th e same tim e th e r e was o p p o s i
t i o n from th e v e ry b e g in n in g p o i n ti n g o u t th e p i t f a l l s of
s p e c i a l i z i n g in c e r t a i n i n d u s t r i e s , e n t e r p r i s e s , and e lim i
n a tin g f l e x i b i l i t y i n management p o l i c i e s . These c r i t i c i s m s
o f th e f i x e d t r u s t g r a d u a lly r e s u l t e d in th e a d a p ta tio n o f
p r o v is io n s g iv in g management a v o ice i n d e te rm in in g r e i n v e s t
ment p o l i c y . The e x p e rie n c e o f th e B r i t i s h management i n v e s t
ment t r u s t s d e m o n stra te d t h a t s u c c e s s f u l o p e ra tio n can be
e x p ected o n ly w ith th e p r o p e r encouragem ent to good management*
I n tu r n in g to th e developm ent o f th e in v estm en t t r u s t
i n A m erica, i t i s n o ta b le t h a t p r i o r to 1924 t h e r e were but
e ig h te e n in v e s tm e n t t r u s t s in th e U n ite d S t a t e s , b u t t h a t by
1928 th e r e were a p p ro x im a te ly 20G#2^ The l a t e 192Qf s mas a
boom decade# Jo h n F ra h o ls Fow ler a t t r i b u t e s th e boom grow th
to th e f o llo w in g f a c t o r s ; 25
1* The l a r g e army o f in v e s to r s #
2* The c r e a t i o n o f s p e c i a l ty p e s o f t r u s t s to m eet
a v a r i e t y o f in v e stm e n t needs#
3# The in c r e a s e in th e a v a i la b l e su p p ly o f Am erican
s e c u r i t i e s #
4# The co m p lex ity o f modern in v e stm e n t problem s#
5# A p e rio d o f s u s ta in e d p r o s p e r ity #
6 . The e n tr y o f in v e s tm e n t b a n k e rs , com m ercial
b a n k e rs , t r u s t com panies, and s e c u r i t y d e a le r s
in to th e f i e l d #
7# The e x c e ss su p p ly o f c a p i ta l #
From th e sto c k m arket b re a k i n 1929 to th e summer o f 1932 was
an e x tre m e ly t r y i n g p e r io d f o r th e in v e stm e n t t r u s t s . Soon
a f t e r t h e f i r s t b re a k many bought s e c u r i t i e s th in k in g t h a t
th e tim e was fa v o ra b le t o a c q u ire common s to c k s a t low p r i c e s
As th e m arket c o n tin u e d downward, t h e i r lo s s e s re a c h e d
trem endous p ro p o rtio n s # S e c u r i t i e s t h a t w ere s e l l i n g f o r
l e s s th a n t h e i r l i q u i d a t i n g v a lu e convinced many i n v e s to r s
t h a t management had a n e g a tiv e v alu e# C on seq u en tly i n 1930
Jo h n F r a n c is Fow ler J r # , Am erican In v e stm e n t T ru s ts
(Few Y o rk :,H a rp e r and B ro th e rs P u b l i s h e r s , 1 9 2 8 ), p . 4#
25 I b i d . , p . 12#
sa
and 1931 th e f ix e d t r u s t , which l im i te d th e a c t i v i t i e s o f
management to a minimum, became p o p u lar# T his p o p u l a r i ty
waned a s p r i c e s dropped f u r t h e r ; I t th e n became a p p a re n t
t h a t management m ust have broad pow ers in o rd e r n o t to hamper
th e p r o p e r a d m i n i s t r a t io n o f th e fund*
Yery few o f th e com panies form ed in th e boom e ra o f
th e 19£Qf s e scap ed th e s p e c u la tiv e e x c e s s e s c h a r a c t e r i s t i c
o f t h a t p e rio d # The c a p i t a l s t r u c t u r e s in many t r u s t s were
ex tre m e ly to p heavy# S e n io r c a p i t a l was borrow ed when
i n t e r e s t r a t e s were h ig h e s t* I n a d d itio n th e t r u s t s were
form ed and s e c u r i t i e s a c q u ire d when sto c k p r i c e s were a t
t h e i r peak* These unw ise p r a c t i c e s b ro u g h t d i s a s t e r
p a r t i c u l a r l y to th e m u lt i p le c a p i t a l s t r u c t u r e c lo se d -e n d
company* Many o f o u r p r e s e n t day companies a re r e o r g a n i
z a tio n s o f th o s e companies t h a t did n o t s u rv iv e th e d e b ac le
o f th e e n su in g d e p re ss io n *
The trem endous lo s s e s s u f f e r e d by th e common s to c k
h o ld e r s s tim u la te d th e n e c e s s i t y f o r e lim in a tio n o f th e
m o tiv a tin g m a lp ra c tic e s * The S e c u r i t i e s and Exchange
Commission perform ed an e x h a u s tiv e i n v e s t i g a t i o n o f th e
in v e stm e n t company f i e l d which se rv e d as a b a s i s f o r th e
In v estm e n t Company Act o f 1940, which i s d ir e c te d p r i m a r il y
tow ard p r o t e c t i n g th e i n t e r e s t s o f th e s to c k h o ld e rs a g a in s t
im proper and in many in s ta n c e s f r a u d u le n t u se s o f t h e i r
funds* S in ce th e p a ssa g e o f th e a c t , and th e g r e a t e r re g a rd
29
f o r th e s t o c k h o l d e r s i n t e r e s t s shorn by th e le a d in g i n v e s t
ment com panies, th e p u b l i c ’ s c o n fid e n ce i n th e in v estm en t
company h a s been m a t e r i a l l y stre n g th e n e d *
In v estm e n t com panies may be c l a s s i f i e d b ro a d ly as
c lo s e d -e n d -o r open-end fu n d s* 26 T h is d i s t i n c t i o n i s p r i
m a r ily i n th e m anner in w hich th e s e c u r i t i e s a re bought and
so ld r a t h e r th a n in a fu n d am en tal d i f f e r e n c e in o p e r a tin g
m ethods; The c lo s e d -e n d fund a s a r u l e g e n e r a l l y h a s both
common sto c k and s e n io r c a p i t a l i n th e form o f bonds o r
p r e f e r r e d stock * The term , c lo s e d -e n d , i s employed because
th e amount o f c a p i t a l i s fix e d * The s e c u r i t i e s o f th e
c lo s e d -e n d fu n d s a re in most in s ta n c e s tra d e d on a s e c u r i t y
exchange*
S e c u r i t i e s o f th e open-end fu n d s a re n o t tra d e d upon
a s e c u r i t y exchange, b u t a r e redeemed by th e fund i t s e l f a t
a p p ro x im a te ly th e n e t a s s e t v a lu e th ro u g h an in v e stm e n t
d e a le r* A n o th er d i s t i n c t i o n commonly made among in v e stm e n t
com panies i s betw een th o se h av in g o n ly common sto c k o u t
s ta n d in g and th o s e com panies h av in g s e n io r c a p i t a l i n a d d i
t i o n to th e common stock* The l a t t e r i s more commonly
r e f e r r e d to as a le v e r a g e company* Alm ost a l l le v e ra g e
com panies have a l i m i t a t i o n on th e amount o f c a p i t a l t h a t
can he issu e d *
Pft
W iesen b erg er, o cit*, p* 12*
The in v e stm e n t p o l i c i e s o f th e in v e stm e n t companies
vary* Some a re f u l l y in v e s te d a t a l l tim e s in a w e ll
d i v e r s i f i e d p o r t f o l i o o f common s to c k s , making no e f f o r t to
f o r e c a s t th e up and down movements o f th e m arket* A b a la n c e d
fund i s th e more c o n s e r v a tiv e ty p e m a in ta in in g v a rio u s p r o
p o r t i o n s in s e le c te d common and p r e f e r r e d sto c k s and bonds*
Some fu n d s a r e o p e ra te d by a tte m p tin g to c a tc h th e up and
down sw ings o f th e m arket as does th e s to c k tra d e r* The
l a t t e r ty p e o f fund p ro v id e s a more s p e c u la tiv e elem ent th a n
does th e f u l l y in v e s te d o r b a la n ce d funds* Numerous o pen-
end fu n d s s p e c i a l i z e in a p o r t f o l i o dom inated by one ty p e o f
s e c u r i t y o r by th e s e c u r i t i e s o f one in d u s tr y such as th e
p u b lic u t i l i t i e s o r th e r a i l r o a d s . W iesen b erg er has sum
m arize d in v estm en t company p o l i c i e s v e ry c l e a r l y a s f o l l o w s ; ^
C losed-E nd Open-End
G en eral I n v e s t - b a la n c e d funds
ment P o l i c i e s
d i v e r s i f i e d common
s to c k fu n d s
b a la n c e d fund s
d i v e r s i f i e d common s to c k
fund s
C a p ita l
S tr u c tu r e
s p e c i a l t y fu nds s p e c i a l t y funds
m o stly m u ltip le s i n g l e s t r u c t u r e w ith one
m ajo r e x c e p tio n
P u rc h a s a b le i n open m ark et from a u th o r iz e d in v e stm e n t
th ro u g h b ro k e rs d e a l e r s a t a s s e t v a lu e
p lu s s t a t e d commission
S a le a b le i n open m arket to fund a t l i q u i d a t i n g
th ro u g h b ro k e rs v a lu e l e s s redem ption fe e
i n some c a se s
$
d <
I b i d . , p . 35#
The open-end company had i t s o r i g i n in B oston, and
became p o p u la r a f t e r 1929 when th e s p e c u la tiv e a p p e a l o f th e
le v e ra g e s h a re s waned* S in ce 1929 alm o st a l l o f th e i n v e s t
ment com panies form ed have been o f th e open-end type* An
open-end company i s r e q u ir e d to re p u rc h a s e i t s o u ts ta n d in g
s h a r e s a t th e demand o f th e s to c k h o ld e r a t th e a s s e t v a lu e
l e s s i n some i n s t a n c e s a redem ptio n fee* Open-end flands,
u s u a l ly o f th e n o n -le v e ra g e ty p e , a re c o n tin u o u s ly o f f e r i n g
new s h a r e s , hence th e c o n n o ta tio n : open-end#
In ch o o sin g an in v e stm e n t company s e c u r i t y th e
i n v e s t o r 's o b j e c ti v e o f income and c o n s e rv a tio n o f c a p i t a l ,
, to g e th e r w ith th e e x te n t o f s u p e rv is io n d e s ir e d a re th e
p rim a ry c o n s id e r a tio n s # The i n v e s t o r m ust d eterm in e h i s
o b j e c t i v e , a f t e r which th e s e l e c t i o n o f th e p r o p e r ty p e o f
s e c u r i t y to meet th e o b j e c t i v e may be a t t a i n e d by s e l e c t i n g
th e a p p r o p r ia te ty p e o f fund* The m ost numerous and w e ll
known a re th e common sto c k funds# B alanced fu n d s a r e
a v a i l a b l e to meet th e re q u ire m e n ts o f a w e ll rounded i n v e s t
ment program* The degree o f s u p e r v is io n th e i n v e s to r deems
n e c e s s a r y i s r e f l e c t e d i n th e s e l e c t i o n o f th e fu n d ; by
s e l e c t i n g a b a la n c e d fund th e e n t i r e job o f s u p e r v is io n may
be r e l i n q u is h e d , o r t h e i n v e s t o r may d i v e r s i f y i n s e v e r a l
segm ents o f t h e s e c u r i t y m arket by i n v e s ti n g in s p e c i a l t y
fu n d s d e te rm in in g h im s e lf when and what s e c u r i t i e s a r e to
be bought and sold#
32
The i n v e s t o r who p u rc h a s e s th e common s to c k o f th e
m u lt i p le c a p i t a l s t r u c t u r e company i s p u rc h a s in g a le v e r a g e
s e c u r i t y , and b ecau se o f th e v o l a t i l e n a tu r e o f le v e ra g e
s h a r e s , i t i s e s s e n t i a l t h a t th e p r i n c i p l e o f le v e ra g e be
u n d e rsto o d * L everage s h a re s ten d to move much f a s t e r th a n
th e g e n e r a l s to c k m a rk e t, depending upon th e d eg ree o f
le v e r a g e ; w ith o u t u n d e rs ta n d in g le v e r a g e th e i n v e s t o r may
be c o n fro n te d w ith a s t o n is h in g l y l a r g e p r o f i t s o r lo s s e s *
lihenever t h e r e e x i s t s c a p i t a l s e n io r to th e common s to c k ,
le v e r a g e i s p re s e n t* T h is s e n io r c a p i t a l i s m ost commonly
i n th e form o f bonds* L everage s h a re s a re n o t r e s t r i c t e d ,
how ever, to com panies h av in g bonds o u tsta n d in g * O ther form s
o f in d e b te d n e s s such as bank lo a n s and p r e f e r r e d s to c k s o r
co m b in atio n s o f lo a n s and p r e f e r r e d s to c k s c r e a t e le v e ra g e *
The p r i n c i p l e o f le v e ra g e i n o p e r a tio n may be d em o n stra te d
more c l e a r l y by com paring two h y p o t h e t i c a l in v e stm e n t
In v estm e n t Company X
In v e stm e n t p o r t f o l i o $ 1 0 ,0 0 0 ,0 0 0
1 .0 0 0 .0 0 0 s h a re s common s to c k $ 1 0 ,000,000
In v estm e n t Company Y
In v e stm e n t p o r t f o l i o $ 2 0 ,0 00,00 0
Bank lo a n $ 1 0 ,0 0 0 ,0 0 0
1 .0 00.00 0 s h a re s
common s to c k $ 1 0 ,0 0 0 ,0 0 0
$2 0 , 000,000
I b i d ; , p , 23;
A s s e ts
L i a b i l i t i e s
A s s e ts
L i a b i l i t i e s
33
The a s s e t v a lu e o f th e common s to c k o f b o th companies
i s #10 a sh are* The s h a r e s o f In v e stm e n t Company X m i l l
r i s e and f a l l g e n e r a lly i n c o n fo rm ity w ith th e changes i n
th e sto c k m arket av erag es* A 20$ m arket r i s e m i l l in c r e a s e
b o th p o r t f o l i o s by 20$, X r i s i n g to # 1 2 ,00 0,000 and Y r i s i n g
to # 2 4 ,0 0 0 ,0 0 0 . X s h a r e s m il l now be w orth #12 a f t e r a 20$
g a in . B ecause th e bank lo a n rem ains c o n s ta n t, #14,000,000
o f Y p o r t f o l i o w i l l a p p ly to th e 1 ,0 0 0 ,0 0 0 Y s h a r e s g iv in g a
v a lu e o f #14 p e r s h a r e . Y s h a r e s , h a v in g le v e r a g e i n th e
form o f th e bank lo a n , have r i s e n 40$ w h ile X s h a r e s have
r i s e n 20$ w ith th e g e n e r a l m arket* When th e m arket i s de
c l i n i n g , th e r e v e r s e w i l l o c c u r w ith le v e r a g e s h a re s d e c lin in g
more p r e c i p i t o u s l y th a n th e g e n e r a l m arket* I f th e two
p o r t f o l i o s s h rin k 20$ to # 8 ,0 0 0 ,0 0 0 and # 1 6 ,000,000 f o r X
and Y com panies r e s p e c t i v e l y , X s h a re s w i l l be w orth | 8 and
Y s h a re s w i l l be w orth #6* A gain th e bank lo a n h a s rem ained
c o n s t a n t , le a v in g # 6 ,0 0 0 ,0 0 0 o f th e Y p o r t f o l i o to a p p ly
a g a i n s t 1 ,0 0 0 ,0 0 0 sh a re s* The Y le v e ra g e s h a re s have de
c li n e d 40$ w h ile X s h a r e s d e c lin in g w ith th e g e n e r a l m arket
have shrunk b u t 20$.
The s c a l e o f r i s k s o f f e r e d by le v e r a g e s h a re s i s
wide* B efo re s e l e c t i n g le v e r a g e s h a r e s , th e i n v e s to r m ust
d e te rm in e th e amount o f r i s k he i s w i l l i n g to assume*. Con
s e r v a t i v e le v e r a g e s h a r e s a r e b u t s l i g h t l y more s p e c u la tiv e
th a n n o n -le v e ra g e s h a r e s . M oderate le v e r a g e sh a re s a re more
v o l a t i l e th a n th e c o n s e r v a tiv e le v e r a g e s h a r e s ; h ig h le v e ra g e
s h a re s o f f e r th e o p p o r tu n ity f o r th e g r e a t e s t p r o f i t , h u t a t
th e same tim e th e g r e a t e s t r i s k o f l o s s . D uring p ro sp e ro u s
tim e s h ig h le v e r a g e b e n e f i t s th e s to c k h o ld e r, but i t i s an
a d v e rse f a c t o r d u rin g p e r io d s o f d e p re s s io n , To i l l u s t r a t e
th e l a t t e r , th e e x p e rie n c e o f th e E n g lish t r u s t s in s u r v iv in g
th e d e p re s s io n o f th e 1930?s was p r i m a r il y due to th e low dr
”g e a ra g e w o r le v e r a g e when c o n tr a s te d to th e S co tch t r u s t s
t h a t perform ed much more s p e c t a c u l a r l y d u rin g th e p re c e d in g
boom d e c a d e . The p rim a ry re a so n was t h a t th e E n g lis h t r u s t s
had looser le v e ra g e th an t h e S co tch t r u s t s , In C h ap ters Y,
YI, and YII v a rio u s fo rm u la p la n s w i l l be a p p lie d i n i n v e s tin g
in th e s e c u r i t i e s o f an open-end and a c lo se d -e n d company,
b o th o f w hich do n o t p o s s e s s le v e r a g e , A s i m il a r p ro c e d u re
w i l l be fo llo w ed in i n v e s tin g in th e s e c u r i t i e s o f a company
w ith c o n s e r v a tiv e le v e ra g e and a n o th e r company w ith h ig h
l e v e r a g e . The e f f e c t s o f le v e ra g e sh o u ld be more a p p a re n t
when a p p r a is in g t h e o p e r a tio n o f h y p o t h e t i c a l fun ds i n v e s t i n g
in th e s e le v e ra g e sh ares*
I t i s p ro p e r to d e s c r ib e b r i e f l y th e n a tu r e and p o l i c y
o f th e s e f o u r in v estm en t com panies p r i o r to th e o p e ra tio n o f
any h y p o t h e t i c a l fund i n v e s ti n g in t h e i r s e c u r i t i e s , Lehman
C o rp o ra tio n and S t a te S t r e e t In v estm e n t C o rp o ra tio n a r e o f
th e n o n -le v e ra g e v a r i e t y ; G eneral Am erican I n v e s to r s Company,
I n c , i s a c o n s e rv a tiv e le v e r a g e company, and T r i- C o n tin e n ta l"
35
C o rp o ra tio n i s a h ig h le v e ra g e company*
Lehman B ro th e rs founded th e Lehman C o rp o ra tio n , a
n o n -le v e ra g e company, in 1929, and u n t i l O c to b er, 1941 a l l
d i r e c t o r s were p a r t n e r s , em ployees, o r o f f i c e r s o f th e c o r
p o ra tio n # In acco rd an ce w ith th e re q u ire m e n ts of th e I n v e s t
ment Company Act o f 1940 a new board was e l e c t e d , b u t th e
fund i s s t i l l u n d e r t h e management s u p e rv is io n o f Lehman
B r o th e r s , th e p a r t n e r s o f which s t i l l own a s u b s t a n t i a l
p o r tio n o f t h e o u ts ta n d in g s to c k ; The management p o lic y has
been one o f wide d i v e r s i f i c a t i o n in common s to c k s w ith
d iv id e n d income param ount# About 78fb o f th e p o r t f o l i o was
i n common s to c k s , w ith a b o n t 10fo i n bonds and p r e f e r r e d
s to c k s a t th e end o f 1945. The l a r g e s t h o ld in g s were con
c e n tr a te d in p u b lic u t i l i t y s to c k s , 20$>, and i n o i l s h a r e s ,
10 f o.
The lo n g -te rm p erfo rm ance re c o rd shows Lehman Cor
p o r a t i o n ’ s p erfo rm an ce to be among th e b e s t ; There i s b ut
one c la s s o f common s to c k , which h a s had a c o n s i s t e n t
d iv id e n d record # I t i s c o n sid e re d a re g u la te d company u n d e r
th e In v e stm e n t Company Act o f 1940, and s u b s t a n t i a l l y a l l
income and c a p i t a l g a in s a re p a id o u t to th e s to c k h o ld e rs#
The s to c k i s q u ite a c t iv e on th e New York Stock Exchange#
At th e end o f 1945 t h e r e were o u ts ta n d in g 1 ,9 4 6 ,7 7 7 sh a re s
owned by 10,728 sto c k h o ld e rs#
S ta te S t r e e t In v estm en t C o rp o ra tio n was formed in 1924
36
a s a p r i v a t e in v e s tm e n t fund* I t s sh a re s were n o t o f f e r e d
to th e g e n e r a l p u b lic u n t i l 1932* I t i s c o n sid e re d to be a
d i v e r s i f i e d common sto c k fund* To a much g r e a t e r e x te n t th a n
m ost com panies th e management h a s c o n c e n tra te d upon is s u e s o r
i n d u s t r i e s t h a t th e management viewed fa v o ra b ly * I t i s a ls o
one o f th e few open-end fu n d s t h a t have sta y e d o u t o f th e
m arket by a d o p tin g a p o l ic y o f ta k in g th e e q u iv a le n t o f a
cash p o s i t i o n d u rin g u n fa v o ra b le p e r io d s when s e c u r i t y p r i c e s
?
mere r i s i n g . The p erfo rm an ce r e c o rd o f t h i s fu nd h a s a ls o
been an o u ts ta n d in g one* A t th e end o f 1940 th e r e were
9,8 6 5 sh a re h o ld e rs *
The company i s c o n sid e re d to be a r e g u la te d o n e.
S e c u r i t i e s a re d i s t r i b u t e d th ro u g h Vance, S an ders and Company
o f B oston, M a ssa c h u se tts* A s e l l i n g charge o f 6$ i s l e v ie d ,
4$ on t r a n s a c t i o n s of #100,000 o r m ore. A red em p tio n fe e
o f 1 fo o f th e n e t a s s e t v a lu e p e r s h a re i s charged when th e
s h a re s a re redeemed*
G en eral Am erican I n v e s t o r s Company, I n c . , a c o n s e r
v a tiv e le v e ra g e company, was form ed in 1929 as a m erger o f
two in v e s tm e n t com panies. W hile th e company o p e r a te s a
d i v e r s i f i e d common s to c k fu n d , s i z a b l e amounts have been
in v e s te d in s p e c i f i c s in g le i s s u e s . At th e end o f 1945 th e
l a r g e s t h o ld in g s were in p u b lic u t i l i t i e s , 24$> o f t o t a l
a s s e t s , and about 12^ o f t o t a l a s s e t s were i n r e t a i l tr a d e
is s u e s * The management re c o rd i s c o n sid e re d b e t t e r th a n th e
a v e ra g e , one c h a r a c te r iz e d by s te a d y Improvement r a t h e r th a n
by s p e c t a c u l a r p e rfo rm a n c e . The common s to c k i s re g a rd e d as
one o f th e m ost c o n s e rv a tiv e o f th e le v e r a g e s h a r e s , th e
s e n io r c a p i t a l amounts to ab o u t o n e - s i x th o f th e t o t a l a s s e ts #
le v e r a g e i s p ro v id e d i n th e form o f b o th bonds and p r e f e r r e d
sto ck s* Both th e p r e f e r r e d and common s to c k s a re l i s t e d on
th e Hew York S tock Exchange# Ownership i s h e a v ily concen
t r a t e d w ith 3,050 common s to c k h o ld e rs a t th e end o f 1945*
T r i- C o n t i n e n t a l C o rp o ra tio n was a ls o formed in 1929
as a m erger* D e s p ite th e name t h e r e have been no s u b s t a n t i a l
f o r e ig n h o ld in g s f o r y e ars* The common s to c k , v e ry a c t iv e
on th e Hew York S tock Exchange, i s c o n s id e re d to be one o f
th e h ig h e s t le v e ra g e sh a re s* On December 31, 1945 about 55$
o f th e t o t a l a s s e t s were in v e s te d i n common s to c k s , 5$ i n
bonds, and 10$ i n p r e f e r r e d s to c k s ; S e n io r s e c u r i t i e s i n th e
form o f d e b e n tu re s and $6 c u m u lativ e p r e f e r r e d s to c k p ro v id e
th e le v e r a g e . D iv id en d s have n o t been c o n tin u o u s ; th e 200
d iv id e n d p a id i n 1945 on th e common s to c k was th e f i r s t
s in c e 1937* I t i s a ls o a r e g u la te d company* I t th e end of
