Investors Been Down This Street Before
Read the new book “Eyewitness to Wall Street: Four Hundred Years of Dreamers, Schemers, Busts and Booms” by David Colbert (Broadway Books, August 2001) and you may be either horrified or comforted--or both--by financial markets’ tendency to repeat themselves.
The book is a compilation of reports and essays on important market eras, each account written during the era or shortly thereafter. The writers include many of the key players in markets’ development, especially in this century--among them Ben Graham, the esteemed “value” investor of the 1920s and 1930s; Charles E. Merrill, founder of Merrill Lynch; and Ivan Boesky, the infamous inside trader of the 1980s.
One account will strike a chord with investors who have been badly burned in the technology-stock crash of the last 18 months.
A 1971 speech by David L. Babson, a well-known investment manager of the 1960s and 1970s, was his attempt to explain the surge, then crash, in many “growth” stocks between 1966 and 1970. Many investors lost huge sums as shares of conglomerates and space-race-era companies collapsed after spectacular rallies.
Babson lists a number of “things that people in our field did to set the stage for the greatest [market] blood bath in 40 years.”
Included on his list, and printed here in his words:
* “Too many accountants played footsie with stock-promoting managements by certifying earnings that weren’t earnings at all.
* “Investment advisors massacred clients’ portfolios because they were trying to make good on the over-promises they had made to attract the business in the first place.
* “New-issue underwriters brought out the greatest collection of low-grade junky offerings in history--some of which were created solely for the purpose of generating something to sell.
* “Elements of the financial press promoted into new investment geniuses a group of neophytes who didn’t even have the first requisite for managing other peoples’ money--namely, a sense of responsibility.
* “Securities salesmen peddled the items with the best ‘stories’ or the biggest markups even though such issues were totally unsuited to their customers’ needs.
* “Securities analysts forgot about their professional ethics to become ‘story peddlers.’
* “Most investors tried so hard to be ‘smart’ that they lost the common sense that pays off in the long run.”
All of the above allegations, of course, are being heard today as investors seek to affix blame for the recent tech-stock boom and bust.