1945 th e r e were 1 0 ,7 4 3 common s to c k h o ld e rs *
CHAPTER V
THE CONSTANT RATIO PLAN
The p u rp o se o f a l l fo rm u la p la n s i s to tim e s a l e s of
s to c k s a t p re d e te rm in e d advances in v a lu e , and to in d u ce
p u rc h a s e s a f t e r s i m i l a r l y d eterm in ed d e c lin e s# A dherence to
a fo rm u la p la n e lim in a te s th e p s y c h o lo g ic a l h a r r i e r s which
p re c lu d e buying s to c k s when t h e i r l e v e l i s low and s e l l i n g
s to c k s when t h e i r l e v e l i s high#
B ecause th e c o n s ta n t r a t i o p la n i s th e p a re n t p la n
from which a l l o t h e r fo rm u la p la n s stem , i t i s advan tageou s
to p r e s e n t and d is c u s s t h i s p la n f i r s t # The c o n s ta n t r a t i o
i s one ty p e o f p la n w hich r e q u i r e s no f o r e c a s t# I t i s
p r i m a r il y s u i t e d f o r an in v e stm e n t fund t h a t i s k e p t f u l l y
in v e s te d a t a l l tim e s i n which th e in v e s tm e n t o b j e c ti v e s a re
s a f e t y and income# The p la n does n o t o f f e r a la r g e c a p i t a l
in c re m e n t, b u t th e im p o rta n t a s p e c t o f t h e p la n i s t h a t i t
p re c lu d e s th e i n v e s t o r going too h e a v ily i n to common sto c k s
a t o r n e a r t h e peak o f a b u l l m arket o r from g o in g i n to
bonds when sto c k p r i c e s a r e low# The i n v e s t o r can r e a l i z e a
sm a ll grow th o f c a p i t a l when th e m arket goes up o r down and
th e n r e t u r n s to th e l e v e l o f p r i c e s e x i s t i n g when he i n i t i a l l y
in v e s te d th e fu n d . At th e same tim e i t m ust be em phasized
t h a t th e p la n cannot p re v e n t c a p i t a l d e p r e c ia tio n d u rin g a
b e a r m a rk e t, b u t i t re n d e rs h o ld in g common s to c k s i n such
i n s t a n c e s l e s s r i s k y th a n i f no p la n were fo llo w ed a t a l l *
The c o n s ta n t r a t i o p la n i s b ased upon th e th e o ry t h a t
i t i s unknown in what d i r e c t i o n a n d -to what e x te n t s to c k
p r i c e s w i l l s h i f t . I n e sse n c e th e p la n c o n s i s t s o f d e t e r
m ining a r a t i o o f s to c k s to bonds in a fu n d , and m a in ta in in g
t h i s r a t i o by r e a d j u s t i n g th e r a t i o w henever t h e f ix e d r a t i o
i s c o n s id e ra b ly changed.
There i s no d e f i n i t e p ro c e d u re f o r d e te rm in in g what
th e o r i g i n a l sto c k -b o n d r a t i o sh o u ld b e . T h is r a t i o i s
a r b i t r a r i l y determ in ed by w h atev er i s c o n sid e re d most s u i t a b l e
f o r a p a r t i c u l a r in v e stm e n t program ; The fund m ight be
s t a r t e d a t a 50/30 sto ck -b o n d r a t i o , o r a 30/70 sto c k -b o n d
r a t i o o r any o t h e r r a t i o c o n sid e re d d e s ir a b le * More con
s e r v a t i v e fu n d s may d e s ir e to h o ld a c e r t a i n fix e d p e rc e n ta g e
o f a fund p e rm a n en tly in bonds and a p p ly th e c o n s ta n t r a t i o
p la n to th e b a la n c e o f th e fund* T h is c o n s e rv a tiv e p ro c e d u re
was fo llo w ed by V a ssa r u o lle g e when th e V a ssa r p la n was
in a u g u ra te d # A p o r t io n o f th e V assar endowment was w ith h e ld ,
and th e p la n a p p lie d to th e b a la n c e o f t h e endowment#
l o r th e p u rp o se s o f e x p la in in g how th e p la n o p e r a te s ,
th e o r i g i n a l s t a r t i n g r a t i o w i l l be e s t a b l is h e d a r b i t r a r i l y
a t 5 0 /5 0 . I f th e p r i c e s o f s to c k s advance w ith bonds c o n s ta n t
th e sto c k p o r t io n of th e fund w i l l be g r e a t e r th an 50$, and
th e bond p o r t io n w i l l be l e s s th a n 50$. To b r in g th e r e l a t i o n
sh ip back to th e o r i g i n a l 50/50 r a t i o , i t i s n e c e s s a ry to s e l l
40
some s to c k s and buy bonds* 'M s p la n i s an example o f th e
c o n s ta n t r a t i o p la n i n i t s most e le m e n tary form . In a p p ly in g
th e p la n th e f i r s t d e c is io n th e i n v e s t o r must make i s th e
d e te r m in a tio n o f th e o r i g i n a l sto c k -b o n d r a t i o #
H aving d eterm ined th e sto c k -b o n d r a t i o , th e i n v e s to r
m ust th e n d e te rm in e when a d ju s tm e n ts in th e r a t i o should be
made# L im its must be s e t , which when rea ch e d a r e employed
a s a s i g n a l t h a t i t i s tim e to r e s t o r e th e fund to th e
o r i g i n a l r a t i o # The need f o r making f r e q u e n t a d ju s tm e n ts in
th e sto c k -b o n d r a t i o i s re d u c e d by in c r e a s in g th e d is ta n c e
betw een th e o r i g i n a l r a t i o and th e re a d ju s tm e n t l im i ts # The
f a r t h e r away th e l i m i t s a r e e s t a b l is h e d , th e g r e a t e r i s th e
p r o f i t t h a t may be r e a l i z e d from each tr a n s a c tio n # However,
i t m ust be r e a l i z e d t h a t when l i m i t s a re e s t a b l is h e d f a r
a p a r t , s e v e r a l moves m ight be m issed* I f i t i s d ecid ed t h a t
a d ju s tm e n ts in th e o r i g i n a l 50/50 sto c k -b o n d r a t i o w i l l be
made a f t e r sto c k p r i c e s r i s e u n t i l th e v a lu e o f th e s e c u r i t i e s
in th e fund a r e a t a r a t i o o f 6 0 /4 0 , a g r e a t e r p r o f i t w i l l be
r e a l i z e d th a n i f th e fund w ere e q u a liz e d a f t e r th e v a lu e o f
s to c k s r i s e to a p o in t a t which a 55/45 r a t i o i s e s ta b lis h e d *
More th a n l i k e l y th e b ro a d e r l i m i t s w i l l r e q u i r e few er ad
ju s tm e n ts in th e sto c k -b o n d r a t i o * T here i s more d an g er,
how ever, o f m is s in g a move w h ile w a itin g f o r th e b ro a d e r
m arket sw ing from a 50/50 r a t i o to a 60/40 r a t i o * W ith a
s t a r t i n g 50/50 r a t i o , a 22*2# in c r e a s e in th e p r i c e s o f s to c k s
n i l l change th e r a t i o to 5 5 /4 5 ; i f s to c k p r i c e s d e c lin e
in s t e a d o f r i s i n g , an 18.2% d e c lin e H i l l produce a 45/55
r a t i o . I n s e t t i n g th e l i m i t s f u r t h e r away from th e o r i g i n a l
50/50 sto c k -b o n d r a t i o , a t 6 0 /4 0 , an advance o f 50% in th e
p r i c e s o f s to c k s i s r e q u ir e d ; c o n v e rs e ly , a d e c lin e o f 53 1/3%
in sto c k p r i c e s H i l l red u ce th e r a t i o to 4 0 /6 0 . In a m arket
c h a r a c te r iz e d by Hide f l u c t u a t i o n s , g r e a t e r p r o f i t s may be
r e a l i z e d by e s t a b l i s h i n g 60/40 l i m i t s ; how ever, i n a n a rro w ly
f l u c t u a t i n g m a rk e t, l i m i t s e s t a b l is h e d a t 55/45 would le s s e n
th e danger o f m is s in g a move c o m p le te ly .
When th e i n v e s t o r h a s d eterm in ed th e l i m i t s to th e
f l u c t u a t i o n s in th e sto c k -b o n d r a t i o , th e r e a re s e v e r a l
m ethods employed in r e s t o r i n g th e fund to th e o r i g i n a l 50/50
sto c k -b o n d r a t i o . The o r i g i n a l r a t i o can be r e s to r e d each
tim e th e fund i t s e l f advances o r d e c l in e s a s p e c i f i e d p e r
c e n ta g e . B e fo re d e c id in g to b a se changes upon f l u c t u a t i o n s
in th e fund i t s e l f , t h e i n v e s to r sh o u ld c o n s id e r th e s i z e o f
th e p o r t f o l i o , how c lo s e l y th e i n v e s t o r can s u p e rv is e th e
fu n d , and how o f te n th e i n v e s to r w ants to make changes from
s to c k s to b o n d s. I f th e fund i s s m a ll, i t i s p r e f e r a b l e n o t
to make to o f r e q u e n t changes becau se commission c h arg es and
t r a n s f e r ta x e s a re l i k e l y to become d i s p r o p o r t io n a te l y l a r g e .
An a l t e r n a t i v e method b a se s th e l i m i t s upon th e
f l u c t u a t i o n s i n a m arket a v e ra g e . The Dow Jo n e s I n d u s t r i a l
A verage, commonly r e f e r r e d to as th e DJIA, o r th e Dow Jo n es
42
Com posite A verage, o r a n o th e r o f th e w e ll known m arket
av e ra g e s may be employed#^® The r e s u l t s would n o t be th e
same a s b a sin g changes upon th e f l u c t u a t i o n s o f th e fund
i t s e l f , f o r n o t a l l s e c u r i t i e s move in th e d i r e c t i o n and to
th e same e x te n t t h a t a m arket in d ex d o es, The m e r it o f
s i m p l i c i t y i s r e t a in e d by o b v ia tin g th e n e c e s s i t y and ad
m i n i s t r a t i v e d e t a i l o f com puting th e r a t i o o f s to c k s to
bonds i n an in v e stm e n t p o r t f o l i o ;
The p e rio d s e le c te d f o r th e a p p li c a t io n o f th e con
s t a n t r a t i o p la n th ro u g h th e o p e ra tio n o f h y p o th e tic a l
fu n d s—March 3, 1937 to December 31, 194-5— was s e le c te d
because on both d a te s th e DJIA. sto o d a t 193# A fund in v e s te d
i n th e s e c u r i t i e s co m p risin g th e DJIA would show no c a p i t a l
a p p r e c ia tio n on December 31, 1945.
I t i s assumed t h a t each h y p o th e tic a l fund was s t a r t e d
w ith #100,000; #50,000 was in v e s te d in a s e l e c te d in v e stm e n t
company s e c u r i t y , and #50,000 was in v e s te d i n th e Dow Jon es
30
f o r t y Bond A v erage, commonly r e f e r r e d to a s th e DJ 40 BA.
A f te r a 25$ in c r e a s e i n th e DJIA, enough s to c k s were so ld
and bonds bought to r e s t o r e th e o r i g i n a l 50/50 sto ck -b o n d
r a t i o # C o n v e rsely , a f t e r a 20$ d e c lin e i n th e DJIA, enough
s to c k s were bought and bonds so ld to r e s t o r e th e o r i g i n a l
^ See t a b l e XXXIV i n A ppendix f o r component s to c k s .
See t a b l e XXXV i n Appendix f o r component bond s.
50/50 sto c k -b o n d r a t i o * B qual d o l l a r v a lu e s were t r a n s f e r r e d
from s to c k s to bonds, o r from bonds to s to c k s a t each t r a n s
a c tio n * T h is would be d i f f i c u l t to acco m p lish i n buying and
s e l l i n g a c t u a l s to c k s and bonds* However, t h i s d i f f i c u l t y
was circu m v en ted by assum ing t h a t th e BJ 40 BA was bought o r
so ld r a t h e r th a n s p e c i f i c bonds*
The c o n s ta n t r a t i o p la n p ro d u c e s b e t t e r r e s u l t s th an
th e "buy and h o ld " p la n by f o r c in g th e s a le o f s to c k s in
r i s i n g m a rk e ts , and t h e i r p u rc h a se i n d e c lin in g m a rk e ts.
The p e rc e n ta g e r e t u r n on th e o r i g i n a l #100,000 i n v e s t
ment i n t h r e e o f th e f o u r fu n d s a p p ly in g th e c o n s ta n t r a t i o
p la n exceeded th e p e rc e n ta g e r e t u r n on th e same in v e stm e n t
by t h e "buy and h o ld " p l a n * ^ The a n n u a l income i s in c r e a s e d
th ro u g h th e program o f s e l l i n g s to c k s when y i e l d s a r e low and
buying them when y i e l d s a re h ig h . The fund in v e s te d in
G e n era l Am erican I n v e s t o r s common s to c k produced an av erag e
annual income o f 1 5 ,4 5 7 .6 4 o r a 5 .4 6 $ r e t u r n on th e o r i g i n a l
in v estm en t* T h is r e t u r n i s s l i g h t l y low er th a n th e 5#54$
r e t u r n y ie ld e d by i n v e s ti n g by th e "buy arid h o ld " p la n i n th e
same s e c u r i t y . B e t t e r r e s u l t s were produced when com paring
th e income from th e o t h e r t h r e e funds* The fund i n v e s te d i n
Lehman C o rp o ra tio n s to c k pro duced an av erag e ann ual income o f
$4,104*21 o r a 4*1$ y i e l d w hich exceeded th e 4*05$ y i e l d u n d e r
th e "buy and h o ld " plan* The fund in v e s te d i n S t a te S t r e e t
See table X X L in Appendix*
44
In v e stm e n t s to c k p roduced an av erag e annual income o f
$ 4 ,1 5 9 .0 8 o r a 4.15% r e t u r n which e x c e lle d t h e 3 .8 9 fo r e t u r n
u n d e r th e ”buy and h o ld 1 1 p la n . The a v e ra g e a n n u al income o f
$ 1 ,9 2 2 .7 6 from th e fu n d in v e s te d i n T r i- C o n tin e n ta l C orpor
a ti o n common s to c k produced a 1 .9 2 $ r e t u r n which e x c e lle d
th e .51$ "buy and h o ld ” p la n r e t u r n o v e r th r e e times*.
A lthough b e t t e r income was produced by th e c o n s ta n t
r a t i o p la n o v e r t h a t p rod uced by th e "buy and h o ld ” p la n i n
th r e e o u t o f fo u r fu n d s * t h e c o n s ta n t r a t i o p la n d id n o t
p ro d u ce b e t t e r incoiae th an th e a v e ra g e an n u al 4 .3 5 $ y i e l d on
th e DJIA f o r th e same n in e y e a r p e r i o d . 32 Only i n th e case
o f th e fund in v e s te d in G en eral Am erican I n v e s t o r s common
s to c k d id th e c o n s ta n t r a t i o p la n p rod uce an a v erag e r e t u r n
on th e o r i g i n a l in v e s tm e n t, 5.46$>whi.oh exceeded th e 4 .3 5 $
y i e l d on th e DJIA.
In th e p r e s e r v a ti o n o f c a p i t a l th e c o n s ta n t r a t i o p la n
p ro d u ced r e s u l t s b e t t e r th a n th e DJIA i n th r e e o f th e fo u r
f u n d s .33 $100*000 in v e s te d i n th e s e c u r i t i e s co m p risin g th e
DJIA would have sh o rn no c a p i t a l a p p r e c ia tio n on December 31,
1945. The fund in v e s te d i n G e n e ra l Am erican I n v e s t o r s common
sto c k showed on t h a t d a te a 2 7 .6 5 $ c a p i t a l a p p r e c i a ti o n ; th e
fund in v e s te d i n Lehman C o rp o ra tio n s to c k , a 17.76$ c a p i t a l
a p p r e c i a ti o n ; th e fund in v e s te d i n S t a te S t r e e t I n v e s t o r s
3g See t a b l e X U i n Appendix#
S3 Loc. c i t i
45
s to c k , a 4 .7 2 $ c a p i t a l d e p r e c i a ti o n ; and th e fund in v e s te d
i n T r i- C o n tin e n ta l C o rp o ra tio n common s to c k , a 28.33$
c a p i t a l a p p re c ia tio n ,.
C a p it a l p r e s e r v a ti o n u n d e r th e c o n s ta n t r a t i o p la n
e x c e lle d th e c a p i t a l p r e s e r v a ti o n u n d er th e ”buy and h o ld ”
p la n i n th r e e o u t o f f o u r f u n d s .3^ S i g n i f i c a n t r e s u l t s
l e r e a ch iev e d by th e fund s in v e s te d in S t a te S t r e e t I n v e s t o r s
and T r i- C o n tin e n ta l C o rp o ra tio n s to c k s ; Under th e ”buy and
h o ld ” p la n th e fund in v e s te d i n S t a te S t r e e t I n v e s t o r s s to c k
would have d e p re c ia te d 1 7 .1 $ a t th e end o f th e n in e y e a r
p e rio d on December 31, 1945. The fund in v e s te d by th e con
s t a n t r a t i o p la n d e p re c ia te d b u t 4.72%. The fund in v e s te d
by th e c o n s ta n t r a t i o p la n in T r i- C o n tin e n ta l common s to c k
showed a 2 8 .3 3 $ c a p i t a l a p p r e c ia tio n a t th e end o f th e n in e
y e a r p e r i o d ; u n d e r t h e "buy and h o ld ” p l a n , th e c a p i t a l
a p p r e c ia tio n would have been 2 ;5 9 $ ;
The le v e ra g e p r i n c i p l e i s d e m o n stra te d by th e fund
in v e s te d in T r i- C o n tin e n ta l C o rp o ra tio n common s t o c k . B y
December 31, 1941 th e DJIA d e c lin e d 42$ to 111 from 193 on
March 3, 1937. D uring t h e same p e r io d th e p r i c e o f T r i -
C o n tin e n ta l common s to c k d e c lin e d 91$ from $9 ,625 to ##75.
On December 31, 1945 th e DJIA x ’o se 74$ from 111 to 193;
See t a b l e XXI i n A ppendix.
35
See table IV in Appendix;
46
Tlie p r i o e o f T r i- C o n tin e n ta l ro s e 1,216% from $ .7 5 to $9*875
d u rin g t h i s same p e r io d in which th e DJIA ro s e 74%. In b o th
d e c lin in g and in r i s i n g m ark ets t h i s le v e r a g e s h a re moved
much more r a p id ly th a n th e g e n e r a l m arket* On December 31,
1945 th e p r i c e o f T r i- C o n t i n e n t a l common sto c k was up b u t
|* 2 5 from $9*625 on th e d a te th e fund was o r i g i n a l l y in v e s te d ;
y e t th e v a lu e o f th e t o t a l fund ro se from $100,000 to
$ 1 2 8 ,3 3 2 .1 9 , a 28*33%. c a p i t a l a p p r e c ia tio n ;
The n in e y e a r p e r io d s e l e c te d from M arch, 1937 th ro u g h
December, 1945 may be s a id to be a d o w n -a n d -th e n -u p -to -th e -
p o in t- o f - b e g in n in g m a rk e t. G ra p h ic a lly i t resem b les a W w ith
193 DJIA th e s t a r t i n g p o in t on March 3, 1937, down to 97 DJIA
on March 31, 1938, up to 159 DJIA on November 10, 1938, down
to 93 DJIA on A p r i l 28, 1942, th e n back up to 193 DJIA on
December 31, 1945;. The c o n s ta n t r a t i o p la n prod uced a p r o f i t ‘
i n t h i s d o w n -a n d -th e a - u p - to -th e - p o in t-o f -b e g in n in g m arket
b e fo re th e p o in t o f b e g in n in g was reached*
On Septem ber 12, 1945 th e DJIA was a t 179 and th e p e r
s h a re p r i c e o f T r i- C o n tin e n ta l common s to c k was $7*625 o r
$2.00 lo w e r th a n $9*625 when th e fund was o r i g i n a l l y in v e s te d .
The v a lu e o f th e t o t a l fu n d , how ever, was up 11 • 2% to
§ 1 1 1 ,2 0 3 .5 9 . On December 30, 1944 th e DJIA was a t 152, and
th e p e r s h a re p r i c e o f G e n era l Am erican I n v e s t o r s common
36
See table IY in Appendix*
47
s to c k was down # 1 .8 7 5 to #13*00 from #14.875 on th e d a te th e
fund was o r i g i n a l l y in v e s te d ; However, th e t o t a l v a lu e o f
th e fu n d r o s e to #104,141*76 o r a 4 .1 4 $ c a p i t a l a p p re c ia tio n *
On th e same d a te th e p e r sh a re p r i c e o f Lehman C o rp o ra tio n
s to c k was down #5*50 t o #38*50 from #44*00 when th e fund was
o r i g i n a t e d . The v a lu e o f th e fund on t h a t d a te was # 9 7 ,5 2 5 .6 5 ,
r > Q
down 2*58$ w h ile th e p e r sh a re p r i c e was down 12*5$* ° On
December 31, 1945, w ith th e DJIA a t 193, th e p e r sh a re p r i c e
o f S t a t e S t r e e t I n v e s t o r s sto c k was down #11*10 to #53*90
from #65*00 on th e d a te o f th e o r i g i n a l in v estm en t* The
v a lu e o f th e fund on t h a t d a te , # 9 5 ,2 7 8 , was down 4*72$
w hereas th e p r i c e o f S t a te S t r e e t I n v e s t o r s s to c k d e c lin e d 17$.
I n an u p - a n d - th e n -d o w n -to - th e -p o ln t-o f -b e g in n in g m arket
th e c o n s ta n t r a t i o p la n a ls o showed a p r o f i t ; On December 31*
1937 w ith th e DJIA a t 121 th e p e r s h a r e p r i c e o f T r i-
C o n tin e n ta l common s to c k was #3*50 and t h e v a lu e o f th e fund
$58,219*88* The p r i c e p e r sh a re r o s e and by December 31, 1943
th e p r i c e f e l l to # 3 .6 2 5 , b u t th e tfalue o f th e t o t a l fund ro s e
39
22$ to $71,252. 07* & & e x am in atio n o f th e o t h e r fu n d s sub
s t a n t i a t e s th e c o n c lu sio n t h a t a p r o f i t i s produced i n an u p -
a n d -d o w n - to - th e -p o in t-o f -b e g in n in g m a rk e t, and a ls o in a down-
a n d - th e n - u p - to - th e - p o in t- o f - b e g in n in g m ark et *
See t a b l e I in Appendix*
38 See t a b l e I I i n A ppendix.
39 se e t a b l e IY in A ppendix;
A lthough th e c o n s ta n t r a t i o p la n does n o t p re v e n t
c a p i t a l d e p r e c i a ti o n , th e p la n does o f f e r a m easure o f p r o
t e c t i o n i n t h a t th e c a p i t a l d e p r e c ia tio n w i l l he l e s s th a n
t h a t u n d er a nbuy and h o ld1 1 p lan * The c o n s ta n t r a t i o p la n
e x c e ll s th e DJIA i n th e p r e s e r v a ti o n o f c a p i ta l * However,
in th e p ro d u c tio n o f income th e c o n s ta n t r a t i o p la n d id n o t
p ro d u ce as good r e s u l t s as th e y i e l d on th e DJIA w ith one
e x c e p tio n , th e fund in v e s te d i n G e n era l Am erican I n v e s t o r s
common stock* The im p o rta n t ad v an tag e o f b e t t e r income
a s s e r t e d f o r t h e fo rm u la method i s n o t s u b s ta n t ia t e d by an
e x am in a tio n o f th e r e s u l t s o f th e f o u r h y p o t h e t i c a l funds
in v e s ti n g by th e c o n s ta n t r a t i o plan*
T here i s a d i r e c t c o r r e l a t i o n betw een c a p i t a l a p p r e c i
a t i o n and th e v o l a t i l i t y o f th e s e c u r i t y s e l e c te d f o r
in v estm en t* The g r e a t e r th e v o l a t i l i t y o f th e s e c u r i t y ,
th e g r e a t e r th e c a p i t a l a p p r e c ia tio n o r p r e s e r v a tio n * The
two le v e r a g e s h a r e s , T r i- C o n tin e n ta l C o rp o ra tio n and G en eral
Am erican I n v e s t o r s produ ced much g r e a t e r c a p i t a l a p p r e c ia tio n
a t th e end o f t h e n in e y e a r p e r io d th a n d id th e n o n -le v e ra g e
sh a re s*
CHAPTER 71
THE MODIFIED CONSTANT RATIO PLAN
As i t mas p o in te d o u t in th e p r e v io u s c h a p te r , th e
c h ie f sh o rtco m in g o f th e sim p le c o n s ta n t r a t i o p la n i s th e
m o d erate p r o f i t o b ta in e d from s e t t i n g th e l i m i t s c lo s e to
th e o r i g i n a l s t a r t i n g r a t i o ; I n some m o d if ic a tio n s o f th e
sim p le c o n s ta n t r a t i o p la n th e s e l i m i t s a re s e t f a r t h e r
a p a rt*
The p la n employed by Y ale U n i v e r s i ty , c a lle d th e
Y ale P la n , i l l u s t r a t e s th e p r i n c i p l e m ith i t s s t a r t i n g r a t i o
o f 30$ s to c k s and 70$ bonds* A f t e r an a p p r e c ia tio n in s to c k s
to 40$ o f th e e n t i r e fu n d , enough e q u i t i e s a r e so ld to r e
duce th e s to c k p o r t io n to 35$ o f th e fund* I f th e m arket
c o n tin u e s to r i s e , a g a in re a c h in g th e 4 0 /5 0 r a t i o , th e
s e l l i n g p r o c e s s i s r e p e a t e d . I f th e m arket d e c lin e s u n t i l
s to c k s c o n s t i t u t e 15$ o f th e e n t i r e fu n d , enough bonds a re
s o ld and s to c k s p u rch a se d u n t i l s to c k s c o n s t i t u t e 20$ o f th e
e n t i r e fu n d , bonds b e in g 80$. The p ro c e s s i s re p e a te d in a
c o n tin u o u s ly d e c lin in g m a rk e t. The Y ale P la n ap p ea rs to be
d esig n ed to f i t a w id e ly f l u c t u a t i n g m arket inasm uch a s a
5 5 .5 $ i n c r e a s e i n s to c k p r i c e s would be r e q u ir e d to change
a 30/70 r a t i o to 4 0 /5 0 , and an in c r e a s e o f 2 3.8$ to a g a in
i n c r e a s e th e r a t i o from 3 5/65 to 4 0 /6 0 . I n a d e c lin in g
m a rk e t, a d e c lin e o f 5 8 ;8 $ would be n e c e s s a r y to change th e
50
r a t i o from 30/70 to 1 5 /8 5 , and a d e c lin e o f 29.5% to change
i t from 20/80 to 15/85%.
C h a r a c t e r i s t i c o f th e fo rm u la m ethod, th e Y ale P la n
f o r c e s th e s a l e o f s to c k s i n a r i s i n g m arket and f o r c e s
p u rc h a se s in a d e c lin in g m a rk e t. Such a p la n th e re b y e l i m i
n a te s th e p s y c h o lo g ic a l b a r r i e r s , th e d an g er o f optim ism and
p essim ism . G r e a te r p r o f i t p e r t r a n s a c t i o n i s p rod uced by
w a itin g f o r w ider m arket sw ings b e fo re a d ju s ti n g th e s to c k -
bond r a t i o . The Y ale P la n does n o t o p e r a te v e ry s u c c e s s f u ll y
i n a n a rro w ly f l u c t u a t i n g m a rk e t, b ecause th e p la n f o r e c a s t s
wide f l u c t u a t i o n s in d e te rm in in g when th e sto ck -b o n d r a t i o i s
to be a d ju s te d .
I n th e p a r t i c u l a r m o d ifie d c o n s ta n t r a t i o p la n
fo llo w ed i n th e o p e r a tio n o f th e h y p o t h e t i c a l fu n d s , t h r e e
su p p lem en tary r u l e s a re fo llo w ed m o d ify in g th e sim ple con
s t a n t r a t i o plan* The p u rp o se o f th e s e r u l e s i s to d e la y
th e p u rc h a se o f s to c k s i n d e c lin in g m a rk e ts . P a s t s to c k
m ark et b e h a v io r h a s i l l u s t r a t e d t h a t s e r io u s d e c lin e s a re
sharp and r e l a t i v e l y r a p i d , and t h a t im p o rta n t r e c o v e r ie s
a re g ra d u a l and slo w .
The b a s ic r u l e o f tim in g s a l e s o f s to c k a f t e r a 25%
in c r e a s e i n th e DJIA h a s been a p p lie d , b u t p u rc h a se s o f
s to c k a f t e r each 20% d e c re a se i n th e DJIA were m o d ified by
th r e e su p p lem en tary r u l e s .
The f i r s t su p p lem en tary r u l e t h a t was a p p lie d i n
51
a d d it i o n t o tiie b a s ic p rem ise i s known a s th e F e d e ra l R eserve
Board In d ex Rule* The r u l e i s based upon th e assum ption t h a t
i n a s e r io u s s to c k m arket d e c lin e th e r e i s a g e n e r a l sim i
l a r i t y betw een th e t r e n d o f s to c k m arket p r i c e s and th e tr e n d
o f b u s in e s s a c t i v i t y ; B u rin g th e 1929-1932 d e c lin e o f th e
31JTA from 386 to 41 th e F e d e ra l R eserve Board In d e x o f in d u s
t r i a l P ro d u c tio n d e c lin e d from 113 to 53; i n 1937-1938 th e
D i l i f e l l from 196 to 98 w h ile th e F e d e ra l R eserv e Board
In d ex d e c lin e d from 120 to 80* I t must be n o te d , how ever,
t h a t in p e rio d s o f r i s i n g b u s in e s s a c t i v i t y th e tr e n d s may
be d iv e rg e n t w ith th e F e d e ra l R eserve Board In d ex r i s i n g and
sto c k p r i c e s f a l l i n g * I t s u s e f u ln e s s i s lim ite d to p e rio d s
o f d e c lin in g b u s in e s s a c t i v i t y * A ccording to th e f e d e r a l
R eserve Board In d ex R ule no s to c k w i l l be p u rc h a se d u n t i l
th e d e c lin e i n th e F e d e r a l R eserve Board In d ex d u rin g a
month has slowed down to one p o i n t o r l e s s from th e p re v io u s
m onth’ s fig u re * The assu m p tio n i s t h a t when th e d e c lin e in
b u s in e s s a c t i v i t y slow s down to one p o in t a m onth, th e end
o f th e d e c lin e i s approaching* T h e re fo re , i t i s j u s t as
w e ll to buy n e a r th e b o tto m on th e way down as n e a r th e
bo tto m on t h e w a y up^ T h is i s th e f i r s t r u l e to p re c lu d e
s to c k p u rc h a s e s too soon in a r a p i d l y d e c lin in g m arket# The
second su p p lem en tary r u l e i s known a s th e 5% maximum p e r
c en tag e r u l e , and i s used i n c o n ju n c tio n w ith th e F e d e ra l
R eserve Board In d e x Rule* I t o p e ra te s on th e th e o r y t h a t
p e rh a p s th e r e a l bottom i s n ot e s t a b l is h e d by th e in d e x m ile#
T h e re fo re , what p e r c e n t shou ld be t r a n s f e r r e d from bonds to
s to c k s ? The maximum p e rc e n ta g e t r a n s f e r r e d a t one tim e from
bonds to s to c k s was l im i te d to 5$ o f th e t o t a l fund# The
rem a in in g q u e s tio n as to how f a s t p u rc h a s e s were made i s
answ ered by th e t h i r d supp lem entary ru le # When th e o r i g i n a l
r a t i o i s n o t r e s t o r e d by th e second r u l e , th e r e i s a w a itin g
p e rio d o f th r e e m onths to d e la y p u rc h a s e s b e fo re a n o th e r 5$
o f th e t o t a l fund i s t r a n s f e r r e d from bonds to sto ck s# I t
i s c a u tio n e d t h a t th e second and t h i r d r u l e a re employed
o n ly a f t e r th e ife d e ra l B eserve Board In d ex h a s slowed up in
i t s d e c lin e to one p o in t o r l e s s a month# These su p p lem en tary
r u l e s a p p ly i n a r i s i n g m arket o n ly to e f f e c t a d e la y ed
e q u a l iz a t i o n o f t h e fundi; once th e fund i s e q u a liz e d i n a
r i s i n g m arket th e s e r u l e s do n o t apply#
An a d v an tag e o f t h i s m o d ified c o n s ta n t r a t i o p la n i s
th e b e t t e r income produced by th e p u rc h a se o f s to c k s a t low er
l e v e l s when t h e i r y i e l d i s h ig h er# The su p p lem en tary r u l e s
to in d u c e s to c k p u rc h a se s a t low er l e v e l s were e f f e c t i v e in
th r e e o u t o f f o u r fu n d s in v e s te d by th e m o d ifie d c o n s ta n t
r a t i o p la n # 4® The a v erag e an n u al r e t u r n on th e o r i g i n a l
in v e stm e n t in G eneral Am erican I n v e s t o r s common sto c k i n
c re a s e d from 5 #46$ u n d er th e c o n s ta n t r a t i o p la n to 5*75
40
See table X X I in Appendix#
u n d er th e m o d ifie d plan * The fund in v e s te d i n T r l -
C o n tin e n ta l C o rp o ra tio n common s to c k u n d e r th e m o d ified p la n
produced an av erag e an n u al £*1% r e t u r n on th e o r i g i n a l i n
vestm ent which e x c e lle d th e 1*9£$ r e t u r n u n d e r th e sim ple
c o n s ta n t r a t i o plan* The m o d ifie d p la n produced th e same
a v e ra g e an n u al 4*15$ r e t u r n on th e o r i g i n a l in v e stm e n t from
th e fund in v e s te d in S t a t e S t r e e t I n v e s t o r s stock* The
m o d ified p la n d id n o t p roduce a s l a r g e a r e t u r n a s d id th e
c o n s ta n t r a t i o p la n a p p lie d to th e fund i n v e s ti n g in Lehman
C o rp o ra tio n stock* The a v e ra g e annual r e t u r n d e c lin e d from
4 .1 fo to 4 .0 7 . A ll fo u r fun ds ach iev ed a h ig h e r av erag e
an n u al r e t u r n u nder th e m o d ifie d p la n th a n i f th e s e funds
were in v e s te d u n d e r th e "buy and h o ld ” p l a n . ^ When com
p a r in g income w ith th e y i e l d on th e DJIA, th e fund in v e s te d
in G e n era l Am erican I n v e s t o r s common s to c k was th e o n ly fund
to e x c e ll th e 4*35^ y i e l d on t h e D J I A .^
W ith one n o ta b le e x c e p tio n th e a p p r e c ia tio n o f c a p i t a l
a c h ie v e d u n d e r th e m o d ified p la n alm ost e q u a lle d th e re c o rd
o f th e fu n d s in v e s te d by th e sim ple c o n s ta n t r a t i o p l a n . ^
The e x c e p tio n , th e fund in v e s te d in T r i- C o n tin e n ta l common
s to c k , showed a c a p i t a l a p p r e c ia tio n o f 5 8 .3 Zfo a t th e end
^ See t a b l e H I in Appendix*
54
o f th e n in e y e a r p e rio d # The c a p i t a l a p p r e c ia tio n was n e a r ly
tw ice t h a t u n d e r th e sim p le c o n s ta n t r a t i o plan#
The r u l e s to d e la y s to c k p u rc h a s e s in th e 1957-1938
d e c lin e proved e f f e c t i v e # The F e d e ra l H eserve Board in d e x
r u l e p re v e n te d p u rc h a s e s u n t i l th e J a n u a ry , 1938 re le a s e #
More s h a re s were th e n a c q u ire d a t lo w er p r i c e s th a n u n d e r
th e c o n s ta n t r a t i o p la n ; The 5fa maximum t r a n s f e r from bonds
to s to c k s a t any one tim e n e c e s s i t a t e d t h r e e t r a n s f e r s b e fo re
th e fund mas e q u a liz e d # On December 31, 1938, 7,569 sh a re s
mere h e ld u n d er t h e m o d ified c o n s ta n t r a t i o p la n ;^ 4 on th e
same d a te o n ly 7,306 s h a r e s mere h e ld u n d er th e sim p le con
s t a n t r a t i o p l a n # ^ The same p ro c e s s was re p e a te d in 1942
w ith th r e e t r a n s f e r s n e c e s s a r y to e q u a liz e th e fund# At
t h a t p o i n t on December 31, 1942, 16*806 s h a re s were h e ld
A C L
u n d er th e m o d ified p la n w hereas o n ly 12,687 were h e ld
u n der th e sim p le c o n s ta n t r a t i o p l a n # ^ I n th e g ra d u a lly
r i s i n g m arket in 1944 and 1945 th e p e r sh a re p r i c e o f T r i-
G o n tin e n ta l common s to c k a c c e le r a te d much more r a p i d l y th an
d id t h e g e n e ra l m a rk e t. T h is e x tre m e ly h ig h lev eras® l a
a c t io n r e s u l t e d in t h e s i g n i f i c a n t l y l a r g e c a p i t a l in crem en t
to th e fund in v e s te d i n T r i- O o n tin e n ta l common stock#
44 gee t a b l e V III i n Appendix*
45 s § e t a b l e IV i n Appendix#
^ See t a b l e V III i n Appendix#
47 gee table IV in Appendix;
CHAPTER V II
THE SLIDING SCALE PLAN
The V a ssar P la n e x e m p lifie s th e second group o f
fo rm u la p la n s which r e q u ir e a m oderate deg ree o f f o r e c a s t i n g
A lthough th e V a ssar P la n employs th e s l i d i n g s c a l e te c h n iq u e
f o r e c a s t i n g i s n o t r e q u ir e d o f a l l s l i d i n g s c a le p la n s*
W hile th e T a le P la n i s p r e d ic a te d upon wide f l u c t u
a t i o n s i n th e m a rk e t, th e V a ssar P la n f o r e c a s t s r e l a t i v e l y
m o d era te f l u c t u a t i o n s * In e sse n c e t h i s p la n c e n te r s ab out
an a v e ra g e o f th e DJIA f o r th e y e a rs 1930-1938, which i s
u se d a s a m edian a t which th e sto c k -b o n d r a t i o sh o u ld be
60/50* T h is m edian, 135 f o r th e y e a rs 1930-1938, r e p r e s e n ts
th e l i n e below which s to c k s a r e p u rc h a se d on a s l i d i n g s c a le
down, and above which th e y a r e s o ld on a s l i d i n g s c a le up*
As th e DJIA d e c lin e d below 135* th e p e rc e n ta g e o f common
s to c k s on th e way down i s in c re a s e d as f o llo w s : ■
DJIA S to ck s Bonds
135 1/2 1/2
125 2 /3 1 /3
115 5 /6 1/6
105
o
o
r-f
none
^ Bay M o rris , "Common S to ck C o n tro l P la n o f V assar
C o lle g e ," Am erican C o u n cil on E d u c a tio n S tu d ie s S e r ie s I I I -
f i n a n c i a l A d v iso ry S e rv ic e - Number 19 (Ju n e , 1941), p p . 38-
T T . 1
56
As th e av erag e sw ings above 135, common s to c k s a re
d e c re a se d on th e fo llo w in g s c a le :
DJIA S to cks Bonds
150 3 /8 5 /8
165 1 /4 3 /4
180 i /8 7 /8
195 none 100$
A c tu a lly th e p la n i s f o r e c a s t i n g a m arket t h a t w i l l
f l u c t u a t e betw een 105 and 195* A cco rd in g to th e sch ed u le
th e fund w i l l be f u l l y in v e s te d in bonds when th e DJIA
r i s e s above 195, and f u l l y in v e s te d in s to c k s when th e DJIA
re a c h e s o r goes b e n e a th 105* The p la n becomes in o p e r a tiv e
when th e s e l i m i t s a re exceeded* T h e re fo re th e g r e a t e s t
w eakness in th e p la n l i e s in th e a c c u ra c y o f th e f o r e c a s t
t h a t th e m arket w i l l f l u c t u a t e between, th e s e l i m i t a t i o n s o f
105 and 195* A p p a re n tly th e sc h ed u le o f p u rc h a s e s and s a le s
i s a r b i t r a r i l y d e te rm in e d . To d a te th e Y assar f o r e c a s t o f
th e ran g e o f th e m ark et h a s proved to be an e x c e lle n t o n e;
In th e n in e y e a r p e r io d s e le c te d f o r t h i s s tu d y ’ th e Y assar
fund would have been in v e s te d f u l l y i n s to c k s o n ly once f o r
a s h o r t p e rio d i n e a r l y 1942 when th e DJIA dipped b r i e f l y
to 93 in A p r i l and th e n re c o v e re d above th e 105 l i m i t s e t t i n g
th e p la n i n o p e r a tio n again*
W hile th e Y a ssa r P la n does n o t r e p r e s e n t a moving
m edian a fo rm u la may be u t i l i z e d w hich r e q u i r e s no p r e d e t e r
57
m in a tio n o f th e l i m i t s about which th e m arket w i l l f lu c t u a t e *
The i n v e s t o r m ust make t h r e e d e c is io n s p r i o r to
s e t t i n g th e p la n in m otion* The f i r s t d e c is io n i s r e l a t i v e
to th e maximum p e rc e n ta g e th e s to c k elem ent i s to be in c r e a s e d
to in a d e c lin in g m a rk e t, and to what minimum p e rc e n ta g e
s to c k s a r e to be red u ced in a r i s i n g m arket* S eco n d ly , i t
m ust be d ecid ed a t what p o in t i n a d e c lin e th e fund s h a l l
a t t a i n i t s maximum sto c k p e r c e n ta g e . T h ir d ly , th e p la n o f
buying s to c k s a t each £Q$ d e c lin e m ust be abandoned*
To e li m in a te th e w eakness m entioned o f th e Y assar P la n
i n w hich th e fund i s f u l l y in v e s te d in bonds when th e DJIA
r i s e s above 195, and th e fund i s f u l l y in v e s te d in s to c k s
when th e BJIA d e c lin e s to 105, th e s to c k p o r t io n of th e
h y p o t h e t i c a l fu n d s n e v er becomes l e s s th a n £0$ , no m a tte r
how h ig h th e m arket r i s e s , and n e v e r becomes more th a n 80$,
no m a tte r how low i t d e c lin e s ^ The low p o i n t o f 105 e s
t a b l i s h e d by th e Y a ssa r P la n a t which i t re a c h e s a 100$
s to c k s t a t u s a p p e a rs in th e l i g h t o f p a s t e x p e rie n c e to be
to o h ig h , inasm uch a s th e DJIA h as d e c lin e d to th e 40 l e v e l
tw ic e in i t s f i f t y y e a r s . T h is low o f 40 i s t h e r e f o r e
employed as th e p o in t a t which th e h y p o t h e t i c a l funds sh o u ld
be in v e s te d 80$ i n sto c k s* The £0$ d e c lin e r u l e i s d is re g a r d e d
f o r t h e r e i s no a s s u ra n c e t h a t th e fund w i l l n o t be in v e s te d
100$ in s to c k s b e fo re re a c h in g th e low o f 40 on th e DJTA.
A sc h e d u le o f s ix 10$ changes from th e a l l tim e h ig h
58
and low s o f th e DJIA o f 386 and 40 would be a s fo llo w s ;
DJIA S to c k s Bonds
366 20$ CD
0
329 30$ 70$
272 40$ 60$
215 50$ 50$
158 60$ 40$
101 70$ 30$
44 80$ 20$
886 -4 0 s 546 7 6 =r 57* The s to c k p o r tio n o f th e fund would
be in c re a s e d by 10$ a t each d e c lin e o f 57 p o i n ts o f th e DJIA*
As th e m arket s u f f e r s m ajo r d e c lin e s and s u b s e q u e n tly r e
t r a c e s 50$ o f th e d e c lin e , a new h ig h p o in t i s e s t a b l i s h e d
a t a low er l e v e l from th e p re c e d in g high* When t h i s o c c u rs
a new guide sc h ed u le m ust be e s t a b l i s h e d ;
I n th e e v e n t o f a m ajo r f l u c t u a t i o n downward th e 386-
44 zone o f o p e r a tio n becomes o u t o f l i n e w ith th e c u rr e n t
zone o f f l u c t u a t i o n s * The c o n c e p tio n employed a s w hat con
s t i t u t e s a m ajor d e c lin e i s 4 0$. I n s e t t i n g up a more
a p p li c a b l e zone o f o p e r a tio n , th e n e x t s te p i s to w a it f o r a
50$ re tra c e m e n t o f th e d e c lin e t h a t h a s j u s t occured* The
p o in t a t which th e re tra c e m e n t s to p s i s e s t a b l is h e d u s th e
new h ig h p o in t w hich i s s u b s t i t u t e d f o r th e o ld h ig h o f 386.
H aving e s t a b l is h e d a new h ig h th e second sc h e d u le i s th e n s e t
up u s in g th e new l im i ts * By November 13, 1929 th e m ark et
59
d e c lin e d more th an 40$ from th e 386 O c to b e r, 1929 h ig h to 195
and th e re tra c e m e n t c a r r i e d beyond 50$ o f th e m ajo r d e c lin e
to re c o v e r to 29? b e fo re a n o th e r m ajor d e c lin e occured* At
t h a t p o i n t , 29? became th e n e i h ig h p o in t* D uring th e p e r io d
im m ed iately fo llo w in g a new gu ide sc h e d u le would be fo llo w ed
f o r i n c r e a s in g th e p e rc e n ta g e o f s to c k s h e ld in a d e c lin in g
m arket* 29? - 40 = 25? 4 6 =r 43* W ith each d e c lin e o f 43
p o i n t s i n th e DJIA, th e s to c k p o r tio n o f th e fund would be
in c re a s e d 10$ in acco rd an ce w ith th e fo llo w in g sc h e d u le :
DJIA S to ck s Bonds
29? 20$ 80$
254 30$ 70$
211 o
■
60$
168 50$ 50%
125 00% 40%
82 70%
o
to
39 80% 20$
The n e x t m ajor d e c lin e c a r r i e d th e DJIA down to 41 on
J u l y 8, 1932 and by A ugust 7, 1936, 50$ o f th e p re c e d in g
m ajo r d e c lin e was r e t r a c e d when th e DJIA re a c h e d 169* At
t h a t p o i n t a fund would be e q u a lise d * The m arket re c o v e ry
c a r r i e d beyond 169 to 196 on March 10, 1937 a t which p o in t
a n o th e r d e c lin e began*
A fund em ploying t h i s s l i d i n g s c a le p la n would ther©*-
f o r e have a 50/50 sto c k -b o n d r a t i o on March 3 , 1937 when th e
60
h y p o t h e t i c a l funds w ere o r i g i n a l l y in v e s te d # T h e re fo re th e
fund s were in v e s te d 50$ i n s to c k s and 50$ in bonds on M arch 3 ,
1937. The 40$ d e c lin e to 118 DJIA on November 19, 1937 from
196, e s t a b l i s h e d 196 DJIA th e new h ig h p o in t w ith th e fo llo w
in g sc h e d u le e s ta b lis h e d f o r a c q u ir in g s to c k s in a d e c lin in g
m arkets
DJIA S to c k s Bonds
196 20$ 80$
170 30$ 70$
144 40$ G )
O
* 5 ^ .
118 50$ 50$
9£ 60$ 40$
66 70$ 30$
40 80$ 20$
196 ~4Q — 136 -f*6 a £6. With each d e c lin e o f £6 p o i n ts i n
th e DJIA s to c k s a re in c r e a s e d 10$. T h is sc h e d u le i s r e f e r r e d
to as sc h e d u le A, and was th e g u id e s c h e d u le employed d u rin g
th e su b seq u e n t n in e y e a r p e rio d d u rin g which th e h y p o t h e t i c a l
fu n d s w ere o p e ra te d #
I t i s em phasized t h a t th e s e g u id e sc h e d u le s s e rv e a s
a g u id e to i n c r e a s in g th e p e rc e n ta g e o f s to c k s h e ld o n ly i n
a d e c lin in g m arket# In a r i s i n g m ark et th e g u id e sc h e d u le s
a r e n o t employed to d e c re a s e th e p e rc e n ta g e o f sto c k s h eld #
I n a r i s i n g m a rk e t, no s a l e o f s to c k s i s made u n t i l a 50$
re tra c e m e n t o f th e p re c e d in g m ajo r d e c lin e h as ta k e n p la c e #
A t th e 50$ re tra c e m e n t p o in t th e fund i s e q u a liz e d , a f t e r
which i f th e advance c o n tin u e s , s to c k s a re red uced 10$ a t
each advance o f 25$ in th e DJIA u n t i l th e 20/80 r a t i o i s
reached* A f t e r t h a t th e fund would be b ro u g h t back to th e
20/80 r a t i o a t each DJIA advance o f 25$.
The l e d e r a l R eserv e Board In d e x r u l e was a ls o employed
to supplem ent th e g u id e sc h ed u le A# The maximum p e rc e n ta g e
r u l e was m o d ified from 5$ to 10$ r e p r e s e n ti n g th e maximum
p e rc e n ta g e o f th e t o t a l fund t h a t co u ld be t r a n s f e r r e d from
bonds t o s to c k s a t any one t r a n s f e r * The th r e e m onth’ s
w a itin g r u l e betw een t r a n s f e r s was a ls o a p p lie d . A gain i t . '
i s em phasized t h a t th e g u ide sc h e d u le t o g e th e r w ith th e t h r e e
su p p le m e n ta ry r u l e s were employed o n ly in a c q u ir in g s to c k s i n
a d e c l in i n g m a rk e t.
The ra n g e o f th e 1937-1938 d e c lin e and th e su b seq u en t
d e c lin e o f l a t e 1941 and e a r l y 1942 was n o t g r e a t enough to
p e rm it th e s l i d i n g s c a le program to o p e r a t e . The ran g e w ith in
which t h e DJIA f lu c u tu a te d c a l le d f o r a 50/50 sto c k -b o n d r a t i o .
The t r a n s f e r s from bonds to s to c k s were t h e r e f o r e p u r e ly
e q u a liz in g o p e r a t io n s ; s to c k s were t h e r e f o r e n o t in c r e a s e d on
a s l i d i n g s c a l e a s th e y would have been in th e wide ran g e o f
th e 1929-1932 m a rk e t. The s l i d i n g s c a le program o p e ra te d
once d e c re a s in g s to c k s on a s l i d i n g s c a le in th e r i s i n g
m arket in 1945 when s to c k s were red u ced to 40$ o f th e t o t a l
fu n d s4
Only one fund i n v e s te d by th e s l i d i n g s c a le p la n p r o
duced as l a r g e a r e t u r n on th e o r i g i n a l in v e stm e n t as d id
th e r e s p e c t iv e fu n d s in v e s te d by th e m o d ified c o n s ta n t r a t i o
p lan * Ih e same av erag e an n u al r e t u r n on th e o r i g i n a l i n v e s t
ment was produced from i n v e s ti n g in Lehman C o rp o ra tio n s to c k
by b o th p l a n s The r e s u l t s o f th e o th e r t h r e e funds were
n o t so s a t i s f a c t o r y a s t h e i r r e t u r n s u n d er th e m o d ified con
s t a n t r a t i o p lan * Ih e funds i n v e s te d i n Lehman C o rp o ra tio n
and S t a t e S t r e e t I n v e s t o r s sto c k s by th e sim ple c o n s ta n t
r a t i o p la n produced b e t t e r income th an d id th e fu n d s in v e s te d
50
i n th e same s e c u r i t i e s by th e s l i d i n g s c a le p lan # Ih e
o t h e r two fu n d s in v e s te d in th e le v e ra g e s h a re s p ro v id e d
b e t t e r income by t h e s l i d i n g s c a le p la n th a n by th e sim ple
c o n s ta n t r a t i o p l a n * ^ I n r e s p e c t to c a p i t a l p r e s e r v a ti o n
a l l fo u r fu n d s in v e s te d by th e s l i d i n g s c a le p la n produced
a s m a lle r c a p i t a l in cre m e n t th a n d id th e sarnie fun ds in v e s te d
u n d er th e m o d ifie d c o n s ta n t r a t i o p la n * 52
Ih e s l i d i n g s c a le p la n e x c e lle d th e ”buy and h o ld ”
p la n w ith a g r e a t e r income d e riv e d from a l l fo u r fu n d s i h -
^ See t a b l e XXI i n Appendix*
50 Loc* c it *
Loc* c it*
52 L oc. c it#
63
v e s te d by th e s l i d i n g s c a le p l a n * ^ W ith th e e x c e p tio n o f
th e fund in v e s te d in Lehman C o rp o ra tio n s to c k , th e s l i d i n g
s c a le p la n produced a l a r g e r c a p i t a l in cre m e n t th a n d id th e
".buy and h o ld " p lan * Only i n th e case o f t h e fund in v e s te d
i n G en eral A m erican I n v e s t o r s common s to c k d id th e income
e x c e l th e 4 f 35$ a v e ra g e a n n u a l y i e l d on th e DJIA*
The IQfo maximum p e rc e n ta g e t r a n s f e r r u l e , and th e
t h r e e months w a itin g r u l e were e f f e c t i v e l y employed to d e la y
sto c k p u rc h a s e s o n ly in th e two fu n d s in v e s te d in le v e r a g e
s h a r e s , T r i- C o n tin e n ta l and G e n era l A m erican I n v e s to r s common
stock* These two funds e f f e c t e d a l a r g e r c a p i t a l in cre m e n t
th an d id th e two fu nds in v e s te d in n o n -le v e ra g e s h a r e s .
From a v ie w p o in t o f th e two p rim a ry in v e stm e n t o b je c
t i v e s , p r e s e r v a ti o n o f c a p i t a l and incom e, th e m o d ifie d
c o n s ta n t r a t i o p la n was b e t t e r a d a p te d tow ard a c h ie v in g th e s e
o b j e c ti v e s th a n was th e s l i d i n g s c a l e p la n .
See table X X I in Appendix*
CHAPTER V III
SUM M ARY m D CONCLUSIONS
The fo rm u la method o f In v e stm e n t tim in g o b v ia te s th e
m ost d i f f i c u l t p a r t o f in v estm en t management— t h a t o f f o r e
c a s tin g w hich way and how f a r common s to c k p r i c e s a re g oing
to f l u c t u a t e # The b a s ic assu m p tio n s upon w hich th e method
i s founded a r e : (1) t h a t common s to c k s w i l l c o n tin u e to
f l u c t u a t e , and (2) t h a t s to c k s sh o u ld be a c q u ire d a t low
m ark et l e v e l s and d isp o se d o f a t h ig h m arket l e v e l s ;
P r e s e r v a t i o n o f c a p i t a l i s u s u a l ly g r e a t e r u n d er a
fo rm u la p la n th a n u n d er a program o f buying and h o ld in g good
sto ck s* In a d o w n - a n d - th e n -u p - to - th e -p o in t- o f- b e g in n in g
m arket th e fo rm u la method p ro d u ces a p r o f i t b e fo re th e p o in t
o f b e g in n in g i s a g a in re a c h e d , u n le s s a s e r io u s d e c lin e in
bonds more th a n o f f s e t s th e g a in made by sto c k s* The same
i s t r u e in an u p -a n d -th e n -d o w n - to - th e -p o in t-o f- b e g in n in g
m arket* The more v o l a t i l e th e n a tu r e o f t h e s e c u r i t y s e l e c t e d ,
th e g r e a t e r i s th e p r o b a b i l i t y o f c a p i t a l a p p r e c ia tio n i n an
up-and-dow n o r down-and-up movement in th e p r i c e o f th e
s e c u r ity *
Income i s u s u a l l y g r e a t e r u n d e r fo rm u la p la n s th a n
u n d er a "buy and h o ld " program when b o th p la n s a re a p p lie d to
i n v e s ti n g in th e same s e c u r i t y . Income u n d e r fo rm ula p la n s
i s n o t c o n s i s t e n t l y a s l a r g e as th e y i e l d on th e DJIA*
65
I n th e 193? to 1945 m arket which f l u c t u a t e d w ith in
r e l a t i v e l y narrow l i m i t s , th e p la n s ran k ed in th e fo llo w in g
o r d e r w ith r e s p e c t to th e h ig h e s t r e t u r n on th e o r i g i n a l
in v e s tm e n t;
1* The m o d ified c o n s ta n t r a t i o p la n ;
2* .The c o n s ta n t r a t i o p la n , and th e s l i d i n g s c a le
p lan *
3* The 1 1 buy and h o ld ” plan *
W ith r e s p e c t to th e p r e s e r v a ti o n o f c a p i t a l th e p la n s
ran k ed i n th e fo llo w in g o r d e r ;
1* The c o n s ta n t r a t i o plan*
2* The m o d ified c o n s ta n t r a t i o plan*
3 . The s l i d i n g s c a le p lan *
4* The "buy and h o ld ” p lan *
D uring th e n in e y e a r p e r io d u n d er c o n s id e r a tio n from
1937 th ro u g h 1945, th e m o d ifie d c o n s ta n t r a t i o p la n met th e
re q u ire m e n ts o f a rounded in v estm en t program w ith r e s p e c t to
ineome and c a p i t a l a p p r e c i a ti o n much more e f f e c t i v e l y th a n
d id th e o t h e r p lan s*
BIBLIOGRAPHY
A. B O O K S
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1939.
B u r t c h e tt , F loyd F . , In v e s tm e n ts and In v e stm e n t P o l i c y . New
• York: Longmans, Green and Company, 1938* &2l p p .
C a rp e n te r, H arry G ., In v e stm e n t Timing by Form ula P l a n s » New
York: H a rp e r and B ro th e rs P u b l i s h e r s , I 943V 136 p p .
C a rp e n te r, H a rry G ., The L e t t e r s o f an In v e stm e n t C ounsel to
M r. S o M rs. John S m ith. New York: H a rp e r and B ro th e rs
P u b l i s h e r s , “T95o. W ? p p t
B ic e , C h a rle s Amos and W ilfo rd John B item an, The S tock M arket
New York: M cGraw-Hill Book Oompany, I n c . , 194 l * 486 p p .
F ly n n , John T ., In v estm e n t T r u s ts Gone Wrong, New York; New
E e p u b lic , I n c . , 1 9 3 0 . 268 p p .
F o w ler, John F ra n c is J r . , Am erican In v e stm e n t T r u s t s . New
York: H a rp e r and B ro th e rs P u b li s h e rs , 1 9281 HIT p p .
Graham, Benjam in and David L. Dodd, S e c u r ity A n a ly s is P r i n
c ip l e s - a n d T ech n iq u e. New York: M cGraw-Hill Book Oompany
■ j ji i i i r fT — ...... _ mw m i 1 1 m m jmrniimi n, i i m w
I n c . , 1940. 851 p p .
G rayson, T heodore J . , In v e stm e n t T r u s t s . T h e ir O r ig in ,
Development and O p e ra tio n . N e w York: John W iley"and Sons
i n c . , 192 8. 434 p p .
H am ilto n , W illiam P e t e r , The S tock M arket B aro m eter. New
York; H arp er and B ro th e rs P u b li s h e r s , 1922. SIi5 p p .
Ketchum, M a rs h a ll D ., The f i x e d In v e stm e n t T r u s t . C hicago;
The U n iv e r s ity o f Chicago P r e s s , ! 9 s 1 ?. 85 p p .
P rim e , John H . , In v estm e n t A n a ly s is . New York: P r e n t i c e -
H a l l , I n c . , 1946. 442 p p .
Hhea, E o b e rt, The Dow T heory. New York: B a r r o n 's , 1932.
252 p p . .
H obinson, L eland Hex, In v e stm e n t T ru s t O rg a n iz a tio n and
Management. B evised e d i t i o n ; New York: The Hohald l? r e s s
Company, 1929. 608 pp.
S o h ab ack er, R ich a rd W., S to ck M arket th e o ry and P r a c tic e * New
Y ork: 5* 0 . F o rb e s P u b li sh in g Company, 1930' • S75 p p .
S c u lly , G. A lis o n , The P u rc h a se o f Common S to ck s as T r u s t
In v e s tm e n ts * New York: The M acm illan Oompany, 193?. 82 pp
S m ith, James O*, The Development o f T ru st Gompanies i n th e
U n ite d S t a t e s * New York: Henry H o lt Company, X9 25"* 613 pp
W ie se n b erg e r, A rth u r, In v e stm e n t Com panies* 1946 e d i t i o n ; New
York: A rth u r W iesen b erg er and Oompany, 1946. 319 pp*
W illia m s, M a rs h a ll H ., In v e stm e n t T ru s ts in A m erica. New York:
The M acm illan Company, 1928. 152 p p .
B* PERIODICAL ARTICLES
C a rp e n te r, H arry G ., "Form ula P la n s f o r In v e stm e n t T im in g ,"
T ru s ts and E s t a t e s , 7 6 :3 6 3 -6 8 , A p r i l , 1943*
M o rr is , Ray, "Common Stock C o n tro l P la n o f V assar C o lle g e ,"
Am erican C o u n cil on E d u c a tio n S tu d ie s S e r ie s I I I —
F in a n c ia l AdviscTry S e r v ic e —Number 1 9 , 6 : 3 8 - 4 1 , J u n e , 1941.
Rand, S t u a r t C ., " I n v e s tin g in P r i c e C y c le s ," T ru s ts and
E s t a t e s , 7 9:24 3 -4 7 , S eptem ber, 1944*
"M athem atical P la n o f I n v e s t i n g ," T r u s ts and E s t a t e s ,
7 9 :3 8 8 -9 0 , O cto b er, 1944*
T om linson, L u c ile , "A pplying th e C o n stan t Stock Fund to I n d i
v id u a l I s s u e s , ".B arron* s N a tio n a l B u sin e ss and F in a n c ia l
W eekly*.2 8 :8 , J u l y 19,_19¥31
________ , l e v e r a g e In v e stm e n t S h a res Back in F a s h io n ,"
B arron * s N a tio n a l B u sin e ss and F in a n c ia l W eekly, ,2 3 :9 ,
MarcK l ¥ , 1943*
, "Normal L ev el P la n s R eq u ire L im ited M arket F o r e c a s t,
b u t T h e o r e ti c a l ly Show B est R e s u l t s , ” B arro n * s N a tio n a l
B u sin e ss and F i n a n c i a l W eekly, 2 3 : 4 , .A ugust 2, 1943*
, "P la n s R e q u irin g No F o r e c a s t: The C o n sta n t S to ck
Fund,!* B a rro n ’ s N a tio n a l B u sin ess and F i n a n c i a l W eekly,
2 3 : 9 , .J u l y , 5, 'tiFESl : 1 !
69
________ , "R ecords o f Twenty R ive C lo sed -en d In v estm e n t Com
p a n ie s , ” B a rro n ’s N a tio n a l B u sin e ss and F in a n c ia l W eekly,
26*7, M arch 4, 1946*
, "V assar C o lle g e ’ s P la n f o r Common Stock C o n tr o l,"
B arron * s N a tio n a l B u sin e ss and f i n a n c i a l W eekly, £ 3 :1 8 ,
A u g u st.1 6 , 1943.
________ , " V o l a t i l i t y a C o n s id e ra tio n i n .S e le c tio n o f I n d i
v id u a l Stock I s s u e s , " B arro n*s N a tio n a l B u sin e ss and
f i n a n c i a l W eekly, £ 3 :6 , August 30, 1943*
W illia m s, J . S ., "Hoi L arge I n s t i t u t i o n s Time In v estm e n t
O p e r a tio n s ," The M agazine o f W all S t r e e t , 7 4 :1 3 2 -3 4 , May
13, 1944* .... ' ~ ~ * :
0 . PUBLICATIONS OF LEARNED ORGANISATIONS
Bernheim , A lfre d L*, d i r e c t o r o f su rv e y . The S e c u rity M a rk e ts .
New York: T w en tieth C entury Fund, I n c . , 1935. p p .
Dunn, H enry W ., " P e r s i s t e n t D e lu s io n ," The In v estm e n t C ounsel
A n n u a l, V o l . . I I . No. 1*. New Y o rk :~ ffie . In v estm e n t C ounsel
A s s o c ia tio n o f.A m e ric a , 1939, p p . 3**39. .
F e d e ra l R eserv e B u l l e t i n , Volumes 23-31, W ashington, B .C .:
U n ite d S t a te s Government P r i n t i n g O f f ic e , 1937-1945.
Harwood, E. 0 . , and R o b e rt L . B l a i r , "In v estm e n t T ru s ts and
fu n d s from t h e I n v e s t o r ’ s P o in t o f V iew ," A m erlcan
I n s t i t u t e o f Economic R e se a rc h . Cam bridge, M a s s a c h u s e tts ;
1939. 104 p p .
L o f tu s , John A ., "In v estm e n t Management, an A n a ly sis o f th e
E x p e rie n c e s o f A m erican Management In v estm e n t T r u s t s ,"
The Johns H opkins U n iv e r s ity S tu d ie s in H i s t o r i c a l and
P o l i t i c a l S c ie n c e , S e r ie s LIXV B a ltim o re , M aryland:
The "Johns Hopkins P r e s s , 1941. 134 p p .
AEPSHDEC
TABLE I
71
$100,000 INVESTED BY THE CONSTANT RATIO PLAN IN
GENERAL AMERICAN INVESTORS C O M M O N STOCK
1937 - 19^5
L ine No.
A
Date
B
DJ1A
C
DJ4 O BeA
D
Remarks
E
P ric e
G. A. I k
F
Number
S hares
Held
G
S tock
P o rtl'o n
H
Bond
P o rtio n
I
Com
m issio n
expense *
J (G-ffl)
T o ta l
Fund
1937 1
M ar.
3 193
104 Buy: 50$ s to c k s ; 56$ bonds
14 7 /8 3,361 4 9 ,9 9 4 .8 8 ' 50,005.12
669.82
2
3
Sep. 23 154
B alance
98
a f t e r com m ission is deducted from 1H
S to cks down 20$ from 193; bonds down 6$
14 7/8
101/2
3.361
3.361
4 9 ,9 9 4 .8 8
35, 290.50
49,335-30
46,3 7 5 -1 8
9 9 ,3 3 0 .1 8
81,665.68
4
5
6 Nov. 19 118
B alance
92
Buy 528 s h a r e s , $5 ,544; s e l l $5,544 bonds
a f t e r com m ission i s deducted from 4H
S tocks down 22$ from 154; bonds down 6$
101/2
101/2
6 1/2
3 .889
3.8 8 9
3.889
40,834.50:
4 0 .8 3 4 .5 0
25.278.50
4 0 ,8 3 1 .1 8
40,7 3 3 -2 0
38,289•21
97.98
8 1 .5 6 7 .7 0
63. 567.71
7
8
9
D ec. 31 121
B alance
93
Buy 1 ,0 0 1 s h a r e s , $6, 506.50; s e l l
$6 , 506.50 bonds
a f t e r com m ission is ded ucted from 7H
Stocks up 3$; bonds up 1$
6 1/2
6 1/2
6
4.890
4 .890
4 .890
31.785.00
31.785.00
29 .3 4 0 .0 0
31,782.71
3 1 ,6 5 1 .4 6
3 1 ,9 6 7 .9 7
131.25
6 3 ,4 3 6 .4 6
6 1 ,3 0 7 .9 7
19 58' "To"..... O c t. 6 148 90 S tocks up §5$ from 118; oonds down 3$ 8 1/8 4 ,896
3 9 ,7 3 1 .2 5 3 1 ,0 0 8 .9 3
7 0 ,7 4 0 .1 8
11
12
13
D ec.
31 155
B alance
90
S e l l 537 s h a r e s , $4 ,363.12; buy $4 ,363.12
bonds
a f t e r com m ission is deducted from 11H
S to cks up 5$; bonds even
8 1/8
8 1/8
9
4 .3 5 3
4.353
4 .3 5 3
35.368.13
35.368.13
3 9 ,1 7 7 .0 0
3 5 .3 7 2 .0 5
35. 250.06
35. 252.06
119.99
7 0 ,6 2 0 .1 9
7 4 ,4 2 9 .0 6
1939 14
15
D ec. 30 150 90
No t r a n s a c t i o n s i n 1939; th e DJ1A n e i t h e r
advanced 25$ from 148, n o r d e c lin e d 20$ from
148
S tocks down 3$; bonds even 6 1/2
4 ,3 5 3
28 ,2 9 4 .5 0 35,252.06 6 3 ,5 4 6 .5 6
1940 16 May 21 114 83
S tocks down 23$ from 148; bonds down 8$ 4 1/2
4 ,353
19,58 8 .5 0 32,431.90 5 2 ,0 2 0 .4 0
17
18
19
D ec. 31 131
B alance
91
Buy 1,427 s h a r e s , $ 6 ,4 2 1 .5 0 ; s e l l $ 6 ,4 2 1 .5 0
bonds
a f t e r com m ission i s d educted from 17H
S to ck s up 15$; bonds up 10$
4 1/2
4 1/2
.. _
5.780
5.780
5.780
26,010.§0'
26.010.00
28.900.00
26 ,0 1 0 .4 0
25,860.83
2 8 ,4 4 6 .9 1
149.57
51, 870.53
5 7 ,3 4 6 .9 1
1941 20
21 Dec. 31 111 88
No t r a n s a c t i o n s in 1941; th e DJ1A n e i t h e r
advanced 25$ from 114, n o r d e c lin e d 20$ from
114
S tock s down 15$ ; bonds down 3$ 4 1/4 5,780 24,565.00 2 7 ,5 9 3 .5 0 52,158.50
1942 22
?2_ _
D ec.
31 119 91
No tra n sa c tio n s i n 1942; th e DJ1A n e i t h e r a d
vanced 25$ from 114, n o r d e c lin e d 20$ from 114
S tocks up 7$; bonds up 3$
6 1/2 5,780 37,570.00 2 8 ,4 2 1 .3 1
6 5 ,9 9 1 .3 1
71a
A B C D E F G H I J(G4H)
Number Com
P rice Shares
m ission^ T otal
Line No. Date DJ1A DJ40BA Remarks G.A.I. Held a P ortion P ortion expense Fund
1943 24 June 3 143
97
Stocks up 25$ from 114: bonds up 6$ 9 7/8
5,780
57,077*50 3 0 ,1 2 6 .5 9 8 7 ,2 0 4 .0 9
25
S e l l 1 ,365 sh a r e s, $13,479-38;
buy $1 3 , 479*38 bonds 9 7 /8 4 ,4 1 5
4 3 ,5 9 8 .1 3 4 3 ,6 0 5 .9 6 321.9 2
26
_ Balance--after- commission i s deducted .
from 25H
9 7/$
4,4 1 5 4 3 ,5 9 8 .1 3 4 |,2 8 4 .0 4 8 6 ,8 8 2 .1 7
27 D ec. 31 I 36 97
Stocks down 5$; bonds even 1 0 1 / 8
4,41 5 4 4 ,7 0 1 .8 8 4 3 ,2 8 4 .0 4 8 7 ,9 8 5 .9 2
1944 28
No tr a n sa c tio n s in 1944; the DJ1A n e ith e r
advanced 25$ from 143, nor d eclin ed 20$
from 143
29
D ec. 30 I52 105 Stocks up 12$; bonds up 8$
1 3
4 ,4 1 5 57,395*00 4 6 ,7 4 6 .7 6 104,141.76
1945 30
Sep. 12 179 106 Stocks up 25$ from 143; "bonds up 1$ 16 7/8
4,4 1 5 7 4 ,5 0 3 .1 3
4 7 ,2 1 4 .2 3 121.717.36
31
S e l l 809 sh a r e s, $1 3 , 6 5 1 .8 8 ;
buy $1 3 , 651*88 bonds 16 7/8 3 ,606 6 0 , 851.25 6 0 , 866.11 235.26
32
Balance a f t e r commission is deducted from
31H 16 7/8 3,606 6 0 , 851.25 6 0 , 630.85 121,482.10
33
D ec.
31 193
108 Stocks up 8$; bonds up 2$ 18 1/4 3,606
65,809*50 6 1 ,8 4 3 .4 7 1 27,652 .97
*See Table x x i i .
TABLE I I 72
$ 1 0 0 ,0 0 0 INVESTED BY THE CONSTANT RATIO PLAN IN
LEH M AN CORPORATION C O M M O N STOCK
1937-1945
A B c D E P O H I J (G4H)
Price Number
Com
Lehman Shares St ock Bond m ission Total
Line No. Date DJ1A DJ40BA Remarks Corp. Held Portion Portion expense** Fund
193T
1 Mar.
3 ~ 193
104 Buy: 50$ stocks; 50$ bonds ~ 132
379 50,028.00 ^9,972.00
257.65
2 Balance a fte r commission is deducted from 1H x32 379 50,028.00
4 9 , 714.35
9 9 , 742.35
3
Sep.
23
154 98 Stocks down 20$ from 193; bonds down 6% 34 7/ 8* 1137 3 9 , 652 .8 7 46,731.48 8 6 , 384.35
4
Buy 101 sh ares, $3 , 5 2 2 . 3 8; s e l l $3 , 522.38
bonds 34 7 /8 1238
4 3,175.25
4 3 , 209.10
35-51
5
Balance a fte r commission is deducted from 4H 34 7 /8 1238
4 3 , 175.25 43,173-59
86,348.84
6 Nov.
19
118 92
Stocks down 22$ from 154; bonds down 6$ 2 7 1 / 2 1238 34,045.00
4 0 , 583.17 74,628.17
7
Buy 119 shares, $3 , 2 7 2. 50; s e l l $3 , 272.50
bonds 2 7 1 / 2
1357 37,317.50 3 7 , 310,67 37.14
8 Balance a fte r commission is deducted from 7H 2 7 1 / 2
1357 37,317.50
37,273-53
7 4 , 591.03
9
Dec.
31
121
93
Stocks up 3$; bonds up 1$ 24 1/4
1357 3 2 , 9 07.25
37,646.27 70,553-52
00
m
C h
1 — I
10 Oct. 6 148 90
Stocks up 25$ from 118; bonds down 3$ 27 5/8 1357 37,487.13
3 6 , 516.88 74,004.01
11 S e l l 18 shares, $497-25; buy $497-25 bonds 27 5/8 1339 3 6 , 9 89.88 37,014.13
12.55
12 Balance a fte r commission is deducted from 11H
27 5 /8 1339 3 6 , 9 89 .8 8 3 7 , 001.58 73,991-46
13
Dec.
31 155
90
Stocks up 5$, bonds even 27
1339 36,153.00 3 7 , 001.58 73,154.58
1939
14 No tran sa ction s in 1939; the DJ1A n eith er ad
vanced 25$ from 148, nor declined 20$ from 148
15
Dec.
30
150 90
Stocks down 3$; bonds even 22 3/4
1339
30,462.25 3 7 , 001.58
6 7 ,4 63.83
1940 16 May 21 114
83
Stocks down 23$ from 148; bonds down 8$
17 1/2 1339 2 3, 4 32.50 34,041.45
57,473-95
17
Buy 303 shares, $5 , 3 0 2 . 50; s e l l $5,302.50
bonds 17 1 /2 1642 28,735-00
28,738.95
6 9 .2 5
18 Balance a fte r commission is deducted from 17H 17 1/2
1642
2 8 , 735.00 28, 669.70 57,404.70
19
Dec.
31 131 91
Stocks up 15$; bonds up 10$
21 1642 34,482.00
31,536.67 66,018.67
1941 20
No tran saction s in 1941; the DJ1A neither advanced
25$ from 114, nor declined 20$ from llty
21 Dec.
31
111 •, 88 Stocks down 15$; bonds down 3$ 20 1/4
1642
3 3 , 250.50 3 0 , 590.57
6 3 , 841.07
1942 22 No tran saction s in 1942; the DJ1A n eith er ad
vanced 25$ from J14, nor declined 20$ from 114
23
Dec.
31 119 91
Stocks up 7$; bonds up 3$
25
1642 41,050.00
31,508.29 7 2 , 558.29
1943 24
June
3
143
97
Stocks up 25$ from 11^; bonds up 6$
29 3/4
1642 48,849-50
33,398.79
82,248.29
25
S e ll 260 shares, $7,735; buy $7,735 bonds 29 3/4 1382 41,114.50
41,133.79
9 8.00
26 Balance a fte r commission is deducted from 25H
29 3 A
1382 41,114.50
41,035.79
8 2 , 150.29
27
Dec. 31 136 97
Stocks down 5$; bonds even 30 3/4
1382 4 2 ,4 9 6 . 5 0 :
4 1 ,035.79
8 3 , 532.29
72a
A B C D
E E G H I J (G4H)
Price Number
Com
Lehman Shares Stock
Bond m ission Total
Line No. Date DJ1A DJ40BA Remarks Corp. Held Portion Portion expense** Fund
1944 28 Sep. 12 No tran saction s in 1944; the DJ1A n eith er ad
•
vanced 25^ from 143, nor declined 20^ from 143
29
Dec. 30 152 105 Stocks up 12$; bonds up 8$ 3 8 1 / 2 1382 53,207.00 44,318.65
9 7 , 525.65
1945 30
Sep. 12
179
106 Stocks up 25$ from 143; Londs up 1% 45 i A
I382
6 2 , 535,50 44,761.84 107, 297.34
31
- S e l l 196 shares, $8,869; buy $8 , 869- bonds 45 i A 1186 5 3 , 6 66.50 - 53,630.84
88.95
32 Balance a fte r commission is deducted from 3 IH 45 i A 1186 5 3, 6 66 .5 0
53,541.89 107, 208.39
33
Dec.
31 193
108 Stocks up 8%; bonds up 2$ 53 l A
1186 6 3 , 154.50
54,612.73 117, 767.23
*A fter the th re e fo r one s to c k s p l i t , May 2 9, 1937*
**See Table x x i i i .
TABUS I I I
73
$ 1 0 0 ,0 0 0 INVESTED BY THE CONSTANT RATIO PLAN IN
STATE STREET INVESTORS STOCK
1937 - 1945
A B c D E F G H I j (G-m)
Price Number
Com
State Shares Stock Bond m ission Total
Line No. Date DJ1A DJ4.0BA Remarks Street Held Portion Portion expense** Fund
1937
1 Mar.
3 193
104 Buy 50$ stocks; 50$ bonds I 30
385
5 0 , 050.00 49,950.00 125
2 Balance a fte r commission is deducted from 1H I 30
385 5 0 , 050.00 49,825.00 99,875-00
3
Sep. 2 3 1 5 4 98 Stock down 20$ from 193; bonds down 6$ 98 385 37,730.00 4 6 ,8 35.50 8 4 , 565.50
4
Buy 46 sh ares, $4,508; s e l l $4,508 bonds 98 431 42,238.00 4 2 , 327.50 15.10
. . --------_
Balance a fte r commission is deducted - from-4H - ■ 98
431
42,238.00 42,312.40 84,550.40
6 Nov.
19 118 92
Stocks down 22$ from I 54; bonds down 6$ 76 431 32,756.00 39,773.66 7 2 , 529.66
7
Buy 46 shares, $3,496; s e l l $3,496 bonds 76 477
3 6 , 252.00 36,277.66 14.08
8
Balance a fte r commission is deducted from 7H 76
477 3 6 , 252.00 3 6 , 263.58 7 2 , 515.58
9
Dec.
?1
121
93 ........................
Stocks up 3$; bonds up 1$
68.55 M l 32,698.35
3 6 ,6 2 6 .2 2
69,324.57
1938 10 Oct. 6 148 90
Stocks up 25$ from 118; bonds down 3$
77.50 M l 36,967.50 35,527.43 72,494.93
11 S e l l 9 shares $697*50; buy $597*50 bonds 77.50 468 3 6 , 270.00
36,224.93
5 .7 2
12 Balance a fte r commission is deducted from 11H
77.50
468 36,270.00 3 6 , 219.21 72,489.21
13
Dec.
31 155
90
Stocks up 5$; bonds even 73.60 468 34,444.80 3 6 , 219.21 70,664.01
1979 14 No tran saction s in 1939; the DJ1A n eith er ad
vanced 25$ from 148, nor declined 20$ from 148
15
Dec.
30
150 90 Stocks down 3$; bonds even 71.81 468 33,607.08 3 6 , 219.21
69,826.29
194-0 16 May 21 114
83
Stocks down 23$ from 148; bonds down 8$ 55.25 468 25,857.00
3 3 , 321.67 59,178.67
17
Buy 68 shares, $3,757; s e l l $3,757 bonds 55.25
536 29,614.00
29 , 564.67 14.08
18 Balance a fte r commission is deducted from 17H 55.25
536 ' 29,614.00
29, 550.59 59,164.59
19
Dec.
31 131 91
Stocks up 15$; bonds up 10$ 61.41 536 32,915.76
3 2 , 505.65
65,421.41
1941 20 No tran saction s in 1941; the DJ1A n eith er ad
vanced 25$ from 114 nor declined 20$ from 114
21 Dec.
?!
111 88 Stocks down 15$; bonds down 3$ 54.72 536 29,329.92 31,530.48 60,860.40
O J
-r i-
C h
1 — 1
22 No tran saction s in 1942; the DJ1A n eith er ad
vanced 25$ from 114, nor declined 20$ from 114
23
Dec.
31 119 91
Stocks up 7$; bonds up 3$
63.29 536 33,923.44
32,476.39 66,399.83
1943
24 June
3 143" 97
Stocks up 25$ from 114; bonds up 6$ 78.54 536 42,097.44
34,424.97
7 6 , 522.41
28
S e ll 49 shares, $3,848.46; buy $3,848.46 bonds 78.54
487 38,248.98
38,273.43
15.92
26 Balance a fte r commission is deducted from 25H 78.54 487 38,248.98
38,257.51 7 6 , 506.49
27
Dec.
31
136
97
Stocks down 5$; bonds even
78.59 487
5 8 , 273.33
3 8 , 257.51
7 6 , 530.84
-r t-
■ = t
o>
1 — 1
28
No tran saction s in 1944; the DJ1A n eith er ad
vanced 25$ frogi 143, nor declined 20$ from 143
29
Dec.
30
152 105 Stocks up 12$; bonds up 8$ 44.96*
974
4 3 , 791.04 41,318.11
8 5 , 109.15
1945
30 Sep. 12
179
106 Stocks up 25$ from 143; bonds up 1$
55 974
5 3, 570.00
41,731.29
95,301.29
31
S e l l 108 shares, $5,9^0; buy $5,9^0 bonds
55
866 4 7 , 630.00 47,671.29 23.64
32
Balance a fte r commission is deducted from 3 IH
55
866 4 7 , 630.00 47,647.65 95,277.65
33
Dec.
31 193
108
Stocks up 8$; bonds up 2$ 53.90 866 46,677-40 48,600.60 9 5 ; 278.00
*After the two for one stocks s p l i t , April 14, 1944.
**See Table xxiv .
TABLE IV 74
$ 1 0 0 ,0 0 0 INVESTED BY THE CONSTANT RATIO PLAN IN
TRI-CONTINENTAL CORPORATION C O M M O N STOCK
1937 - 1945
Line No.
A
Date
B
DJ1A
C
DJ40BA
D
Remarks
E
Price
T ri-
Cont.
F
Number
Shares
Held
G
Stock
Portion
H
Bond
Portion
I
Com
m ission
Expense*
J ( G -*H )
Total
Fund
1937 1
Mar.
3 193
104 Buy 50$ stocks; 50$ bonds
9 5 /8 5,195
5 0 , 001.88 49,998.12 852.30
2
3
Sep. 2 3 1 5 4
Balance
98
a fte r commission is deducted from 1H
Stocks down 20$ from 193; bonds down 6$
9 5 /8
6 1/8
5.195
5.195
5 0 , 001.88
3 1 , 819 .3 8
49,145.82
46,197-07
9 9 , 147.70
7 8 , 016.45
4
5
6 Nov. 19 118
Balance
92
Buy 1,174 shares, $7,190.75; s e l l $7,190.75
bonds ' * ■ — — '
a fte r commission is deducted from 4H
Stocks down 22$ from 154; bonds down 6$
6 1 /8
6 1/8
4 1/8
6.3 6 9
6.3 6 9
6.3 6 9
3 9 , 0 1 0 . 13-
3 9 . 010.13
2 6 . 272.13
39,006.32
38,853.02
36,521.84:
153-30
7 7 , 863.15
62,793-97
7
8
9
Dec. 31 121
Balance
93
Buy 1,242 shares, $5 , 1 23. 25; s e l l $5 , 123.25
bonds
a fte r commission is deducted from 7H
Stocks up 3$; bonds up 1$
4 1/8
4 1/8
3 1/2
7 ,6 1 1
7.611
7.6 1 1
3 1 . 395.38
3 1 . 395.38
2 6 ,638.50
31,598.59
3 1 , 268.69
31,581.38
129.90
62,664.07
5 8 , 219.88
1938 10 O ct. 6 148 90
Stocks up 25$ from 118; bonds down 3$ 4 3 /8 7,611
3 3 , 298.13 30,633.94 6 3 , 932.07
11
12
13
Dec. 31 155
Balance
90
S e l l 305 shares, $1 , 3 3 4 . 3 8 ; buy $1 , 334.38
bonds
a fte r commission is deducted from 11H
Stocks up 5$; bonds even
4 3/8
4 3 /8
3 7/8
7.306
7.306
7.306
3 1 . 963.75
3 1 . 963.75
2 8 . 3 1 0.75
3 1 , 968.32
31.912.54
31.912.54
55.78
6 3 . 876.29
6 0 . 223.29
1939 14
15
Dec. 30 150 90
No tran saction s in 1939; the DJ1A neither ad
vanced 25$ from 148, nor declined 20$ from 148
Stocks down 3$; bonds even 2 1/2 7,306 1 8 , 265.00 31,912.54 50,177.54
1940 16 May 21 114
83
Stocks down 23$ from 148; bonds down 8$
1 5/8
7,306 1 1 , 872.25
29,359.54
4 1 , 231.79
17
18
19
Dec. 31 131
Balance
91
Buy 5,381 shares $8,744.13; s e l l $8,744.13
bonds
a fte r commission is deducted from 17H
Stocks up 15$; bonds up 10$
1 5 / 8
1 5/8
1 1 /2
12.687
12.687
12,687
2 0. 616.38
2 0. 616.38
1 9 , 030.50
20,615.41
2 0, 265.37
22,291.91
350.04
40,881.75
41,322.41
1941 20
21 Dec. 31 111 88
No tran saction s in 1941; the DJ1A n eith er ad
vanced 25$ from 114, nor declined 20$ from 114
Stocks down 15$; bonds down 3$
3/4 12,687
.......- 9 , 515.25
21, 623.15 31,138.40
1942 22
23 Dec. 31 119
91
No tran saction s in 1942; the DJ1A n eith er ad
vanced 25$ from 114, nor declined 20$ from 114
Stocks up 7$; bonds up 3$ 2
12,687 2 5 ,374.00 22,271.84 47,645-84
1943 24 June 3 -143
97
Stocks up 25$ from 114; bonds up 6$ 4 1/4 12,687
5 3 , 9 1 9.75
23, 608.15 . . 77,527-90
25
■ 26
27 Dec.
31 136
Balance
97
S e l l 3 ,5 6 6 shares, $1 5 , 1 5 5. 50; buy $1 5, 155.50
bonds
a fte r commission is deducted from 25H
Stocks down 5$; bonds even
4 1/4
4 1/4
3 5/8
9 ,1 2 1
9 ,1 2 1
9 ,1 2 1
3 8 . 764.25
3 8 . 7 64.25
3 3 , 063.63
3 8 , 763.65
38.188.44
38.188.44
575.21
76,952.69
7 1 , 252.07
1944 28
29
Dec. 30 152 105
No tran sa ction s in 1944; the DJ1A neither ad
vanced from 143, nor declined 20$ from 143
Stocks up 12$; bonds up 8$
5 1/4
9 ,1 2 1 4 7 , 885.25 41,243.52
89,128.77
1945 30
Sep. 12 179 106 Stocks up 25$ from 143; bonds up 1$
7 5/8
9 ,1 2 1 6 9 , 547.63 41,655.96 111, 203.59
31
32
33
Dec.
31 193
Balance
108
S e ll 1,829 shares, $1 3, 9 4 6 . 13; buy $13,946.13
bonds
a fte r commission is deducted from 3 IH
Stocks up 8$; bonds up 2$
7 5/8
7 5/8
9 7/8
7 .2 9 2
7.292
7 .2 9 2
5 5 . 601.50
5 5 . 601.50
7 2 . 008.50
55,602.09
55,219.30
5 6, 323.69
382.79
110. 820.80
1 2 8, 332.19
*See Table xxv.
TABLE V
75
$ 1 0 0 ,0 0 0 INVESTED BY TH E MODIFIED CONSTANT RATIO PLAN IN
GENERAL AMERICAN INVESTORS C O M M O N STOCK
1957 - 1945
A B C D
E F a H I J (G-ffl)
Number Com
Price Shares Stock Bond m ission Total
Line No. Date DJ1A DJ40BA Remarks G.A.I. Held Portion Portion Expense* Fund
1957 1
Mar. 3 193 104 Buy 50$ stocks; 50$ bonds 14 7 /8 3 ,3 6 1 49,994.88 5 0 , 005.12 669.82
2 Balance a fte r commission is deducted from 1H 14 7 /8
3 ,3 6 1 49,994.88 49,335-30 99,330.18
5
Dec. 31 121 93 Stocks down 37$ from 193; bonds down 11$ 6 3/561 2 0 , 166.00 43,908.42 64,074.42
1958 4
The Federal Reserve Board Index declined' more than one point during the la s t four months in 1937, but in the January 2 0, 1938 r e le a se
5
i t declined but one point perm itting a tra n sfer from bonds to stocks
6
Jan. 21 I3 I 90 Stocks up 8$; bonds down 3$ 6 5/4 3 ,3 6 1 22,686,75. 42,591.17
65,277.92
7
Transfer 5$ of t o t a l fund: S e l l $3 , 260.25 bonds; buy 483 shares,
$3 , 260.25
6
3,844 25,947.00 39,330.92 6 7 .2 1
8
Balance a fte r commission is deducted from 7H 6 3/4 3,844 25,947.00
3 9 , 263.71 65,210.71
9
Next tran sfer scheduled for A pril 21 by the three months rule is delayed u n t il June 21 by the Federal Reserve Board Index rule
10 June 21 121 85 Stocks down 8$; bonds down 6$ 6 1/8 3,844 23,544.50
3 6 , 907.89 6 0 , 452.39
11 Transfer 5$ of t o t a l fund: S e ll $3 , 0 1 9 .6 3 ; buy 493 shares, $3 , 019.63 6 1/8
4,337 26,564 .13 3 3 , 888.26 6 8 .3 1
12 Balance a fte r commission is deducted from 11H 6 1/8 4,337 2 6 ,564 .13
3 3 , 819.95
60,384.08
15
Next tran sfer scheduled for September 21 by the three months rule
14 Sep. 21 I39 87 Stocks up 15$; bonds up 2$ 7 1/4 4,337
3 1 , 4 43.25 3 4 , 496 .3 5 65,939.60
15
Fund r-is equalized by t h is tran sfer: S e l l $1,529.75; buy 211 shares
$1 , 529.75
7 1/4 4,548 3 2 , 973.00 3 2 , 966.60 3 6 .3 6
16
Balance a fte r commission is deducted from I 5H 7 1/4
4,548 32,973-00 3 2 , 930.24 65,903.24
17
Dec. 31 I 55 90 Stocks up 11$; bonds up 3$ 9
4,548 40,932.00
3 3 ,918.15 74,850.15
1959 18
No tran saction s in 1939
19
Dec. 30 I 50 90 Stocks down 3$; bonds even 6 1/2 4,548 29,562.00
3 3 ,918.15
63,480.15
1940 20 May 21 111 83 Stocks down 20$ from I3 9 ; bonds down 8$ 4 1/2 . 4,548 20,466.00 3 1 , 204.70 51,670.70
21 Transfer 5$ of Total Fund: S e ll $2,583 bonds; buy 574 shares, $2,583 4 1/2 5,122
23,049.00 28, 621.70 6 5 .2 2
22 Balance a fte r commission is deducted from 21H 4 1/2 5,122 23,049.00 28,556.48 51,605.48
25 Next tra n sfer scheduled for August 21 by the three months rule
24
Aug.- 21 125 88 . Stocks up 13$; bonds up 6$
5
5,122 2 5 , 610.00
30,269.87 55,879.87
25
Fund' i s equalized by th is tran sfer: S e l l $2,330 bonds; buy 466 shares
i
$2,330
5
5,588 27,940.00
27,939.87
60.16
26
Balance a fte r commission is deducted from 25H
5
5,588 27,940.00
27,879.71 55,819.71
27
Dec. 31 I 3I 91 Stocks up 5$; bonds up 3$
5
5,588 2 7 ,940.00 28,716.10 5 6 , 656.10
75a
Line No.
A B C D
Date DJ1A DJ40BA Remarks
E
Price
G.A.I.
F
Number
Shares
Held
G
Stock
Portion
H
Bond
Portion
I
Com
m ission
Expens e*
J (G-ffi)
Total
Fund
1941 28
29
No tran saction s in 1941
Dec. 31 111 88 Stocks down 15$; bonds down 3$
4 1 / 4
5,588 23,749.00 27,854.62 5 1, 6 03 .6 2
1942 30
31
32
33
Mar. l l 99 90 Stocks down 20$ from 125; ’ bonds up 2$
Transfer 5$ of Total fund: s e l l $2 , 569*88 bonds; buy 623 shares,
$2 , 569.88 - -------- —
Balance a fte r commission i s deducted from 3 IH
Dec. 31 119 91 Stocks up 207.; bonds up 1 $
4 1 / 8
" - 4 1 /8
4 1 /8
6 1 /2
5,588
6 ,2 1 1
6 ,2 1 1
6 ,2 1 1
2 3. 050.50
2 5. 620.38
2 5 . 620.38
40.371.50
28, 411.71
2 5 , 841.83
25, 772.20
2 6 . 029.92
r ' '• " :
^ > - '* ■ -
6 9 .6 3
51,462.21
51,392.58
66,401.42
I 943 34
35
36
37
Jan. 29 125 92 Stocks up £5$ from 99; "bonds up 1$
Fund i s equalized; buy $9,757*13 bonds; s e l l 1 ,3 23 shares, $9,757*13
Balance a fte r commission is deducted from 35H
Dec. 31 I36 97 Stocks up 9$j bonds up 5$
7 3/8
7 3 /8
7 3 /8
10 1 /8
6 ,2 1 1
4.888
4.888
4.888
45,805.13
36.049.00
36.049.00
49.491.00
2 6 , 290.22
36,047.35
35,770.78
37,559.32
276.57
72,096.35
71,819.78
8 7 , 050.32
1944 38
39
No tran saction s in 1944
Dec. 30 I52 105 Stocks up 12$; bonds up 8$
13
4,888 63,544.00 40,564.07 104'108.07
1945 40
41
42
43
Feb. 13 I 56 106 Stocks up 25$ from 125; bonds up 1$
Fund is equalized: buy $11,083*50 bonds; s e l l 821 shares, $11,083*50
Balance a fte r commission is deducted from 41H
Dec. 31 193 108 Stocks up 24$; bonds up 2$
13 1/2
13 1 /2
13 1 /2
18 1/4
4,888
3.962
3.962
3.962
65,988.00
53,487.00
• 53,487.00
7 2 , 306.50
40.969.71
53.470.71
53,216.87
54,281.21
253.84
106.957.71
106, 703.87
12 6. 587.71
♦See Table xxv i.
TABLE VI
76
$ 1 0 0 ,0 0 0 INVESTED BY TH E MODIFIED CONSTANT RATIO PLAN IN
LEH M AN CORPORATION STOCK
1937 - 1 9 4 5 ‘
A B C D
E F G H I J (G-ffi)
Number Com
Price Shares Stock Bond mission Total
Line No. Date DJ1A DJ40BA Remarks G.A.I. Held Portion Portion Expense** Fund
1937 1
Mar. 3 193 104 Buy: 50$ s to c k s ; 50$ bonds 132
379
5 0 , 028.00 49.972.00
257.65
2 Balance a fte r commission is deducted from 1H !32 379 5 0 . 028.00
4 9 . 714.35
9 9 , 742.35
3
Dec. 31 121 93 Stocks down 37$ from 193; bonds down 11$ 24 1/4
1,137*
27, 572.25
4 4 , 245.77
7 1 , 8 18 .0 2
1938 4
The Federal Reserve Board Index declined more than one point during the la s t four months in 1937, but in the January 2 0, 1938 r e le a s e , i t
declined but one point perm itting a tra n sfer from bonds to stocks
5
Jan. 21 I3 I 90 Stocks up 8$; bonds down 3$ 26 5/8
1,137
3 0 , 272.62 42,918.40 73,191.02
6 Transfer 5$ of t o t a l fund: s e l l $3,647-63 bonds; buy 137 shares,
$3,647.63 26 5 /8 1,274 33,920.25
39,270.77
40.32
7 Balance a fte r commission is deducted from 6H 26 5 /8 1,274 33,920.25
39,230.45 73,150.70
8
Next tran sfer scheduled for A pril 21 by the three months rule is delayed u n t il June 21 by the Federal Board Index rule
9
June 21 121 85 Stocks down 8$; bonds down 6$ 26 3 /8 1,274
3 3 ,601.75
3 6 , 8 76 .6 2
70,478.37
10 Fund is equalized by th is transfer: s e l l $1 , 635.25 bonds; buy 62
shares $1 , 635.25 26 3 /8 1,336 3 5 , 237.00
35,241.37 3 0.63
Balance a fte r commission i s deducted from 10H 26 3 /8 1,336 3 5 , 237.00 35,210.74 7 0 . 447.74
12 Oct. 13 I 5I 90 Stocks up 25$ from 121; bonds up 6$
27 3/4 1,336 37,074
37,323-38 74,397.38
13
No tran sfer; fund is autom atically equalized
14 Dec. 31 I 55 90 Stocks up 3$; bonds even
27 1,336 3 6 , 072.00
37,323-38 73,395-38
1939 15
No tran saction s in 1939; the DJ1A declined to 120 on April 8 , but the Federal Reserve Board Index rule prevented the purchase of stock
16 Dec. 30 I 50 90 Stocks down 3$; bonds even 22 3/4
1,336 30,394.00
37,323-38 67,717.38
1940 17 May 21 111 83 Stocks declined 26$ from I 5I, bonds down 8$ 17 l / 2
1,336 2 3, 380.00
34,337-51 57,717.51
18 Transfer 5$ o f t o t a l fund; s e l l $ 2,870 bonds; buy 164 shares, $2,870 17 1/2 1,500 2 6 , 250.00
31,467.51
41.24
19
Balance a fte r commission is deducted from 18H 17 1 /2 1,500 2 6, 250.00 31,426.27
57,676.27
20 Next tra n sfer is scheduled for August 21 by the three months rule
21 Aug. 21 125 88 Stocks up 13$; bonds up 6$ 1 9 1 / 4
1,500 2 8, 875.00
3 3 ,3 U ,8 5
6 2 , 186.85
22 Fund is equalized by th is tran sfer: s e l l $2,213.75 bonds; buy I I 5
shares, $2 , 213.75
1 9 1 / 4 1,615
31,088.75 3 1 , 098.10
33.50
23
Balance a fte r commission is deducted from 22H 1 9 1 / 4 1,615
31,088.75
3 1 ,0 6 4 .60 6 2 , 153.35
24 Dec. 31 I3 I 91 Stocks up 5$; bonds up 3$ 21
1,615
33,915-00
31,996.54 65,911.54
1941 25 No tran saction s in 1941
26 Dec. 31 111 88 Stocks down 15$; bonds down 3$ 2 0 1 / 4 1,615
3 2 , 703.75
31,036.64
63,740.39
1942 27 Mar. 11 99 90 Stocks down 20$ from 125; bonds up 2$ 1 9 1 / 2
1,615
3 1 , 492.50
31,657.37 6 3 , 149.87
28 Fund is autom atically equalized by the increase in the price of Lehmanl Corporation stock
29
Dec. 31 119 91 Stocks up 20$; bonds up 1$ 25 1,615
40,375.00 31,973-94 .72,348.94
■
76a
A B C D
E F G H I J (G4H)
Number Com
Price Shares Stock Bond mission Total
Line No. Date- DJ1A DJ40BA Remarks G.A.I Held Portion Portion Expense** Fund
1943 30
Jan.
29
125 92 Stocks up 25$ from 99; bonds up 1$
27
1,615 4 3 , 6 05.00 3 2 , 293.68 75,898.68
31
Fund is equalized: s e l l 2,09 shares, $5,643; buy $5*643 bonds 27
1,406 37,962.00 37,936.68 76.25
32 Balance a fte r commission is deducted from 3 IH 27 1,406 37,962.00 37,860.43 75,822.43
33
Dec.
31
136 97 Stocks up 9$; bonds up 5f0
30 3A
1,406 43,234.50 39,753-45
82,987-95
1944 34 No tran saction s in 1944
35
Dec.
30
I 52 105 Stocks up 12$; bonds up 8$ 38 1/2 1,406 54,131.00
42,933-73 97,064.73
1945 36
Feb.
13
I 56 106 Stocks up 25$ from 125; bonds up 1$ 40 1,406 56,240.00
4 3 , 363 .0 7 9 9 , 603.07
37
Fund is equalized: s e l l 161 shares, $6,440; buy $6,440 bonds 40 1,245 49,800.00 4 9 , 803 .0 7
6 9 .9 7
38
Balance a fte r commission is deducted from 37H 40
1,245 49,800.00
49,733-10 99,533-10
39
Dec.
31
K \
o\
1 — 1
108 Stocks up 24$; bonds up 2$
53 l A
1,245 6 6 , 296.25 50,727.76 117,024.01
* A fte r the th re e fo r one s to c k s p l i t , May 29, 1937*
** ,See Table x x v ii.
TABLE V II
77
$100,000 INVESTED BY THE MODIFIED CONSTANT RATIO PLAN IN
STATE STREET INVESTORS STOCK
1957 " 19^5
A B C D
E F G H 1 J (G4H)
Price Number Com
State Shares Stock Bond m ission Total
Line No. Date DJlA DJ40BA Remarks S treet Held Portion Portion Expense** Fund
1937 1
Mar. 3 193 104 Buy 50$ stocks; 50$ bonds
130
385 5 0 , 050.00 49,950.00 125
2
Balance a fte r commission is deducted from 1H 130
385 50,050.00 49,825.00 99,875-00
3
Dec. 31 121 93 Stocks down 37$ from 193; "bonds down 11$ 68.55 385
2 6 , 391.75
4 4 , 544.25 70,736.00
1938 4
The Federal Reserve Board Index declined more than one point during the la s t four months in 1937, but In the January 20,1958 r e lea se
i t declined but one point perm itting a tra n sfer from bonds to stocks
5
Jan. 21 I 3 I 90 Stocks up 8$; bonds down 3$ 85.50 385 32,917.50 45,015.92 75,931-42
6
Transfer 5$ of t o t a l fund; s e l l $3 ,7 6 2 bonds; buy 44 shares, $3 ,7 6 2 85.50 429
36,679.50 59,251.92 14.08
i J s*'- *
Balance a fte r commission is deducted from 6H 85.50 429
36,679.50 59,257.84 7 5 ,9 1 7 0 4
8
Next tra n sfer scheduled for A pril 21 by the three months rule is delayed u n t il June 21 by the Federal Reserve Board : Index rule
9
June 21 121 85 Stocks down 8$; bonds down 6$ 76.50 429 3 2 , 818.50
3 6 , 883.57 69,702.07
10 Fund i s equalized by th is tran sfer; s e l l $2 , 065.50 bonds;
buy 27 shares $2 , 065.50 76.50 456 34,884.00
3 4 , 818.07 13.56
11 Balance a fte r commission is deducted from 10H 76.50 456 34,884.00 3 4 , 804.51 69,688.51
12 Oct. 13 I 5I 90 Stocks up 25$ from 121; bonds up 6$ 8 0.50 456 3 6 , 708.00 3 6 , 892.78 75,600.78
13
No tran sfer; the fund i s au tom atically equalized
14
Dec. 31 I 55 90 Stocks up 3$; bonds even 73-60 456 33,561.60 3 6 , 892.78 70,454.38
1939 15
No tra n sa ctio n s in 1939; the DJlA declined to 120 on April 8 , but the Federal Reserve Board Index rule prevented the purchase of stock
16 Dec. 30 I 50 90 Stocks.down 3$; bonds even 71-81 456 32,745.36 3 6 , 892.78 6 9 , 6 3 8 .14
1940 17
May 21 111 83 Stocks declined 26$ from I 5I; bonds down 8$
55-25
456 25,194.00 3 3 , 941.36
5 9, 135.36
18 Transfer 5$ of t o t a l fund; s e l l $2 , 928 .2 5 bonds; buy 53 shares
$ 2 , 9 28.25
55.25 509
2 8, 1 2 2 . 25' 3 1 , 013.11
13.56
19
Balance a fte r commission is deducted from 18H
55.25 509
2 8 , 122.25
3 0 , 999.55
5 9 , 121.80
20 Next tra n sfer i s scheduled for August 21 by the three months rule
21 Aug. 21 125 88 Stocks up 13$; bonds up6$ 6 0.50
509 30,794.50 3 2 , 859.52 6 3 , 6 54 .0 2
22 Fund is equalized by the tra n sfe r; s e l l $1,028.50 bonds; buy 17 shares
$1 , 028.50 60.50 526 3 1 , 823.00 3 1 , 831.02 11.04
23
Balance a fte r commission is deducted from 22H 6 0.50 526 3 1 , 823.00 3 1 , 819.98 6 3 , 642.98
24 Dec. 31 I 3I 91 Stocks up 5$; bonds up 3$ 61.41 526 3 2 , 301.66
3 2 , 774.58 6 5 , 076.24
1941 25 No tran saction s in 1941
26 Dec. 31 111 88 Stocks down 15$; bonds down 3$ 54.72 526 2 8 , 782.72 3 1 , 791.34
6 0 , 514.06
1942 27 Mar. 11 99 90 Stocks down 20$ from 125; "bonds up 2$ 57.06 526 3 0 , 013.56 3 2 , 4 27.17
6 2 , 440.73
28 Fund is equalized by sin g le tran sfer: s e l l $ 1 , 1 9 8 .26; buy 21 shares
$1 , 198.26 57.06
547
3 1 , 211.82
3 1, 228.91 11.04
29
Balance a fte r commission is deducted from 28H 57.06
547 3 1 , 211.82 3 1 , 217.87 6 2 , 429.69
30 Dec. 31 119 91 Stocks up 20$; bonds up 1$ 63.29
547
34,619.63 3 1 , 530.05
66,149.68
1
77a
A B C D E F G H I J (G-fH]_
Price Number
Com
State Shares S to ck Bond m ission T o ta l
Line No. Date DJlA DJ40BA Remarks S treet Held P o rtio n Portion Expense** Fund
1943 31
Jan.
29
125 92 Stocks up 25$ from 99; bonds up 1 $
■ 6 6 .5 5 547 56,402.85 5 1 , 845 .5 5 68,248.20
32 Fund is equalized: s e l l 34 shares, $2,262.70; buy $2,262.70 bonds 66.55
513
5 4 , 140.15 5 4 , 108.05 14,72
33
Balance a fte r commission is deducted from 32H 6 6 .5 5
513
5 4 , 1 4 0 . 15.
34,095-33
68,233-48
34 Dec.
31
136 97 Stocks up 9$J bonds up 5$ 78.59 513 40,516.67
35,798.00
76,114.67
-= t
as
i — i
35
No tran saction s in 1944
36
Dec.
30
I52 IO5 Stocks up 12$; bonds up 8$ 4496* 1 ,0 26* 46,128.96 38,661.84 84,790.80
1945 37
Feb. 13 156
106 Stocks up 25$ from 125; bonds up 1$
51
1,026
5 2 , 526,09
39,048.46 91,374.46
38 Fund is equalized: s e l l I 30 shares, $6 , 6 3 0 ; buy $6,620 bonds
51
896 45,696.00
4 5 , 678.46 27.90
39
Balance a fte r commission is deducted from 38H
51
896 45,696.00 4 5 , 650.56
91,346.56
40 Dec.
31 193
108 Stocks up 24$; bonds up 2$ 55.90 896 48,294.40
4 6 , 563.57 94,857.97
* After the two for one stock s p l i t , April 14, 1944.
** See Table x x v i i i .
T A B L E VIII
78
$ 1 0 0 ,0 0 0 INVESTED BY TEE MODIFIED CONSTANT RATIO PLAN IN
TRI-CONTINENTAL CORPORATION C O M M O N STOCK
1937 - 19^5
Line No.
A
Date
B
DJlA
C
DJ40BA
D
Remarks
E
Price
Tri-Cont.
F
Number
Shares
Held
G
Stock
Portion
H
Bond
Portion
I
Com
mission
Expense*
J (G4H)
Total
Fund
1937
1
2
-3 - ”
Mar.
Mar.
Dec."
3 193
3
-3I - I 2I
104
93 '
Start: 50$ stocks; 50$ bonds
Commission deducted from 1H
Stocks down 37$ from 1 9 3 ;’bonds down 11$
9 5 /8
9 5 /8
3 1 / 2
5J195
5.195
5.195
5 0 , 001.88
5 0 , 001.88
1 8, 182.50
49,998.12
49,145.82
43,739.78
852.30
99,147.70
6 1 , 922.28
1938 5
6
7
9
10
11
12
13
14
15
16
17
The Federal Reserve Board Index declined more than one point during the
i t declined hut one point perm itting a tra n sfer from bonds to sto c k s.
Jan. 21 l ^ l 90 Stocks up 8$; bonds down 3$ 3
Transfer 5$ of t o t a l fund; s e l l $3 , 1 2 7 . 13- bonds; buy 807 shares,
$3, 127.13 3
Ja n . 21 Commission deducted from 6H 3
Next t r a n s f e r scheduled fo r A p ril 21 by the th re e months r u l e , delayed
3
3
3
la s t four months of 1937; but in the January 20, 1938 r e le a s e
7 /8
5,195
20,130.62 4 2,427.59
June 21 121 85 Stocks down 8$; bonds down 6^
Transfer 5$ of t o t a l fund: s e l l $2,929 bonds; buy 808 shares, $2,929
June 21 Commission deducted from 10H
Next tra n sfer scheduled for September 21 by the three months rule
Sep. 21 I39 87 Stocks up 15$; bonds up 2$ 4 l /8
Transfer 5$ of t o t a l fund: s e l l $3 , 130.88 bonds; buy 759 shares
$3 , 130.88 4
Sep. 21 Commission deducted from 14H 4
Dec. 31 I 55 90 Stocks up 11$; bonds up 3$ 3
7 /8 6 ,0 0 2 23
7 /8 6 ,0 0 2 23
u n til June 21 by Federal
5 /8 6 ,0 0 2 21
5 /8 6 ,8 1 0 24
5 /8 6 ,8 1 0 24
, 257.75 39,300.46 78.64
, 257.75 39,221.82
Reserve Board Index ru le
,757.25 3 6 , 868.51
, 6 86.25 33,939.51 78.20
, 6 86.25 3 3 , 861.31
6,810 2 8 , 091.25 3 4 , 538.54
The fund, almost equalized on September 21, was autom atically equalized
1 /8 7 ,5 6 9 31
1/8 7 ,569 31
7 /8 7,569 29
by the October 6 increas
82.39 , 222.13 31,407.66
, 222.13 3 1 , 325.27
, 329.88 3 2 , 265.03
e in p r ic e of T ri-C o n tin e n ta l
6 2 , 558.21
62,479.57
5 8, 625.76
58,547.56
62,629.79
62,547.40
61,594.91
to 4 3 /8
1939 18 No tran saction s in 1939
19 Dec. 30 I 50 90 Stocks down 3$; bonds even 2 1/2
7,569
1 8, 922.50 3 2 , 265.0
51,187.53
1940 20 May 21 111 83 Stocks down 20$ from I3 9 ; bonds down 8$
21 Transfer 5$ of t o t a l fund: s e l l $2,097*88 bonds; buy 1,291 shares,
$2, 097.88
22 May 21 Commission deducted from 21H
23 Next tran sfer scheduled for August 21 by the three months rule
24 Aug. 21 125 88 Stocks up 13$; bonds up 6$
25 Transfer 5$ of t o t a l fund: s e l l $ 2 , 175.88 bonds; buy 1,339 shares,
$2,175.88'
26 Aug. 21 Commission deducted from 25H
27 Next tra n sfer scheduled for November 22by three months rule
28 Nov. 22 I 32 90 Stocks up 6$; bonds up 2$
29 Fund is equalized: s e l l $2,232 bonds; buy 992 shares, $2,232
30 Nov. 22 Commission deducted from 29H
31 Dec. 31 I3 I 91 Stocks down 1$; bonds up 1$
1
5/8 7,569 12 , 299.62 29, 683.83
41,983.45
1 5/8 8 ,8 6 0
14,397-50 27,585.95
9 1 .0 2
1 5 /8 8,860
14,397.50
27,494.93
41,892.43
1
5/8 8 ,8 6 0
14,397-50 29,144.63 43,542.13
1
5/8
10,199
16,573-38 26,968.75 93.90
1 5/8
10,199 16,573-38 26, 874.85 43,448.23
2
10,199
22,947.75
27,412.35 5 0, 360.10
2 1/4
11,191
25,179.75
25, 180.35 83.00
2 1/4
11,191
25,179.75 25,097.35
50,277-10
1 1 /2
11,191 1 6 , 786.50 25,348.32
4 2 , 134.82
1941 32 No tr a n s a c ti o n s in 1941
33 Dec. 31 111 88 Stocks down 15$; bonds down
5/4 11,191
8,593-25 24, 587.87 3 2 , 981.12
78a
A B C D
E F-. G H I J (G4H)
Number Com-
Price Shares Stock Bond miss ion Total
Line No. Date DJlA
DJ40BA Remarks Tri-Cont. Held Portion Portion Expens e* Fund
1942 34 Feb. 21 105 90
Stocks down 20$ from 132, bonds up 2$ 7 /8 11,191 9,792.12 25, 0 79.63
3 4 , 8 71.75
35
Transfer 5$ of fund; s e l l $1,743 bonds;
buy 1,992 sh ares, $1,743 7 /8 13,183 11,535.12
2 3, 3 36.63
90.72
36 Feb. -21 Commission deducted from 35H 7/8
13,183
11,535.12
23, 245.91
3 4 , 781.03
37
Next transfer-scheduled for March 21 by three months rule
33
May 21 100
89
Stocks down 5$; bonds down 1$ 1
13,183 1 3, 183.00 2 3, 0 13.45 3 6 , 196.45
39
Transfer 5$ t o t a l fund: s e l l $1,809 bonds;
_____ _ _________________. . ^ -
-buy 1 , 8 0 9 -shares $1,809 -
1
14,992 14 ,9 9 2 .G O - 21,204.45
119.58
40 May 21 Commission deducted from 39H 1
14,992
14,992.00
21,084.87 3 6 , 076.87
41
Next tra n sfer scheduled for August 21 by the three months ru le
42 Aug. 21
107 90
Stocks up 7$; bonds up 1$ 1 14,992 14,992.00 21,295-72 3 6 , 287.72
43
Transfer 5$ of t o t a l fund: s e l l $1,814 bonds;
buy ..1,814 shares ,$1,814
1 16,806 16, 806.00 19,481.72 119.88
44 Aug. 21 Commission deducted from 43H .1 16,806 16,806.00 19,361.84 3 6 , 167.84
45
Next tran sfer scheduled for November 21 by three months r u le , but fund was autom atically equalized when
T ri-C ontinental rose to 1 1/4 on October 5 .
46 Dec. 31
119 91
Stocks up 10$; bonds up 1$ 2 16,806 33,612.00 19,555-^6 53,167-46
1943 47 May 26 140 96 Stocks up 25$ from 112 when fund was autom atically
equalized October 5; bonds up 6$ 4 1/4
16,806 7 1 , 425.50
20,728.79
9 2 , 15 4.©
48 May 26 140 96 S e l l 5,964 shares, $2 5 , 347; "buy $25,347 bonds 4 1 / 4 10,842 46,078.50
46,075-79 900.47
49
May 26 Commission deducted from 48H 4 1 / 4 10,842 46,078.50
4 5,175 .32 91,253-82
50 Dec.31 136 97
Stocks down 3$; bonds up 1$ 3 5/8
10,842 39,302.25 4 5 , 6 2 7.07 84,929.32
1944 51
No tran saction s in 1944
52
Dec.30 I 52 105 Stocks up 12$; bonds up 8$ 5 1 / 4
10,842 5 6 , 920.50 4 9 , 277.24 106,197.74
1945 53
Sep. 6 176 106 Stocks up 25$ from 140; bonds up 1$
7
10,842 75,894.00 49,770.01 125,664.01
54
Sep. 6 176 106 S e l l 1,866 shares, $13,062; buy $13,062 bonds
7 8,976 62,832.00 6 2 , 832 .0 1 389.81
55
Sep. 6 Commission deducted from 54H
7 , 8,976 62,832.00 62,442.20 125, 274.20
56 Dec. 31
193
108 Stocks up 10$; bonds up 2$ 9 7/8 8,976 88,638.00 6 3 , 691.04 152, 329.04
* See Table xxlx.
79
T A B L E IX
$ 1 0 0 ,0 0 0 INVESTED BY TH E SLIDING SCALE PLAN IN
GENERAL AMERICAN INVESTORS C O M M O N STOCK
1937-1945
A B C D E ■ F G H I J ( G4H)
Number Com
Price Shares Stock Bond m ission Total
Line No. Date DJlA DJ40BA Remarks G.A.I. Held Portion Portion Expense* Fund
1937
1 Mar. 3
193
104 Start: 50$ stocks; 50$ bonds 14 7/8 3,361 4 9 , 994.88 5 0 , 005.12 6 6 9 .82
2 Mar. 3 Commission deducted from 1H 14 7/8 3,361 4 9 , 994.88 49,335-30 9 9 , 3 30.18
3
Dec. 31 121
93
Stocks down 37$ from 193; bonds down 11$ 6
3,361
20,166.00 43,908.42 64,074.42
1958 4
When the DJlA declined to 118 on November 19,
1937, 11 bad declined 40$ from the high of 196
on March 10, 1937; schedule A is to tfe followed
with 196 the esta b lish ed high p oin t. A r a tio
of 50/50 is to be esta b lish ed at 118 DJlA, but
F.R.B.Index rule permits no transfer from bonds
to stocks u n t il J a n .20,1938 r elea se
3/4
5
Jan. 21
131
90
Stocks up 8$; bonds down 3$ 6
3,361
2 2 , 686.75
42,591.17
6 5 , 277.92
6
Transfer 10$ of t o t a l fund: s e l l $6 , 527.25 bonds;
3 /4 buy 967 sh ares, $6 , 527.25 6 4,328 2 9,2 1 4 .00 3 6 , 063.92 127.51
7
Jan. 21 Commission deducted from 6H 6 3/4 4 ,3 2 8 29,214.00 35,936.41 6 5 , 150.41
8
Next tr a n sfe r , scheduled for April 21 by the
three months rule is delayed u n t il June 21
by the P.R.B.Index rule
1/8
9
June 21 121
85
Stocks down 8$; bonds down 6$ 6 4,328 26,509.00 3 3 , 780.23 6 0 , 289.23
10 Fund is equalized by th is transfer: s e l l
1/8 $3 , 638.2Bbo'ncte;buy 594 sh ares, $3 , 638.25 6 4,922 30,147.25
30,141.98 77-42
11 June 21 Commission deducted from 10H 6 1/8 4,922 30,147.25 3 0 , 064.56 60,211.81
12 The DJlA had declined to 97 on March 3I;
and retraced 50$ of the major decline on
October 5 at 147 at which point the fund Is
equalized (196-97=99-** 2 =50497=147)
8 1/8 13 Oct. 5
147 90 Stqcks up 21$; bonds up 6$ 4,922
39,991.25 3 1 , 868.43 71,859.68
14 Fund is equalized: s e l l 500 shares, $4,062.50;
buy $4 , 062.50 bonds 8 4,422
35,928.75 35,930.93
112.59
15
Oct. 5 Commission deducted from 14H 8 1/8 4,422
35,928.75
3 5 , 818.34
71,747.09
16 Dec. 31
155
90 Stocks up 5$; bonds even
9
4,422 39,798.00
35,818.34 75,616.34
1939 17
No tran saction s in 1939
18 Dec. 30 150 90
Stocks down 3$; bonds even 6 1/2 4,422 28,743.00 3 5 , 818.34 64,561.34
1940 19 On May 21 the DJlA had declined to 111;
Schedule A c a l l s for a 50/50 ra tio at 118 DJlA
20 May 21 114 83 Stocks down 26$; bonds down 8$ 4 l / 2 4,422 19,899-00 32,952.87 5 2 , 851.87
21 Transfer 10$ of t o t a l fund: s e l l $5,283 bonds;
buy 1,174 shares, $5,283 4 l / 2 5,596 25,182.00 2 7, 6 69.87 123.78
22 May 21 Commission deducted from 21H 4 l / 2 5*596 25,182 27,546.09 5 2 , 728.09
25 .N e x t tra n sfer scheduled for August 21 by the
three months r u l e .
79a
A B C D E p G H I J (G4H)
Number Com
Price Shares Stock Bond m ission Total
Line No. Date DJlA DJ40BA Remarks G..A.I. Held Portion Portion Expense* Fund
(1940)24
Aug. 21
125 88 Stocks up 13$; bonds up 6$
5
5,596 27,980.00 29,198.86 57,178.86
25
Fund is equalized by th is transfer; s e l l $610
bonds; buy 122 sh ares, $610
5
5,718 28,590.00 28, 588.86 17.72
26 , Aug . 21 . Commission deducted from 25H
5
5,718 28,590.00 28,571.14 57,161.14
27 Dec.
31
I3 I
91
Stocks up 5$; bonds up 3$
5
5,718 28,590.00 29,428.27 58,018.27
1 9 U
28
No tran sa ction s in 1941
29
Dec. 31 111 88 Stocks down 15$; bonds down 3$ 4 i A 5,718 24,301.50 28,545.42
52,846.92
1942 30
No tran sa ction s in 1942
31
Dec.
31
119 91
Stocks up 7$; bonds up 3$ 6 1/2 5,718 37,167.00 29,401.78 6 6 , 568.78
1943 32
From the Oct. 1938 high of I 59 the DJlA declined
40$ to 93 on Apr.28,1942, and retraced 50% of
th is d eclin e on Deb.9 ,1943 when the DJlA reached
126 at which point the fund is equalized; a fte r
which as the advance continues, stocks are r e
duced 10$ at each advance of 25$ in the DJlA
u n t il the 20/80 r a tio is reached.
33
Feb.
9
126 92 Stocks up 6$; bonds up 1$
7
1 /2 5,718 42,885.00 29,695.80 7 2 , 580.80
34
Fund is equalized: s e l l 879 shares, $6,592.50;
buy $6 , 592.50 bonds
7
1 /2
4,839
3 6 , 292.50 3 6 , 288.30 184.65
35
Feb.
9
Commission deducted from 34H
7
1 /2 4 ,8 3 9 3 6 , 2^2.50
3 6 , 103.65 7 2 , 396.15
36 Dec.
31
I36
97
Stocks up 8$; bonds up 5$ 10 1/8
4,839 48,994.88
3 7 , 908.83 8 6 , 9 03 .7 1
1944 37
No tran saction s in 1944
38 Dec. 30 152 105 Stocks up 12$; bonds up 8$ 13 4,839 6 2 , 907.00 4 0 , 941.54 103,848.54
1945 39
Feb.
15
158 106 Stocks up 25$ from 126; bonds up 1$
13 3A 4,839 6 6 , 536.25 4 1 , 350.96 107,887-21
40 Stocks are reduced to 40/60 ratio ; s e l l 1,701
-shares $2 3, 38 8, 7 5 , buy $2 3, 388.75 bonds
13 3 A
3 A 3 8 43,147.50 64,739.71 467.69
41 Feb.
15
Commission deducted from 40H 13 3A 3,138 43,147.50
64,272.02 107, 4 19 .5 2
42 Dec.
31 193
108 Stocks up 22$; bonds up 2$ 18 l A 3,138 5 7 , 268.50 65,557.46 122, 825.96
* See Table xxx.
I
i
80
TABLE X
$ 1 0 0 ,0 0 0 INVESTED BY THE SLIDING SCALE PLAN IN
LEH M AN CORPORATION STOCK
1937 - 1945
A B C D E ’
Price
Lehman
F
Number
Shares
G
Stock
H
Bond
I
Com-
miss ion
J ( G « )
Total
Line No. Date DJlA d:J:4oba Remarks Corp. Held Portion P o rtio n Expense** Fund
1937
1 Mar.
3 193
104 Start: 50$ stocks; 50$ bonds 132
379
50,028.00 49,972.00 257.65
2-- -—Mar
~3
- — — Gommis si-on— deducted- from-l-H......... -132 379 50,028 . 00"
49,714.35 9 9 , 742.35
3
Dec.
31
121
93
Stocks down 37$; from 193; bonds down 11$ 24 1/4 1 , 137*
27,572.25
44,245.77
7 1 , 818.02
1938 h
When the DJlA declined to 118 on Nov. 19,1937>
i t had declined 40$ from the high of 196 on
March 10,1937; schedule A is to be followed
t.ith 196 the esta b lish ed high point. A r a tio
of 50/50 is to be e sta b lish ed at 118 DJlA,
but the F.R.B.Index r u le permits no tran sfer
from bonds to stocks u n t i l the January 20,1938
r e l e a s e .
26 5/8
5
Jan. 21 131 90 Stocks up 8$; bonds down 3$
1,137
30,272.62 42,918.40 7 3 , 191.02
6
Fund is equalized by s in g le transfer: s e l l
26 5/8 $6^310.13 bonds; buy 237 shares, $6 , 310.13 1,374
3 6 , 582.75
3 6 , 608 .2 7 66.54
7
Jan. 21 Commission deducted from 6H 26 5/8 1,374
3 6 , 582.75 36,541.73
73,124.48
8
The DJlA dropped again to 118 on March 22,1938
at which point schedule A c a ll s for a 50/50
r a tio
23 1/8
9
Mar. 22 118
87
Stocks down 10$; bonds down 3$ 1,374
3 1 , 773.75
35,445.48 67,219.23
10
Fund is equalized by s in g le transfer: s e l l
23 1/8 $1,826.88 bonds; buy 79 shares, $1,826.88
1,453
3 3 , 600.63 3 3 , 618.60 35.36
11 Mar. 22 Commission deducted from 10H 23 1/8
1,453
3 3 , 600.63 3 3 , 583.24
6 7 , 183,87
12 The DJlA declined to 97 on March 3 I; and r e
traced 50$ of the major d eclin e on Oct. 5 at
147 at which point the fund is equalized
(196-97=99 -4-2=50497=147)
27 5/8
13
Oct.
5 147
90
Stocks up 24$; bonds up 3$
1,453
4 0 , 139.13
34,590.74 74,729-87
14 Oct.
5 147
90
S e ll 100 sh ares, $2 , 7 6 2 . 50; buy $2 , 762.50 bonds 27 5/8 1,353 3 7 , 376,63 37,353-24 4 1 .4 7
15
O ct.
5
Commission deducted from 14H 27 5/8 1,353 3 7 , 376.63 37,311-77 f
74,688.40
16 Dec.
31
155 90
Stocks up 5$; bonds even
27 1,353
3 6 , 531-00
37,311-77 73,842.77
1939 17
No tran saction s in 1939
22' 3/4 18 Dec. 30 150 90 Stocks down 3$; bonds even
1,353 3 0 , 780.75 37,311-77
6 8 , 092.52
1940
19
On May 21 the DJlA declined to 111; Schedule A
c a l l s for a 50/50 r a tio at 118 DJlA
17 1/2 20 May 21 111
83
Stocks down 26$; bonds down 8$
1,353
2 3, 677.50 3 4 , 326.83 5 8, 004.33
21 Fund is equalized by sin g le transfer: s e l l
17 1/2 $5,320 bonds; buy 304 shares, $5,320
1,657 28,997-50 29 , 006.83 6 9 .4 2
22 May 21 Commission deducted from 21H 17 1/2 1,657 28,997.50 28,937-41
57,934.91
23
Dec. 31 131
91
Stocks up 18$; bonds up 10$ 21-
1,657
34,797.00 3 1 , 831.15 6 6 , 628.15
Line No.
A
Date
B
DJlA
C
DJ40BA
D E
Price
Lehman
Remarks Corp.
F
Number
Shares
Held
G
Stock
Portion
H
Bond
Portion
I
Com
m ission
Expense*
J (G_H)
Total
Fund
1941 24
25 Dec.
31
111 88
No tra n saction s in 1941
Stocks down 15$; bonds down 3$ 20 l /4
1,657
33,554.25
3 0 , 8 76.22
64,430.47
1942 26
27
Dec.
31
119 91
No tran sa ctio n s in 1942
Stocks up 7$; bonds up 3$ 25
1,657
41,425.00 3 1 , 802.51
73,227.51
1943
28
From the Oct. 1938 high of I 59 the DJlA declined
40$ to 93 on April 28,1942, and retraced 50$ of
th is d e c lin e on Feb. 7 ,1943 'when”the DJlA reached 126
at which point the fund is equalized; a fte r which
as the advance continu es, stocks are reduced
10$ at each advance of 25$ in the DJlA u n t i l the
20/80 r a t io is reached.
Stocks up 6$; bonds up 1$ 27 3/4
Fund is equalized: s e l l 250 shares; $6,937*50;
buy $6,937.50 bonds 27 3/4
Commission deducted from 3O H 27 3/4
Stocks up 8$; bonds up 5$ 30 3/4
29
30
31
32
Feb.
Feb.
Dec.
9
9
31
126
136
92
97
1,657
1.407
1.407
1.407
45,981.75
3 9 . 0 44.25
39.044.25
4 3 . 265.25
32,120.54
39,058.04
3 8 , 966.81
40,916.15
91.23
78,102.29
78,011.06
84,180.40
1944
33
34 Dec. 30 152 105
No tra n scation s in 1944
Stocks up 12$; bonds up 8$ 38 l / 2 1,407 5 4 , 169.50 4 4 ,1 8 8 .36 9 8 , 357.86
1945 35
36
37
38
Feb.
Feb.
Dec.
15
15
31
I 58
193
106
108
Stocks up 25$; from 126; bonds up 1$ 39 l / 2
Stocks are reduced to 40/60 ratio: s e l l 392
shares, $15,484; buy $15,484 bonds 39 l / 2
Commission deducted from 36H 39 l / 2
Stocks up 22$; bonds up 2$ 53 l /4
1,407
1.015
1.015
1.015
55.576.50
40.092.50
4 0 . 092.50
54,048.75
44.630.24
60.114.24
59,947.02
6 1 , 145.96
167.22
100, 206.74
100, 039.52
115, 194.71
* A fte r the th r e e fo r one sto c k s p l i t , May 29, 1937•
** See Table x x x i.
81
TABLE XI
$ 1 0 0 ,0 0 0 INVESTED BY THE SLIDING SCALE PLAN IN
STATE STREET INVESTORS STOCK
1937 - 19^5
A B C D E F
G H I J (G-ffl)
Number Com
Price Shares Stock. Bond mission Total
No.Line Date DJlA DJ40BA
Remarks State St. Held Portion Portion Expense** Fund
1937
1 Mar.
3 193
104 Start: 50$; stocks; 50$ bonds 130
385 5 0 , 050.00 49,950.00 125.00
2 Mar.
3
Commission deducted from 1H I30
385 5 0 , 050.00 49,825.00 99,875-00
3
Dec.
31
121 "
93
‘ Stocks down 37$ from 193;— bonds dow-n -11$ 6 8.55
385
26,391.75
44,344.25 7 0 , 736.00
1938 4
When the DJlA declined to 118 on Nov.19, 1937,
i t had declined 40$ from the high of 196 on
March 10,1937; schedule A is to be followed
with 196 the e sta b lish ed high p oin t. A r a tio
of 50/50 is to be esta b lish ed at 118 DJlA
but the F.R.B.Index ru le permits no tran sfer
from bonds to stocks u n t il the Jan .20,1938
r e l e a s e .
5
Jan. 21 I3 I 90
Stocks up 8$; bonds down 5$ 85.50 385
32,917.50 4 3 , 0 13.92 7 5 , 9 31.42
6
Fund is equalized by s in g le transfer: buy
59 shares $5,044.50; s e l l $5,044.50 bonds 85.50 444 37,962.00 3 7 , 9 6 9.42 18.12
7
Jan. 21 Commission deducted from 6h 85.50 444 37,962.00
3 7 , 951.30 75,913.30
8 The DJlA dropped again to 118 on March 22,193$
at which point schedule A c a ll s for a 50/50 rat io
9
Mar. 22 118 8?
Stocks down 10$; bonds down 3$
73
444 32,412.00 3 6 , 812.76 69,224.76
10
Fund is equalized by s in g le transfer; buy
30 shares, $2 , 190; s e l l $2,190 bonds
73
474 34,602.00 3 4 , 6 22.76
13.56
11 Mar. 22 Commission deducted from 10H
73
474 34,602.00 3 4 , 6 09.20 6 9 , 211.20
12 The DJlA declined to 97 on Mar.3 1, and retraced
50$ of the major d eclin e on Oct. 5 at 147, at
which point the fund is equalized
(196 - 97 » 99 +- 2 » 50 + 97 » 147)
474 36,735-00
13
O ct.
5 147
90 Stocks up 24$; bonds up 3$ 77.50 35,647.48 72,382.48
14 Fund is equalized; s e l l 7 shares, $5 4 2 . 50;
buy $542.50 bonds 77.50 467 36,192.$0 3 6 , 189.98 5.56
13
O ct.
5
Commission deducted from 14H
77.50 467
3 6 , 192.50 36,184.42
7 2 , 376 .9 2
16 Dec.
31
153 90 Stocks up 5$; bonds even 73-60
467
34,371.20- 36,184.42 7 0 , 5 55.62
1939 17
No tran saction s in 1939
71.81 18 Dec. 30 I 50 90 Stocks down 3$; bonds even
467 33,535-27 36,184.42
69,719.69
1940
19
On May 21 the DJlA declined to 111; schedule A
c a l l s for a 50/50 r a tio at 118 DJlA
20 May 21 111
83
Stocks down 26$; bonds down 8$
55.25 467
2 5, 801.75 3 3,289.67
59,091.42
21 Fund is equalized by s in g le transfer: s e l l
$3 ,7 5 7 bonds; buy 68 sh ares, $3,757 55.25
535 29,558.75 2 9, 532.67 14.08
22 May 21 Commission deducted from 21H
55.25 535 29,558.75 29,518.59
59,077.3^
23
Dec.
31 131 91
Stocks up 18$ bonds up 10$ 61.41
535
3 2 , 854.35 3 2 , 470 .4 5 6 5 , 324.80
81a
Line No.
A
Date
B
DJlA
C
DJ40BA
D
Remarks
E
Price
State St.
p
Number
Shares
Held
G
Stock
Portion
H
Bond
Portion
I
Com
m ission
Expense**
J (G4H)
Total
Fund
1941 24
25
Dec.
31
111 88
No tran saction s in 1941
Stocks down 15$; bonds down 3 % 5^.72
535
29,275 .20 31,496.34
60,771.5^
1942 26
27
Dec.
31
119 91
No tran saction s in 1942
Stocks up 7$; bonds up 3$ 6 3 . 29'
535
3 3 , 860.15 32,441.23 6 6 , 301.38
I9A3 28 Prom the Oct. 1938 high of I 59 the DJlA
declined 40$ to 93 on Apt*.28,1942, and retraced
—— - - 50$ of th is major d e c lin e — on-Feb.9 ,19^3, when
the DJlA reached 126, at which point the fund
is equalized. As the advance continues, stocks
are reduced 10$ at each advance of 25$ in
the DJlA u n t il 20/80 r a tio is reached
29 Feb. 9 126 92 Stocks up 6$; bonds up 1$ 67.69 535
36,214.15 3 2 , 765.64
68,979-79
30 Fund Is e q u a liz e d : s e l l 25 shares $1,692.25;
buy $1, 692.25 bonds 6 7 .6 9
510 34,521.90
34,457.89 12.00
31 Feb. 9 Commission deducted from 3O H 6 7 .6 9
510
34,521.90
34,445.89 68,967.79
32 Dec. 3 I 136
97
Stocks up 8 % ', bonds up 5$
78.59
510
40,080.90 3 6 , 168.18 76,249.08
1944 33
Ho tr a n s a c ti o n s in 1944
34 Dec. 30
152 105 Stocks up 12$; bonds up 8$ 44.96' 1 , 020* 45,859.20 3 9 , 061.63 84,920.83
1945 35 Feb. 15 158 106 Stocks up 25$ from 126; bonds up 1$
51-75
1,020 52,785.00 3 9 , 4 52 .2 5 9 2 , 237.25
36
Stocks a re reduced to 40/60 r a t i o : s e l l
306 s h a re s , $1 5, 8 3 5 . 50; buy $15, 835.50 bonds
51.75
714 36,949.50
55,287.75
64.48
37
Feb. 15 Commission deducted from 36H
51-75
714
36,949.50 5 5, 223.27
9 2 , 172.77
38 Dec. 31
193
108 Stocks up 22$; bonds up 2$ 53.90 714 38,484.60 5 6 , 327.74 94,812.34
* After the two for one stock s p l i t , April 14, 1944.
** See Table x x x ii.
82
TABLE X II
$100,000 INVESTED BY THE SLIDING SCALE PLAN IN
TRI-CONTINENTAL CORPORATION C O M M O N STOCK
1937 - 19^5
A B C D E f G H I J (G4H)
Price Number Com
T ri- Shares Stock Bond mission Total
Line No. Date DJlA DJ40BA Remarks Cont. Held Portion Portion Expense* Fund
-1937
1 _Mar.
3 -
..1 9 3 ..... . 104- _ _ Start.:_ J50$..slocks; 50$ bonds.q ____ 9 5/8
5,195
5 0 , 0 0 1 . 8 8 . 49,998.12 852.30
2 Mar.
3
Commission deducted from 1H
9 5/8 5,195
5 0 , 001.88 49,145.82 99,147.70
3
Dec.
31
121
93
Stocks down 37$ from 193; bonds down 11$
3
1/2
,5195
1 8, 182.50
43,739.78 61,922.28
1938 4
When the DJlA declined to 118 on Nov.1 9, 1937,
i t had declined 40$ from the high of 196 on
March 10,1937, Schedule A is to be followed
w ith 196 the esta b lish ed high point. A r a tio of
50/50 i s to be e sta b lish ed at 118 DJlA, but
the F.R.B.Index rule permits no tran sfer from
bonds to stock u n t il the January 20,1938
r e l e a s e .
7/8
5-
Jan. 21 131 90 Stocks up 8$; bonds down 3$
3 5,195
2 0, 130.62
42,427.59
6 2 , 558.21
6
Transfer 10$ of t o t a l fund: s e l l $6 , 254.25
7/8 bonds; buy 1,614 sh ares, $6 , 254.25
3
6 ,8 0 9
2 6, 384 .8 7 36,173.34 150.26
7
Jan. 21 Commission deducted from 6H
3
7/8 6 ,8 0 9
2 6, 384 .8 7 3 6 , 023.08
62,407-95
8
Next tr a n sfe r , scheduled for April 21 by
the three months rule is delayed u n t il June 21
by the F.R.B.Index rule
5/8
9
June 21 121 85 Stocks down 8$; bonds down 6$
3
6 ,8 0 9 24, 682.63 33,861.70
58,544.33
10
Fund is equalized by th is transfer: s e l l
5/8 $4 , 589.25 bonds; buy 1,266 shares, $4 , 589*25
3 8 ,0 7 5 2 9, 271.88 29,272.45 116.38
11 June 21
Commission deducted from 10H
3 5/8 8 ,0 7 5
29, 271.88
29,156.07
58,427.95
12 The DJlA had declined to 97 on March 31; and
retraced 50$ of the major decline on Oct. 5
at 147 at which point the fund is equalized
(196 - 97 = 99 2 « 50 + 97 * 147)
O O
\
K \
8 ,0 7 5
13
Oct.
5 147
90 Stocks up 21$; bonds up 6$ 4 3 5 , 328.13 3 0 , 905.43 6 6 , 233.56
14 Fund is equalized: s e l l 5O5 shares, $2,209*38;
3/8
buy $2 , 209*38 bonds 4 7,570
3 3 , 118.75
33,114.81 87.80
15
Oct.
5
Commission deducted from 14H 4
3 /8
7,570
3 3 , 118.75
3 3 , 027.01 6 6 , 145.76
16 Dec.
31 155
90 Stocks up 5$; bonds even
3
7/8 7,570
29,333-75
3 3 , 027.01 6 2 , 360.76
1939 17
No tra n saction s in 1939
18 Dec.
30 150 90 Stocks down 3$; bonds even 2 1/2 7,570 .1 8 , 925.00 33,027.01 51,952.01
1940 19 On May 21 the DJlA declined to 111; Schedule A
c a ll s for a 50/50 r a tio at 118 DJlA
20 May 21 111 83 Stocks down 26$; bonds down 8$ 1 5 /8 7,570 12,301.25 J0,304 .85 4 2 ,6 8 6 .1 0
82a
A B C D E F G H I J (G-ffl)
Price Number
Com
Tri- Shares Stock Bond m ission Total
Line No. Date DJlA DJ40BA Remarks Cont. Held Portion Portion Expense* Fund
(1940)21 Transfer 10$ of t o t a l fund: s e l l $4,268.88
1 5 /8
bonds; buy 2,627 shares, $4,268.88
10,197
16,570.13
2 6, 115.97
172.72
22 May 21 Commission deducted from 21H
1 5 / 8 10,197
16,570.13 25, 943.25 4 2 , 513.38
23
Next tran sfer scheduled for August 21 by the
three months rule
1 5 / 8 24 Aug. 21
125
88 Stocks up 13$; bonds up 6$ 10,197 16,570.13 2 7, 499.85 44,069.98
25
Transfer 10$ of t o t a l fund: s e l l $4,407 bonds
3
buy 2 ,7 1 2 sh ares, $4,407
1 5 /S
12,909
20,977.13
2 3, 092.85 177.82
26 Aug. 21 Commission deducted from 25H
1 5 / 8 12,909
20,977.13
2 2, 915.03 43,892.16
27
Next tran sfer scheduled for Nov.21 by the three
months r u le , but fund is autom atically
equalized prior to Nov. 21, by r is e in the
price of Tri-C ontinental
1 1 / 2
■ 1
28 Dec. 31 131
91
Stocks u p ,5$; bonds up 3$
12,909 19,363.50 23,602.48 42,965.98
1941 29
30 Dec. 31 111 88
No t r a n s a c ti o n s in 1941
Stocks down 15$; bonds down 3$
3 A
12,909
9*681.75
22,894.41 32,576.16
1942 31
32
Dec. 31 119 91
No tr a n s a c ti o n s in 1942
Stocks up 7$; bonds up 3$ 2
12,909 25,818.00 23,581.24 49,399.24
1943 33
Prom the October, 1938 high of I 59 the DJ1A
declined 40$ to 93 on A pril 28,1942, and retraced 50$
of th is d eclin e on Feb. 9*1943, "when the DJ1A
reached 126 at "Which point the fund is equalized;
a fte r which as the advance continues, stocks are
reduced 10$ at each advance o f 25$ in the DJlA
u n t il the 20/80 r a tio i s reached.
3 *
Feb. 9 126 92 Stocks up 6$; bonds up 1$
2 3/4 12,909
33,499-75
23, 817.05 59,316.80
35
Fund is equalized: s e l l 2,124 shares $5,841;
buy $5,841 bonds 2 3/4 10,785
2 9, 658.75
2 9, 6 58.05 291.24
36 Feb. 9 Commission deducted from 35H
2 ^
10,785
2 9, 6 58.75
29, 366.81 5 9, 025.56
37
Dec. 31 136
97
Stocks up 8$; bonds up 5$
3 5/8
10,785
39,095.63 3 0 , 835.15 69,930.78
1944 38 No tran saction s in 1944
39
Dec. 30 I 52 105 Stocks up 12$; bonds up 8$
5 1 / 4 10,785 5 6 , 621.25 3 3 , 301.96 89,923.21
1945 40 Feb. 15 I 58 106 Stocks up 25$ from 126; bonds up 1$ 6 7 /8
10,785 74,146.88 33,634.98 107,781.86
41 Stocks are reduced to 4o/60 ratio: s e l l 2,946
shares $20, 2 5 3 . 7 5 ; buy $2 0, 253.75 bonds 6 7/8
7,839 53,893.13 53,888.73 583.19
42 Feb. 15 Commission deducted from 41H 6 7/8
7,839
53,893.13 53,395-54 107, 198.67
43
Dec. 3 i
193 108 Stocks up 22$; bonds up 2$
9 7/8 7,839
77,410.13
54,371.65 131, 781.78
*See Table xxxiii.
83
TABLE X III
CONSTANT RATIO PLAN
.BOND INCOM E
Year
Ave.An.
Bond
Yield*
Gen. Amer. Investors Lehman Corp State Street Trl-Cont. Corp.
Ave. An. Val.Bond
Bd. Port. Income
Ave.An.Val.
Bd. Port.
Bond
Income
Ave.An.Val.
Bd. P o rt.
Bond
Income
Ave.An.Val. Bond
Bd. Port. Income
1937 .04555
4 0 , 986.55 1,866.94 ^3,809.14 1,995-51
43,288.11
1,971-77 40,789.75 1 , 857.97
1938 .05440 3 3 , 6 10 .0 2
1,828.39 37,323.93
2,030.42 36,422.72 1,981.40 31,746.96 1 , 727.03
1939 .05645
3 5 , 252.06 1,989-98 3 7 , 001.58 2,088.74 3 6 , 219.21
2,044.57 31,912.54 1,801.46
1940
.05755
31,849-49
1 , 832.94
3 4 , 269.13 1,972.19 34,362.43 1,977-56 2 7, 102.23
1,559-73
1941 .05870
28, 020.21
1,644.79
3 1 , 063.62 1 , 8 23.43 3 2 , 018.07 1,879-46
21,957-53 1,288.91
1942 .O56O O 28,007.41 1,568.41 3 1 , 049.43 1,738.77
32,003.44
1,792.19 21,947-50 1 , 229.06
1943 .04875
3 5 , 852.68 1,747.82 3 6 , 272.04 1 , 768.26
35,366.95
1,724.14 30,230.14 1,473-72
1944 .03925 . 4 5 , 015.40 1 , 766.85 42,677-22 1,675.08 39,787.81
1,561.67 39,715.98 1 , 558.85
1945
.03210 54,295-12
1,742.87 4 9 , 465.69 1,587.85
44,959-36 1,443.20 48,783.61
1,565.95
Total Bond Income
15,988.99
16, 680.25 16,375-96 14,062.68
*Average year-beginning and year-end y ie ld on DJ40BA.
84
TABLE XIV
CONSTANT RATIO PLAN
DIVIDENDS PAID
General American Investors Lehman Corporation State S tr ee t Investors
*
Tri-C ontinental Corporation
Year
Div. Paid
Per Share*
Ave.An.No.
Shares
Total
Income
Div. Paid
Per Share
Ave .An. No.
Shares
Total
Inc ome
D iv . Paid
Per Share
Ave. An. No.
Shares
Total
Income
Div. Paid
Per Share
Ave.An.No. Total
Shares Income
1937
N il 4.67
868 4 , 053.56
4.50 431
1,939.50 .25
6,403 1,600.75
1938
N il .90 1,348 1 , 213.20
6.75 473 3,19 2.75
Nil
1939 .25
4 ,3 5 3
1,088.25 .80
1,339
1 , 071.20 3.00 468 1,404.00 Nil
1940
.15
5,067
760.05 .80 1,491
1,192.80 2.85 502
1,430.70 Nil
19^1 .25
5,780 1,445.00 1.20 1,642 1,970.40 3.10
536 1,661.60 N il
1942 .40 5,780 2 , 312 .0 0 1 .2 5 1,642 2 , 052.50 3.00 536 1,608.00 N il
19^3
1.00 5,098
5 ,098 .00 1 . 23 1,512 1,890.00
2.75
512 1,408.00' N il
1944
2 .3 2
4,415
10,242.80 1.40 1,382 1,934.80 3.20
731
2 , 339.20 N il
1945
3 .0 6 4,011 1 2, 273.66 3 .8 0 1,284 4,87 9.20 6.60 920 6 , 072.00 .20 8,207 1,641.40
Total Dividends Paid 33,219.76 2 0, 257.66
21,055.75 3 , 242.15
* A rthur W ie se n b e r g e r , In v e stm e n t C om panies, 1946 e d i t i o n .
85
TABLE X V
MODIFIED CONSTANT RATIO PLAN
BOND INCOME
Gen. Amer. Investors Lehman Corp. S ta te S t r e e t Tri-Cont. Corp.
Year
Ave.An. Ave.An.Val.
Bond Yield* Bd. Port.
Bond
Income
Ave.An.Val.
Bd.Port.
Bond
Ino ome
Ave.An.Val.
Bd. P o rt.
Bond
Income
Ave.An.Val
Bd. P o rt.
Bond
Income
1937 .04555 4 6 , 956 .7 7
2 , I5 8 .88 47,108.89
2,145.81
47,147.13 2,147-55 46,868.95
2 , 134.88
1938 .05440
3 8 , 913.29
2 , 116.88 40,784.58 2 , 2.18.68 40,618.52 2 , 209.65 38,002.41
2 , 067.33
1939
.05645 3 3 , 9 18 .1 5 1,914.68 3 7 , 323-58 2 , 106.90 3 6 , 892.78 2 , 082.60
3 2 , 265.03
1 ,8 2 1 . 36
1940
.05755 3 1 , 317.13
1 , 802.50 3^ ,659.96 1,994.68 3 4, 833.68 2,004.68 28, 806.68 1 , 6 57.82 '
1941 .05870 2 8, 285.36 1 , 6 60.55
3 1 , 516.59
1 , 850 .0 2 3 2 , 282.96 1,895-01 24,968.10 1 , 4 65.63
1942 .O56O O 2 6, 9 42 .2 7
1,508.77 3 1 , 505.29 1,764.30 3 1, 660.70 1,773-00
3 2 , 591.27 1 , 236.01
1943
.04875
3 1 , 794 .6 2
1,549.99
3 5 , 863.70 1,748.36 33,664.03 1,641.12 47,452.16 1 , 588.82
1944 .03925 3 9 , 061.70 1,533.17 4 1 , 343-59
1,622.74 37,229.92 1,461.27 56,484.14 1 , 862.50
1945 .05210 47,422.64 1 , 522.27
4 6 , 830.75 1 , 503.27 42,612.71 1 , 367.87 1 , 813.14
Total Bond Income
15,747.29
16,954.76
16, 582.75 1 5, 647.49
* Average year-beginning and year-end y ie ld DJ40BA.
j
86
TABLE XVI
MODIFIED CONSTANT RATIO PLAN
DIVIDENDS. PAID
G eneral American In v e s to rs Lehman C orporation S ta te S t r e e t In v e s to rs T ri-C o n tin e n ta l C orp oratio n
Year
Div. Paid
Per Share*
Ave. An.No.
Shares
T o ta l
Income
Div. Paid
PerShare
Ave.An.No.
Shares
T o tal
Income
Div. Paid
Per Share
Ave.An.No.
Sharesq
T otal
Income
Div.Paid
Per Share
Ave.An.No. T otal
Shares Income
1937
Nil 4.67 7 5 8 .
3 , 539.86
4,50 385 1,732.50
.25 5,195 1 , 298.75
1938
N il 90 1 , 2 3 7 ..■ 1 , 113.30
6.75
421
2,841.75
N il
1939 .25
4,548 1 , 157.00 80 1 , 3 3 6 . 1 , 068.80 3.00 456 1 , 368.00 N il
1940
•15
5,068 760.20 80 1 , 4 7 6 . ' . . 1 , 180.80 2.85
491
1,399-35
Nil
1941 .25 5,588 1 , 397.00 1.20 1,615 •
1 , 938.00 5 .1 0 526 1 , 630.60 N il
1942 .40 5,900 2 , 360.00 1.25 1 , 6 1 5 .
2,018.75
3 .0 0
537 1 , 611.00 N il
19^3 1.00 5,550
5 , 550.00 1 .2 5 1 , 5 1 1 .
1,888.75 2.75
530
1,457.50 N il
1944 2 .3 2 4,888- 1 1, 3 4 0.16 1.40 1,406. 1,968.40 3.20
77$ 2,464.00 N il
1945
3.0 6 4,425 1 3, 540.50 3 .8 0 1 , 3 2 6 , 1 5 , 058.80 6 .60 961 6,342.60 .20 9,909 1 , 981.80
T o ta l Dividends Paid 3 6 , 0 84.86 19,755-46 20,847.30 3 , 280.55
* A rthur W ie se n b e r g e r , In v e stm e n t C om panies, 1946 .e d it i o n .
1945
234
236
235
230
225
220
210
186
167
162
168
164
TABLE XVII
FEDERAL RESERVE BOARD ADJUSTED INDEX OF INDUSTRIAL PRODUCTION*
I937 _ 1945 -
1937
1938
1939
1940 1941 1942
1943 1944
116 86 102 122 143 181 227 243
117 84 101 116 147 183
232
244
120 84 101 112 152 186 235 241
120 82
97
111
149 189 237 239
121 80
97
114 160
191 239 236
119 81 102 123 164
193 237 235
120 86 104 123 166
197
240 230
120 90 104 126 167
204 242 232
115 92 113
129 169
208 244 230
107
95
121 132 172 215
247 232
95
100 124 136 174 220
247 232
87
101 126 140 176 223 241 232
*From: F e d e ra l Reserve B u l l e t i n .
88
TABLE XVIII
SLIDING SCALE PLAN
BOND INCOM E
------ ----
Gen. Amer. In vestors ~Lehman~Corp
# -------------
S tate S treet Tri-Cont. Corp.
Year
Ave.An.
Bond
Yield*
Ave?An.Val.
Bd. Port.
Bond
Income
Ave.An.Val.
Bd. Port.
Bond
Income
Ave.An.Val.
Bd. Port.
Bond
Income
Ave.An.Val
Bd. Port.
Bond
Income
1937 .04555
4 6 , 9 56.77
2 , 138.88 47,108.89 2,145-81
47,147.13 2 , 147.55 46,868.95
2,134.88
1938 .05440 3 9 , 8 63 .3 8
2,168.57 40,778.77 2,218.37
40,264.34 2 , 190.38 3 8 , 383.40 2,088.06
1939
.05645 3 5 , 818.34 2,021.95 37,311.77
2,106.25 36,184.42 2,042.61 33,027.01
1,864.37
19^0 .05755
3 2 , 6 2 3 .3 1 1,877.47
3 4 , 571.46
1 , 989.59
3 4 , 327.44
1,975-54 28,314.75 1 , 629.51
194 X .05870 2 8 , 986 .8 5
1,701.53
3 1 , 353-69
1,840.46 3 1 , 983.40
1,877.43 23,248.45 1,364.68
1942 .O56O O 28,973-60 1 , 6 2 2.52 3 1 , 339.37
1,755-00
31,968.79
1,790.25 23, 237.83 1 , 301.32
1943
.04875 3 3 , 655-31
1,640.70 3 6 , 358.83
1,772.49 3 4 , 304.71 1,672.35
27,208.20 1,326.40
1944 .03925
39,425.19
1,547.44 4 2 , 551.76 1,670.16
37,614.91 1,476.39 3 2 , 068.56 1 , 258.69
1945 .03210 53,249.50
1,709.31
5 2, 667.16 1,690.62
47,694.69
1 , 531.00 4 3 , 836.81 1,407.16
Total Bond Income
16,428.37 17,188.75 16,703.50
. 14,375-07
*Average Year-beginning and Year-end y ie ld on DJ40BA.
89
TABLE XIX
SLIDING SCALE PLAN
DIVIDENDS PAID
Year
G eneral American In v e s to rs
Div. Paid Ave.An.No. T o ta l
Per Share* Shares Income
Lehman C o rp o ratio n
Div. Paid Ave.An.No.
Per Share Shares
T o tal
Income ,■ ^
S ta te S t r e e t In v e s to rs
Div. Paid Ave.An.No.
Per Share Shares
T otal
Inc ome
T r i-C o n tin e n ta l C orporation
Div. Paid Ave.In.No. T otal
Per Share Shares Income
1937
N il 4.67
758 3 ,539.86 4 .50
385 1,752.50 •25 5,195 1,298.75
1938 N il .90 1,245
1, 120.50
6.75
426 2,875.50 Nil
1939 *25
4.422 1, 105.50 .80
1,353
1,082.40 3.00
467 1,401.00
t
Nil
1940
.15
5,070 760.50 .80 1,505 1,204.00 2.85 501 1,427.85 ' N il
1941 .25 5,718
1,429.50 1.20
1,657
1,988.40 3.10
555
1,658.50 N il
1942 .40 5,718
2,287.20 1.25
1,657
2,071.25 3.00
555
1,605.00 N il
1943 1.00
5,279
5,279.00 1 .25 1,532
1,915.00
2.75 552 1,^38 * 25 Nil
1944 2.32
4,839
11,226.48 1.40 1,407
1,969.80 3.20
765 2,448.00 Nil
1945
3.06
3,989
12,206.34 3.80 1,211 4 ,601 .80 6.60
867 5,722.20 .20 9,312 1,862.40
T o ta l Dividends Paid 34, 294.52 19,493-01 20,308.80
5,161.15
* A rthur W ie se n b e r g e r , In v e stm e n t C om panies, 1946 e d i t i o n .
90
TABLE XX
$100,000 INVESTED BY TH E "BUY AND HOLD'1 PLAN
TOTAL INCOM E
General American In v e sto r s Lehman Cor p o r a tio n ___________ S ta te S t r e e t T ri-C o n tin en ta l Corporation
D iv. Paid Ave. An..No. T otal D iv. Paid A v e . An. No^ _ Tot a l D iv. Paid Ave. An. No. T otal D iv. Paid Ave. An. No. T otal
Year Per Share* Shares Inc ome Per Share Shares Inc ome Per Share Shares Inc ome Per Share Shares Income
1937
Mil 4 .6 7
2,271 1 0 , 605.57 4 .5 0
769
3 ,4 6 0 .5 0
.25 10,389 2 , 597.25
1938
N il .90 2,271 2 ,0 4 3 .9 0
6 .7 5 769
5 ,1 9 0 .7 5
N il
1939 •25
6 ,7 2 2 1 , 680.50 .80 2,271 1 , 816.80 3.00
769 2,30 7 .0 0 N il
1940
.15
6 ,7 2 2 1 , 008.30 . 80 2,271 1 , 816.80 2.85
769 2 , 191.65 N il
1941
•25
6 ,7 2 2 1 , 680.50 1.20 2,271 2 , 725.20 3 .1 0
769 2 ,3 8 3 .9 0 N il
1942 .40 6 ,7 2 2 2 , 688.80 1 .2 5 2,271
2 , 838 .7 5
3 .0 0
769 2 ,3 0 7 .0 0 N il
1943 1.00 6 ,7 2 2 6 , 722.00 1 . 25 2,271
2 , 838.75 2.75 769 2 ,1 1 4 .7 5
N il
1944 2.3 2 6 ,7 2 2 15 ,5 9 5 .0 4 1 .4 0
2,271
3 , 179.40 3.20
1,538 4 ,9 2 1 .6 0 N il
1945
3 .0 6 6 ,7 2 2 20 , 569.32 3 .8 0 2,271
8 , 6 29 .8 0 6 .6 0
1,538 1 0 , 150.80 .20 10,389 2 , 077.80
T o ta l Income 49,9 ^ 4 .4 6
3 6 , 494.97
3 5 ,0 2 7 .9 5 4 , 675-05
* A rthur W ie se n b e r g e r , In v e stm e n t C om panies, 1946 e d i t i o n .
91
TABLE XXI
COMPARATIVE CAPITAL APPRECIATION AND RETURN ON ORIGINAL INVESTMENT
FORMULA METHOD AND "BUY AND HOLD'" PLAN
A B
T o ta l
9 Year
Income
C
- Average -
Annual
Income
D
Ave.Annual
$ R eturn -on-
O rig in a l
Investm ent
E
T otal
9 Year C a p ita l
A p p re ciatio n
F
Nine Year %
C a p ita l
A p p re ciatio n
, G (B+E)
T otal 9 Year
C a p ita l
A p p re ciatio n
and Income
H
Ave. Annual
R eturn C a p ita l
A p p re ciatio n
and Income
CONSTANT RATIO PLAN
G eneral American In v e s to rs
49,208.75
5,467-64 5.46
27,652.97 27.65 76,861.72 8.54
Lehman C orporation
36,937.91
5 ,1 0 4 .2 1 4.10 17,767.23 17.76 54,705.14 6.08
S ta te S t r e e t Investm ent Corp. 37,431.71 4,159.08 4 .15 4,722.00 4.72
32,709.71 3.63
T ri-C o n tin e n ta l C orp o ratio n
17,304.83
1,922.76 1.92 28,332.19
28.33
45,637.02
5.07
MODIFIED CONSTANT RATIO PLAN
G eneral American I n v e s to rs 51,832.15
5,7 59.1 3 5-75
26,587.71
26 .58 78,419.86
8.71
Lehman C o rp o ratio n 36,710.22
4 ,078.91 4.07
17,024.01 17.02 53,734.23
5-97
S ta te S t r e e t Investm ent Corp. 37,430.05
4 , 158.89
4.15 5,142.03 5.14 32, 288.02
3-58
T ri-C o n tin e n ta l C o rporatio n 18,928.04 2, 103.11 2.10 52,329.04 52.32 71, 257.08 7.92
SLIDING SCALE PLAN
General American I n v e s to rs
50,722.89
5,635.88 5.63
22,825.96 22.82
73,548.85 8.17
Lehman C orp oration 36,681.76
4,075-75
4.07 15,194.71 15.19 51,876.47 5.76
S ta te S t r e e t Investm ent Corp. 37, 012.30 4,112.48 4.11 5,187.66 5.18 31,824.64 3.54
T r i-C o n tin e n ta l C orporation 17,536.52 1,948-50 1.94 31,781.78 31.78 49,318.30 5.48
"BUY AND HOLD" PLAN
G eneral American I n v e s to rs 49,944.46 5 ,549.38 5.54 22,676.50
22.67 72,620.96 8.07
Lehman C orpo ration 36,494.97
4 ,055.00 4.05
20,930.75
20.93 57,425.72 6.38
S ta te S t r e e t Investm ent Corp.
35,027-95 3,891.99 3-89 17,101.17 17.10 17,926.78
1.99
T ri-C o n tin e n ta l C o rp o ratio n 4,6 75.0 5 519.45
•51
2, 591.38 2.59 7,266.43 .81
92
TABLE XXII
CONSTANT RATIO PLAN
COMMISSION EXPENSE, GENERAL AMERICAN INVESTORS FUND
1937 - 1945
Date Remarks No. of Rate Per* Com- T o ta l Per
Shares Share or* mis T rans
or Bonds Bond sio n a c tio n
1937
Mar.
3 ''
Commission: buy sto c k 3361
.1621 544.82
3
Commission: buy bonds 50 2 .5 0
125 669.82
Sept. 23 Commission: buy sto ck 528
.15125
79*86
23 Commission: s e l l bonds 6 2 .5 0
15
F e d e ra l t r a n s f e r tax 6 .50
3
S.E.C. r e g i s t r a t i o n fee 12 .01 .12 97.98
Nov.
19
Commission: buy sto ck 1001 .11 110.11
19
Commission: s e l l bonds
7
2 .5 0
17.50
F e d e ra l t r a n s f e r ta x
7
.50 - 3.50
S.E.C. r e g i s t r a t i o n fee .14 131.25
T o ta l Annual Commission 699.05
Expense
1938
Oct. 6 Commission: buy bonds
5
. 2 .5 0 12.50
6 Commission: s e l l sto ck
537 .13
69.81
F e d e ra l t r a n s f e r tax
537 .05
2 6 .8 5
N.Y. S ta te t r a n s f e r ta x
537
.02 10.74
S.E.C. r e g i s t r a t i o n fee
9
.01
.09
T o ta l Annual Commission
Expense
119.99
1940
May 21 Commission: buy sto c k
1427 .09 128.43
21 Commission: s e l l bonds
7
2 .5 0 17.50
F e d e ra l t r a n s f e r ta x
7
.50 3.50
S.E.C. r e g i s t r a t i o n fee 14 .01 .14
T o ta l Annual Commission. ■
Expense
149.57
1943
June
3
Commission; buy bonds
: 14 2 . 5O •.
35 ;
♦
3 '
Commission: s e l l sto ck
1365
' :14 191.10
*
F e d e ra l t r a n s f e r ta x ‘‘
1 3 6 5 ' .05
68.25
N.Y. S ta te t r a n s f e r ' tax
1365
.02 27.30
S.E.C. r e g i s t r a t i o n fee
27 .01
.27
T o ta l Annual Commission
Expense 321.92
92a
Date Remarks No. o f .
Shares
or Bonds
Rate Per
Share or
Bond
Com
mis
sio n
T otal Per
Trans
a c tio n
1945
S ept. 12
12
Commission: buy bonds 14
Commission: s e l l sto c k 809
Federal tr a n sfe r .tax . 809
N.Y. S ta te t r a n s f e r 1 ta x ‘809
S.E .C . r e g i s t r a t i o n fe e 28
T otal Annual Commission
Expense
2 .5 0
.16719
.05
* '.-03
.01
35 .
135.26
4 0 .4 5
24-. 27
.28
235 .2 6
T otal commission expense
for nine year period
1 ,7 2 5 .7 9
93
TABLE XXIII.
CONSTANT RATIO PLAN
COMMISSION EXPENSE, LEH M AN CORPORATION FUND
1937 - 19 4 5
Date Remarks No. o f Rate Per Com T otal Per
Shares Share or mis Trans
f
* or Bonds Bond s io n a c tio n
1937
Mar.
3
Comm ission:. buy sto c k 379
•35 132.65
3
Commission: buy bonds 50 2 .5 0 125.00 257.65
Sept
. 23
Commission: buy sto ck 101 .21219
£1.43
23 Commission: s e l l bonds 4
3.
12.00
F ederal tr a n sfe r ta x 4' .50 2 .0 0
S.E .C . r e g is t r a t io n fe e 8 .01 .08
35.51
Nov.
19
Commission: buy sto ck 119
.19375
2 3 .0 6
19
Commission: s e l l bonds ' 4
3.
12.00
'.Federal tr a n sfe r ta x 4 .50 2 .0 0
S.E .C . r e g is t r a t io n fe e .08
37.14
T otal Annual Commission
Expense 330.40
1938
Oct. 6 Commission: buy bonds 1
5.
5.00
6 Commission: s e l l stock* 18
.31875
5.74
F ederal tr a n sfe r tax 18 ■ .06 1 .08
N.Y. S ta te tr a n sfe r ta x 18 .04 .72
S.E .C . r e g is t r a t io n fe e .1 .01 .01
T o ta l Annual Commission ‘
Expense ’
12.55
1940
May 21 Commission: buy sto ck 303
.16875 51.13
21 Commission: s e l l bonds 6 2 .5 0 15.00
F ederal tr a n sfe r tax - 6 •50; 3.00
S.E .C . r e g is t r a t io n fe e 12 .01 ; ■ ■ .12
T o ta l Annual Commission
-
Expense
6 9 .2 5 ■
1943
, ; ' • / „ ' ;
r
June
3
Commission: buy bonds ’ ;-8 2 .5 0 •' 20.00
3
Commission: s e l l sto ck 260
.199375
51.84
F ederal tr a n s fe r ta x 260 . 06 15.60
N.Y. S ta te tr a n sfe r 260 .04 io .4 o
S.E .C . r e g is t r a t io n fe e 16 ■ .01 .16
T o ta l Annual Commis
s io n Expense 98.00
93 &
Date Remarks No,. o f Rate Per Com T otal Per
Shares Share or m is Trans
.... - - or Bonds Bond sio n a c tio n
I 945.
Sept'. 12' . Commi s s ion: ' "buy bonds ,
'' 9
2 .5 0 2 2.50
1 2
Commiss io n : " sell sto ck 196 ,238125
46.6 7
F ederal tr a n sfe r tax 196 . 06 11.76
N.Y. S ta te tr a n sfe r tax - 196 .04 7.84
S.E.C . r e g is t r a t io n fe e 18 .01 - .18
T otal Annual Commission
88 .9 5
Expense
T o ta l com m ission e x p en se
f o r n in e y e a r p e r io d
599.03
94
TABLE XXIV
CONSTANT RATIO PLAN
COMMISSION EXPENSE, STATE STREET INVESTORS FUND
1937 - 1945
■ Da/be \ /
• \ . Remarks ••' No. o f '
■ ' ' Shares
or Bonds
- Raie
Share
Bond
Per Com-
or m is
s io n
T otal Per
Trans
a c tio n
1937
Mar.
3
Commission: buy bonds 50 2 . 50 I2 5 .OO 125.00
Sept
. 23
Commission: s e l l bonds
5
2 .5 0 12.50
F ed eral tr a n sfe r tax
3
■ .30 2 .5 0
S.E .C . r e g is t r a t io n fee 10 .01 .10 15-10
Nov.
19
-Commission: s e l l bonds . 4
3.
12.00
F ed eral tr a n sfe r tax . 4 .50 2 .0 0
S.E .C . r e g is t r a t io n fe e 8 .02 .08 14.08
T otal Annual Commission
Expense 1 5 4 .18
1938
Oct. 6 Commission: buy bonds 1 5.00 5.00
6 S e l l stock: Federal
tr a n sfe r tax
- 9
.06 .54
M assachusetts S ta te
tr a n sfe r tax 1 8 . .01 .18
l T o ta l Annual Commission
Expense 5.72
1940
May 21 Commission: s e l l bonds 4 3.00 12.00
F ed eral tr a n sfe r tax 4 .50 2 .0 0
S.E .C . r e g is t r a t io n fe e 8 .01 .08
T o ta l Annual Commission
Expense 14.08
19^3
June
3
Commission: buy bonds 4 3-00 * 12 . 00 ' ' ■
3
S e l l stock: Federal
tr a n sfe r tax
49
.06 2 .9 4
M assachusetts S ta te
tr a n sfe r tax
49
. 0 2 , .98
T o ta l Annual Commission
Expense 15.92
94a
Date • Remarks No. of Rate Per Com T o ta l Per
Shares Share or mis Trans
or Bonds Bond sio n a c tio n
1945
Sept. 12 Commission: buy bonds 6 2 .5 0
'I5 .OO • ^ •
12 S e l l stock: F e d e ra l
t r a n s f e r ta x 108 .06 6.4 8
M assachusetts S ta te
t r a n s f e r ta x 108 .02 2 .1 6
T o ta l Annual Commission
Expense 23.64
T o ta l co m m issio n ex p en se
fo r n in e y e a r p e r io d
213-5^
95
T A B L E X X V
CONSTANT RAT10 PLAN
COMMISSION EXPENSE, TRI-CONTINENTAL CORPORATION FUND
1937 - 1945
Date Remarks' No. of
Shares
or Bonds
Rate .Per
Share or
• Bond v
Com-
mis- '
sio n
T otal Per
Trans- '\
a c t io n
1937
Mar.
3
Commission: buy sto c k
5195
.14 727.30
3
Commission: buy bonds 50 2.50 125.00 852.30
Sept
. 23
Commission: buy sto ck 1174 .11 129.14
23 Commission: s e l l bonds 8 2.50 20.00
F ederal tr a n sfe r tax 8 .50 • 4.00
S.E .C . r e g is t r a t io n fe e 16 .01 . 16 153.30
Nov.
19
Commission: buy sto ck 1242
• 09
I I I .78
19
Commission: s e l l bonds 6 2.50 15.00
Federal tr a n sfe r tax ■ 6 .50 3.00
S.E .C . r e g i s t r a t i o n fe e 12 .01 .12 129.90
T otal Annual Commission
Expense
-
1 ,135.50
1938
Oct. 6 Commission: buy bonds 2 5.00 10.00
6 Commission: s e l l sto ck
305 .09 27.45
F ederal tr a n sfe r tax
305
.05 15.25
N.Y. S t a t e •tr a n sfe r tax
305
.01
•3*05
S.E .C . r e g is t r a t io n fe e .
3
.01 .03
T otal Annual Commission
Expense 55.78
1940
May 21 Commission: buy sto ck s 5381 .06 322.86
21 Commission: s e l l bonds
9 .
2.50 22.50
F ederal tr a n sfe r tax*
9 -
.50 4.50
S.E .C . r e g i s t r a t i o n fe e ■ 18 ■ .01 .18
T o ta l Annual Commission '
Expense
350.04
1943
June
3
Commission: buy bonds 16 2.50 40.00
3
Commission: s e l l sto c k 3566 .09 320.94
F ederal tr a n sfe r tax 3566 .05 178.30
N.Y. S ta te tr a n s fe r ta x 3566 .01 35.66
S.E .C . r e g is t r a t io n fe e
31
.01
,31
T o tal Annual Commission
Expense 575-21
95i&
Date Remarks No. o f Rate Per Com T o ta l Per
’ • ‘Shares Share or m is Trans
or Bonds Bond sio n a c tio n
12 Commission: buy bonds
12 Commission: s e l l sto c k
F ederal tr a n sfe r ta x
N,Yl S ta te tr a n sfe r tax
SVE.C. r e g is t r a t io n fe e
T otal Annual Commission
Expense
1-4 2.5 0 .. 35.00
1829 .12 219.4 8
1829
.05 91.^5
1829 .02 36.58
28 .01 .28
382.79
T o ta l com m ission e x p en se
fo r n in e y e a r p e r io d 2 ,499.32
96
TABLE XXVI
MODIFIED CONSTANT RATIO PLAN
COMMISSION EXPENSE, GENERAL AMERICAN INVESTORS FUND
1937 --1 9 4 5 ■
Date Remarks - No. o f . Rate 'Per - Com- . T ota l *Per
. ■ Shares Share or mis Trans
or Bonds Bond sio n a c tio n
1937-
Mar. 3
3
Commission: huy sto ck 3361
Commission:, buy bonds 50
T otal Annual Commission
Expense
.1621
2 .5 0
544.82
125.00
6 6 9 * 82
1938
Commission: buy sto c k 483 Jan. 21 .11
53.13
21 Commission: s e l l bonds 4
F ederal tr a n sfe r tax 4
S.E.C . r e g is t r a t io n fe e
3-00
.50
12.00
2.00
' .08 67.21
June 21 Commission: buy sto ck 493 .11 54.23
21 Commission: s e l l bonds 4
Federal tr a n sfe r tax 4
3.00
.50
12.00
2 .0 0
S.E .C . r e g is t r a t io n fe e .08 68.31
S ep t. 21 Commission: buy sto c k 211 • .12 25.32
21 Commission: s e l l bonds 2
F ederal tr a n sfe r tax 2
S.E .C . r e g is t r a t io n fe e
T otal Annual Commission
Expense *
5.00
.50
10.00
1.00
.04 36.36
171.88
1940
May 21 Commission: buy sto ck 574
.09
51.66
21 Commission: s e l l bonds 3 4 .0 0 12.00
65.22
F ederal tr a n sfe r tax 3 .50
Aug. 21 Commission: buy sto c k 466 .10 46.60
21 Commission: s e l l bonds 3 4 .0 0 12.00
F ed eral tr a n sfe r tax 3 .50 1.50
60.16
125.38
, S.E.C . r e g is t r a t io n fee
T otal Annual"Commission
Expense
.06
1942
Mar. 11 Commission: buy sto ck 623
.09 56.07
•11 • Commission: s e l l bonds 3
Federal tr a n sfe r tax 3
S.E .C . r e g is t r a t io n fe e
T otal Annual Commission
Expense
■4.00
.50
12.00
1.50
.06
69.63
Date Remarks No. o f Rate Per Com-. T otal Per
Shares Share or m is- Trans-
or Bonds Bond s io n a c tio n
1943
*
* • * *
Jan. 2-9 . Commission: buy bonds ' : 10 2.50 2 5.00
' *
29 Commission: s e l l sto ck
1323
.12
158.76
F ederal tr a n sfe r tax
1323 .05 6 6.15
N.Y. S ta te tr a n sfe r tax 1323
.02 2 6 . t6
S.E .C . r e g i s t r a t i o n fe e .20
T otal Annual Commission
Expense
276.57
19^5
13
Commission: buy bonds
13
2 .5 0 . 32.50
13
Commission: s e l l sto c k 926
.15873
147.00
Federal tr a n sfe r tax 926
.05
46.30
N.Y. S ta te tr a n sfe r tax 926
.03
2 7 .7 8
S.E .C . r e g is t r a t io n fe e .26
T o tal Annual Commission
Expense 253.84
T o tal commission expense
fo r nine year period 1 ,567.12
97
TABLE XXVII
MODIFIED CONSTANT RATIO PLAN
COMMISSION EXPENSE, LEH M AN CORPORATION FUND
1 9 3 7 ^ 1 9 4 5 ■
Date Remarks - No. ,of • Rate Per; "C om -' - T otal Per
• ’ Shares -Share or’ : mis- • Trans-
or Bonds Bond s io n a c tio n
1937
Mar. 3 Commission: buy sto ck 379 *35 1 3 2.65
3 Commission: buy bonds 50 2 .5 0 125.00
T otal Annual Commission
Expense 257.65
1938
Jan. 21 Commission: buy sto ck
137 .19156 2.6.24
21 Commission: . s e l l bonds 4 3.00 12.00
Federal tr a n sfe r tax 4 .50 2 .0 0
S.E .C . r e g i s t r a t i o n fe e 8 .01 .08 40.32
June 21 Commission: buy sto ck 62
.31594 19.5 9
21 Commission: s e l l bonds 2 5.00 10.00
Federal tr a n sfe r tax 2 .50 1.00
S.E .C . r e g i s t r a t i o n fe e 4 .01 .04 30.63
T o tal Annual Commission
Expense
7 0 .9 5
1940
May 21 Commission: buy sto c k 164 .16875
2 7 .6 8
21 Commission: s e l l bonds
3
4 .0 0 12.00
F ederal tr a n sfe r tax
• 3
.50 1 . 50
S.E .C . r e g is t r a t io n fe e 6 .01 .06 41.24
Aug. 21 Commission: buy sto ck 115
.17337 1 9 .9 ?
21 Commission: s e l l bonds
3
4 .0 0 12.00
F ederal tr a n sfe r tax
3
.50 1.50
S.E .C . r e g is t r a t io n fe e 6 .01 . 06 53.50
*
■Total Annual Commission
Expense 74.74
1943
Jan. 29
Commission: buy bonds 6 2 .5 0 15.00
29
Commission: s e l l sto ck
209 .1925
4 0 .2 3
F ederal tr a n sfe r tax
209
.06 12.54
N.Y. S ta te tr a n sfe r tax 209 . 04 8 .3 6 *
S.E.C . r e g is t r a t io n fe e 12 .01 .12
T o ta l Annual Commission
Expense 7 6 .2 5
97&
Date Remarks No. of Rate Per Com T o ta l Per
Shares Share or mis T rans
or Bonds Bond sio n a c tio n
,Feb. ±3 Commission: buy bonds
13 Commission: s e l l sto ck
F ederal tr a n sfe r tax
N.Y. S ta te tr a n sfe r tax
S.E .C . r e g is t r a t io n fe e
T o ta l Annual Commission
7
2 .5 0
17.50
161 .225 36.23
161 .06 9 .6 6
161 .04 6.44
14 .01 .14
Expense 69.97
T o t a l com m ission e x p en se f o r
n in e y ea r p e r io d 549*56
98
T A B L E X X V III
M O D IF IE D C O N S T A N T R A T IO P L A N
C O M M I S S I O N E X P E N S E ,* S T A T E S T R E E T IN V E S T O R S F U N D
1937 - 19^5
Date .. Remarks . ■ ‘ -7 No. : o f Rate Per Com T otal Per
Share s Share or m is Trans
or Bonds Bond sio n a c tio n
1937
Mar.
3
Commission: buy bonds
T otal Annual Commission
. Expense
50 2 .5 0 125.00 125.00
125.00
1938
Jan. 21 Commission: s e l l bonds 4 3.00 12.00
F ederal tr a n sfe r tax 4 .50 2 .0 0
S.E.C . r e g is t r a t io n fe e 8 .01 .08 14.08
June 21 Commission: s e l l bonds
3
4.00 12.00
Federal tr a n sfe r tax
3
.50 1.50
S.E.C . r e g is t r a t io n fe e 6 .01 . 06
T otal Annual Commission
Expense 27.64
1940
May 21 Commission: s e l l bonds
3
4 .0 0 12.00
F ederal tr a n sfe r tax
3
.50 1.50
S.E .C . r e g is t r a t io n fe e
3
.02 ■ . 06
13.56
Aug. 21 Commission: s e l l bonds 2 5.00 10.00
F ederal tr a n sfe r tax 2 .50 1 .0 0
S.E .C . r e g is t r a t io n fe e 4 .01 .04 11.04
T otal Annual Commission
Expense 2 4 .60 ,
1942
Mar. 11 Commission: s e l l bonds 2 5.00 ' 10.00
Federal tr a n sfe r tax 2 .50 1 .00 , ;
S.E .C . r e g is t r a t io n fe e 4 .01 •.04
V *
T otal Annual Commission
1 .
Expense 11.04
1943
Jan. 29 Commission: buy bonds
3
4 .0 0 12.00
29 S e l l stock: F ed eral5 *
t r a n s f e r . tax 34' ^ .06 2.04
M assachusetts S ta te
tr a n sfe r tax 34
.02 • .68
T otal Annual Commission
Expense 14.72
98a
Date Remarks No. o f
Shares
or Bonds
Rate Per
Share or
Bond
Com
mis
sio n
T otal Per
Trans
a c tio n
1945
Feb.
13
Commission: buy bonds
7 '
2 . 50 17.50 ,
.
13
S e l l stock: F ederal
tra,nsfer tax 130
M assachusetts S ta te
tr a n sfe r tax 130
T o ta l Annual Commission
Expense
.06
.02
7 .8 0
2 .6 0
2 7 .9 0
T o ta l com m ission ex p en se
fo r n in e y ea r p e r io d 23Q .90
99
T A B L E X X IX
M O D IF IE D C O N S T A N T R A T IO P L A N -
C O M M I S S IO N E X P E N S E , T R I-C O N T IN E N T A L C O R P O R A T I O N F U N D
1937 - 1 9 4 5
Date * - Remarks , ■ ; • No. of
. Shares
" - or Bonds
Rate Per
Share or
Bond
Com- 1
mis- !
sio n .
l o t a l Per
Trans
a c tio n
1937
Mar.
3
Commission: huy sto ck
5195
.14 727.30
3
Commission: buy bonds 50 2 .5 0 125.00
T o ta l Annual Commission
Expense 852.30
1938
Jan. 21 Commission: buy sto ck
807
.08 6 4 .56
21 Commission: s e l l bonds 4 3.00 12.00
F e d e ra l t r a n s f e r ta x 4 • 50 2 .0 0
S.E.C. r e g i s t r a t i o n fee 8 .01 .08 78.64
June 21 Commission: buy sto c k 808 .08 64.64
21 * Commission: s e l l bonds
3
4.00 12.00
F e d e ra l t r a n s f e r tax
3
.50 1 .50
S.E.C. r e g i s t r a t i o n fee 6 .01 . 06 7 8.20
Sept. 21 Commission: buy stock
759 .09
6b. 31
Commission: s e l l bonds 4 3.00 12.00
F e d e ra l t r a n s f e r tax 4 .50 2 .0 0
S.E.C. r e g i s t r a t i o n fee 8 .01 .08
82.59
T o ta l Annual Commission
Expense
239.23
1940
May 21 Commission: buy sto c k 1291 . 06 7 7 .4 6
Commission: s e l l bonds
3
4 .0 0 12.00
F e d e ra l t r a n s f e r ta x 3
.50 * • • 1.50
S.E.C. r e g i s t r a t i o n fee 6 .01 .06 91.02
Aug. 21 Commission: buy sto ck
1339
. 06 8 0.34
Commission: s e l l bonds
3 .
4.00 12.00
F e d e ra l t r a n s f e r ta x -^
3 ■ - .50 ;;
I .50
S.E.C. r e g i s t r a t i o n fee
•• 6' ■ ‘ .01 - .- .06
; ’ 93 . 90
Nov. 21 Commission: buy sto c k 992 .07
’ 69.44
Commission: s e l l bonds
3
4 .0 0 12.00
F e d e ra l t r a n s f e r tax
3
.50 1.50
S.E.C. r e g i s t r a t i o n fee 6 .01 .06
8 3.00
T o ta l Annual Commission
Expense
267.92
99a
Date Remarks No. o f Rate per Com T otal Per
Shares Share or mis Trans
or Bonds Bond sio n a c tio n
1942 :
; . - ■ > -
Feb; 21 •Commission: buy stock .1992 .04 7 9.68
Commission: s e l l bonds 2 5 .00 10.00
Federal tr a n sfe r tax 2 .50 1.00
S.E .C . r e g is t r a t io n fe e 4 .01 .04 90.72
May 21 Commission: buy sto c k I 809 .06 108.54
Commission: s e l l bonds 2 5 .0 0 10.00
Federal tr a n sfe r tax 2 .50 1.00
S.E .C . r e g i s t r a t i o n fe e 4 .01 .04 119.58
Aug. 21 Commission: buy sto ck 1814 .06 'X 08 .'84
21 Commission: s e l l bonds 2 5.00 10.00
Federal tr a n sfe r tax 2 .50 1.00
S.E .C . r e g is t r a t io n fe e .04 1 1 9 .8)8
T otal annual commission
Expense 330.18
1943
May 26 Commission: buy bonds 26 2 .5 0 65.00
26 Commission: s e l l sto ck 5964
.09
477.12
. F ederal tr a n sfe r tax 5964
.05
298.20
N.Y. S ta te tr a n sfe r
tax 5964 .01 • 59.64
S.E .C . r e g is t r a t io n fe e
.51
T otal Annual Commission
Expense
900.47
1945 ^
S ept. 6 Commission: buy bonds 14 2 .5 0 35.00
6 Commission: s e l l sto ck 1866. .12 223.92
F ederal tr a n sfe r tax 1866 .05 93.30
N.Y. S ta te tr a n sfe r
tax 1866 .02
37.32
S.E .C . r e g is t r a t io n fe e
.27
T otal Annual Commission
. Expense-
- ; .
-
3 8 9 . 8 1 .
T otal commission expense
for nine year period ^ 2 , 979.91
100
T A B L E X X X
S L ID IN G S C A L E P L A N
C O M M I S S I O N E X P E N S E , G E N E R A L A M E R I C A N IN V E S T O R S F U N D
1937 - 19^3
Date Remarks \ No. o f
Shares
or Bonds
Rate Per
Share or
Bond
•C orn- '
mis- 1
sio n ;
T otal Per
Trans
a c tio n
1937
■ *
-
.
Mar.
3
Commission: buy bonds 50 2 .5 0 125.00
3
Commission: buy sto ck 3361
.1621 544.82
T otal Annual Commission
Expense 669.82
1938
Jan. 21 Commission: buy sto ck
967
.11
106.37
21 Commission: s e l l bonds
7
2 .5 0 17.50
F ederal tr a n sfe r tax
7
♦ 50 3.50
S.E .C . r e g is t r a t io n fe e 14 .01 ' .14 . 127.51
June 21 Commission: buy sto ck 594 .11 • 65.34
21 Commission: s e l l bonds 4 2 .5 0 10.00
F ederal tr a n sfe r tax 4 •50
2.0 0
S.E .C . r e g is t r a t io n fe e 8 .01 .08 77.42
Oct.
3
Commission: buy bonds
5
2 .5 0 12.50
5
Commission: s e l l stock 500
• 13
6 5 .OO
F ederal tr a n sfe r tax 500
.05
2 5 .OO
N.Y* S ta te tr a n sfe r
tax 500 .02 10.00
S.E .C . r e g is t r a t io n fe e
9
.01 .09 112.59
T otal Annual Commission
Expense 317.52
1940
May 21 Commission: buy stock 1174 .09
105.66
21 Commission: s e l l bonds 6 2.5 0 15.00
F ederal tr a n sfe r tax 6 .50 3.00
S.E.C.' r e g is t r a t io n fe e 12 .01 .12 123.78
Aug. 21 ‘ Commission: buy sto ck 122 .10 12.20
21 Commission: s e l l bonds 1 5.00 5.00
F ederal tr a n sfe r tax 1
.50 .50
S.E.C. r e g is t r a t io n fe e 2 .01 .02 17.72
T o ta l Annual Commission
Expense
141.50
100a
Date Remarks No. of
Shares
or Bonds
Rate Per
Share or
Bond
Com- '
mis- 1
s io n i
T otal Per
Trans
a c tio n
1943
*
; ,
Feb.
9
Commission: buy bonds
7
2.50
17.50
9
Commission: s e l l sto c k
879
.12 105.48
F e d e ra l t r a n s f e r ta x
879 .05 43.95
N.Y. S ta te t r a n s f e r
- . -
-~tax-
879
.02
17.58
S.E.C. r e g i s t r a t i o n fee 14 .01 .14
T o ta l Annual Commission
Expense 184.65
1945
Feb.
15
Commission: buy bonds 24- 2.50 60.00
15
Commission: s e l l sto c k 1701 .1594 271.14
F e d e ra l t r a n s f e r tax 1701
.05
85.05
N.Y. S ta te t r a n s f e r
tax 1701
.03 51.03
S.E.C. r e g i s t r a t i o n fee 47 .01
.47
T o ta l Annual Commission
Expense 467.69
T o ta l commission expense
fo r nine year period. 1, 781.18
101
TABLE XXXI
SLIDING SCALE PLAN
COMMISSION EXPENSE, LEHM AN CORPORATION FUND -
1937 - 1 9 4 5
Date Remarks , No.- of Rate Per Com- T o ta l Per
Shares Share or mis- Trans- .
or Bonds Bond sio n a c tio n .
1937
Mar.
3
Commission: buy bonds 50 2 .50 125.00
3
Commission: buy sto ck
379 •35 132.65
T o ta l Annual Commission
Expense 257.65
1938
Jan. 21 Commission: buy stock
237
.19156
45.40
21 Commission: s e l l bonds
7
2.50 17.50
F e d e ra l t r a n s f e r tax
7
.50 3.50
S.E.C. r e g i s t r a t i o n fee 14 .01 .14 66.54
Mar. 22 Commission: buy sto ck
79
. 30781 24.32
22 Commission: s e l l bonds 2 5.00 • 10.00,
F e d e ra l t r a n s f e r tax 2 .50 1.00
S.E.C. r e g i s t r a t i o n fee 4 .01 .04 35.36
Oct.
5
Commission: buy bonds
3
4.00 12.00
5
Commission: s e l l sto ck 100 .19406 19.41
F e d e ra l t r a n s f e r tax 100 ■ .06 6.00
N.Y. S ta te t r a n s f e r tax 100 .04 4.00
S.E.C. r e g i s t r a t i o n fee 6 .01 .06 41.47
T o ta l Annual Commission
Expense 143.37
1940
May 21 Commission: buy sto ck 304 .16875
51.30
21 Commission: s e l l bonds 6 2.50 15.00
F e d e ra l t r a n s f e r ta x 6 .50 3.00
: S .E.C'. ' r e g i s b r a t i o h fee '
12 .01 .12
T o ta l Annual Commission
. Expense 69.42
,1943
Feb.'
9
Commission:; buy bonds
7
2.30
17.50
9
Commission: s e l l sto ck 250
.194375
4 8.59
F ed eral t r a n s f e r ta x 250 . 06 15.00
N.Y. S ta te t r a n s f e r ta x 250 .04 10.00
S.E.C. r e g i s t r a t i o n fee 14 .01 .14
T o ta l Annual Commission
Expense
91.23
101a
Date Remarks No. of
Shares
or Bonds
Rate Per
Share or
Bond
Com- T o ta l Per
mis- Trans-
s io n a c tio n
1945.
Feb.
18
Commission: buy bonds 16 2.50 40.00
15
Commission: s e l l sto c k 392
.22375 87.71
F e d e r a l .t r a n s f e r tax
392 .06 23.52
N.Y. .S tate t r a n s f e r ta x 392 .04 15.68
S.E.C. r e g i s t r a t i o n fee
31
.01
.31
T o ta l Annual Commission
Expense 167.22
T o ta l com m ission ex p en se
fo r n in e y ea r p e r io d
7 2 8 .8 9
102
TABLE XXXII
SLIDING SCALE PLAN
COMMISSION EXPENSE, STATE STREET INVESTORS FUND
1937 - 19^5
Date . Remarks No.. of Rate Per Com-, T o ta l Per
Shares Share or mis- Trans-
or Bonds Bond • sio n a c tio n
1937
Mar.
3
Commission; buy bonds 50 2.50 125.00
T o ta l Annual Commission
Expense 125.00
1938
Jan. 21 Commission; s e l l bonds 6 2.50 15.00
F e d e ra l t r a n s f e r tax 6 .50 3.00
S.E.C. r e g i s t r a t i o n fee 12 .01 .12 18.12
Mar. 22 Commission: s e l l bonds
3
4.00 12 . 00
F e d e ra l t r a n s f e r tax
3
. 50 1.50
S.E.C. r e g i s t r a t i o n fee 6 .01 . 06 13.56
Oct.
5
Commission: buy bonds 1 5.00 5.00
5
S e l l sto ck ; F ed eral
t r a n s f e r ta x
7
.06 .42
M assachusetts S ta te
t r a n s f e r tax
7
.02 .14 5.56
T o ta l Annual Commission
Expense 37.24
1940
May 21 Commission: s e l l bonds 4 3-00 12.00
F e d e ra l t r a n s f e r tax 4 .50 2.00
S.E.C. r e g i s t r a t i o n fee 8 .01 .08
T o ta l Annual Commission
Expense 14.08
1943
Feb.
9
Commission: buy bonds • 2- 5.00 ' . ' 10.00 •
9
S e ll stock: F e d e ra l
•
tra n s fe r ' ta x '
25
'.06 \ 1.50
M assachusetts S ta te
t r a n s f e r ta x
25
.02 .50
T o ta l Annual Commission
Expense
12.00
102 a
Date Remarks No. of Rate P e r ' Com T o ta l Per
Shares Share or mis T rans
or Bonds Bond sio n a c tio n
1945
Commission: buy bonds ■ ' 16 Feb.
15
2.50 40.00
15
S e l l s t o c k : . F ed eral
v 1
t r a n s f e r ta x
M assachusetts S ta te
306 .06 18. 36
t r a n s f e r tax 306 .02 6.12
T o ta l Annual Commission
Expense 64.48
T o ta l co m m issio n ex p en se
f o r n in e y ea r p e r io d 2 5 2 .8 0
103
TABLE XXXIII
SLIDING SCALE PLAN
COMMISSION EXPENSE, TRI-CONTINENTAL CORPORATION FUND
1937 - 19^5
Date Remarks No. of
Shares
or Bonds
Rate Per
Share or
Bond
Com- ' T o ta l Per'
mis- Trans-
sio n a c tio n
1937
Mar.
3
Commission: huy bonds 50 ■2.50 I25.OO
3
Commission: buy sto ck
5195
.14 727.30
T o ta l Annual Commission
Expense 852.30
1938
Jan. 21 Commission: buy sto c k 1614 .08 129.12
21 Commission: s e l l bonds
7
2.50 17.50
F e d e ra l t r a n s f e r ta x
7 .50 3.50
S.E.C. r e g i s t r a t i o n ta x 14 .01 .14 150.26
June 21 Commission: buy sto ck 12 66 .08 101.28
21 Commission: s e l l bonds
5
2.50 12.50
F e d e ra l t r a n s f e r tax
5
.50 2.50
S.E.C. r e g i s t r a t i o n fee 10 .01 .10 I I 6.38
Oct.
5
Commission: buy bonds
3
4.00 12.00
5
Commission: s e l l sto c k
505 .09 45.45
F e d e ra l t r a n s f e r ta x
505 .05
25.25
N.Y. S ta te t r a n s f e r ta x
505
.01
5.05
. S.E.C. r e g i s t r a t i o n , fee
5
.01.
.05
87.80
T o ta l Annual Commission .
Expense 354.44
19^0
May 21 Commission: buy sto c k 2627 .06 157.62
21 Commission: s e l l bonds
5
2.50 12.50
F e d e ra l t r a n s f e r ta x
5
.50 2.50
S.E.C. r e g i s t r a t i o n 'f e e ao .01 : . 10 ' I72.72
Aug. 21 Commission: buy sto c k ’ 2712 . .06 I 62.7.2
21 Commission: s e l l bonds
5
2.50 12.50
F e d e ra l t r a n s f e r ta x
5
.50 2.50
S.E.C. r e g i s t r a t i o n fee 10 .01 .10
' 177.82
T o ta l Annual Commission
Expense
350.54
103a
Date Remarks No. of Rate Per Com T o ta l Per
Shares Share or mis T rans
or Bonds Bond sio n a c tio n
1943
#
Fed.
9 .
/ Commission: buy bonds - 6 2.50 • 15. ‘ 00
9
Commission: s e l l sto c k 2124 ’ .07 148 ..68
F e d e ra l t r a n s f e r ta x 2124 .05 106.20
N.Y. S ta te t r a n s f e r tax 2124 .01 21.24
S.E.C. r e g i s t r a t i o n fee 12' .01 . 12
T o ta l Annual Commission
Expense 291.24
1945
Feb.
15
Commission: buy bonds 21 2.50 52.50
15 •
Commission: s e l l sto c k 2946 .11 324.06
F e d e ra l t r a n s f e r ta x 2946
.05 147.30
N.Y. S ta te t r a n s f e r tax 2946 .02 58.92
S.E.C. r e g i s t r a t i o n fee 41 .01 .41 583.19
T o ta l Annual Commission
Expense
583.19
T o ta l commission expense
f o r nine year p e rio d
.2 , 431.71
104
TABLE XXXIV
LIST OF STOCKS IN THE DJ1A
A llte d Chemical ., .
American Can.
American Sm elters
American Telephone
and Telegraph
American Tobacco B
Bethlehem S te e l B
C h ry sler
Corn Products
DuPont
Eastman Kodak
G eneral E l e c t r i c
G eneral Foods
G eneral Motors
Goodyear
I n t e r n a t i o n a l
H arv ester
I n t e r n a t i o n a l Nickle
Johns M anville
Loew's, Inc.
N a tio n a l D i s t i l l e r s
N a tio n a l S te e l
P ro c to r and Gamble
Sears Roebuck
Standard O il of
C a lif o r n ia
.Standard O il of
New J e rs e y
Texas Company
Union Carbide
U nited A i r c r a f t
U. S. S te e l
W estinghouse
Woolworth 53
53 B a rro n ’s N a tio n a l F in a n c ia l Weekly, The Dow - Jones
Averages (New York: B a rro n ’s P u b lish in g Company, 1939)*
10'5
TABLE XXXV
LIST OF BONDS IN THE DJ 40 BA
. .Ten, High-grade R a ils
A tchinson g e n eral 4 s, *95' N orfolk and W. cons'. 4 s, "*96'
B altim ore and Ohio 1 s t , N orthern P a c if ic pr. In. 4 s, '97
4 s, f48 ,/" .
C.B. and Q. gen 4 s, *58 Penna. cons. 4 1 /2 s , . .*60
Ghes. and Ohio D 3 l / 2 s , 196 Southern Pac. r e f . 4 s, ’55
N.Y. C e n tra l 1 s t, 3 l / 2 s , *97 Union P a c if ic 1 s t , 4 s, '47
Ten Second-grade R a ils
A tl. C o a stlin e gen un A 4 l / 2 s , N.Y.C. and S t, L. r f C 4 l / 2 s , f78
164
111. C e n tra l r e f . 4s,. *55 Nor. Pac. r f and imp A 4 l / 2 x ,
2047
Morris and Essex 1 s t r e f . Pere M arquette 1 s t 4 l / 2 s , f77
3 1/ 2s , 2000
M.K.T. pr l i e n A 5s, '62 So. Pac. Oregon Lines 1 s t 4 l / 2 s
*77
N.Y. C e n tra l r f and imp South Rwy dev and gen 4 s, 1956
4 l / 2 s , 2013
Ten P u b lic U t i l i t i e s
Commonw. Ed. I. 3 1 /2 s, *68 Michigan Consol. Gas 4 s, 1963
Consumers Power Co., 3 1 /2 s , New Eng. T. and T. 1 s t B 4 1 /2 s,
1965 '61
D e t r o i t E dison G 3 l / 2 s , *66 N.Y. E dison 3 l / 4 s , 165
Gulf S ta te s 3 1 /2 s', 1969 N.Y. Gas ls 5 , 5s, ‘48
M etropol. Edison D 4 l / 2 s , *68 P o rtla n d Gen. E lec. 4 l / 2 s , f6o
Ten I n d u s t r i a l s
Armour and Co. 1 s t B 4 s, 1955 N a tl. D airy Products 3 l / 2 s , i 960
Beth., S t e e l , '3 1 /4 s , F ' 1.959 N a tl. S te e l 3s,- 1965
Goodrich 4 l / 4 s , '56. * Socony Vacuum 3s, 1964
I n t e r . Paper r e f . 5s, ‘47 Standard O il of N .J. 2 3 /4 s , 1953
L ig g e tt and M . deb. 5s, ’51 U nited B is c u it 3 l / 2 s , 1955$^
5^ Ib id .

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University of Southern California Dissertations and Theses

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Asset Metadata

Creator Haig, W. R. (author)

Core Title Investing by formula plans in the securities of selected investment companies

Degree Master of Business Administration

Degree Program Business Administration

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag Economics, Finance,OAI-PMH Harvest

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Trefftzs, Kenneth L. (committee chair), Evans, Paul J. (committee member), Meigs, Walter B. (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c20-113840

Unique identifier UC11262077

Identifier EP43192.pdf (filename),usctheses-c20-113840 (legacy record id)

Legacy Identifier EP43192.pdf

Dmrecord 113840

Document Type Thesis

Rights Haig, W. R.

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA