LOYAL TOASTS
By NICHOLAS DAVENPORT IT is easy to imagine the scene in countless homes this season. The loyal toast has been drunk and looking round at the remains of so much wealth consumed the .. head of the family raises his glass again and calls: 'To the Stock Exchange--the fount of all.' Approving cries . come from Uncle George, and Aunt Emily is heard to say : 'And God bless Marks and Spencer' (which have risen 80 per cent.) 'and dear old Custos2 (Cheers.) Strange, no one is heard to toast the stockbroker. This gamesman is never remembered when shares go up : only when they go down. And it is hard to find a stock which went down this year—unless you got entangled in the gilt-edged market Or some dud Canadians. If you had a representative list like the thirty shares in the Financial Times index . you would have enjoyed an appreciation of around 50 per cent, And how much of this appreciation have you cashed in or spent? Ten per cent.? Twenty per cent.? I wish I could con- duct a Gallup poll on this vital question which can have great economic significance. (A postcard to 99 Gower Street will be treated with the utmost confidence, even if it is written by an inspector of taxes.) Surely it would pay Hoovers or their rivals to correlate the curve of equity share prices and the demand for expensive consumer durables.
I must not give the impression that making money on the Stock Exchange is an easy thing. Booms are highly selective in these days. If you had bought aviation shares or cinemas or even the once-fashionable oil shares, you would have done badly in 1959. You would not have done very well out of heavy electrical equipment or paper shares (except Bowaters), Or shipping shares, although there was a premature move in the financial press to talk shipping higher. But some groups have done far better than the Financial Titne.s index. Store shares appreciated by about 70 per cent. and apart from _Marks and .Spencer's 80 per cent:, high scores were made by GUS 'A' (76 per cent.) and Times Furnishing (73 per cent.). Property shares did even better with an advance of 78 per cent. andlCity Centre, the creator of the Piccadilly monster, scoredl most- with a rise of about 107 per cent. But the best• showing of all was made by the hire-purchase finance shares which virtually doubled in price. Mercantile Credit and Bowmaker were outstand- ing—thanks to their fat bonuses--the first with a rise • of 162 per cent, and the second with one of 120 per cent. Other very successful groups were motors, which more than doubled (BMC had a rise at one time of 130 per cent.), breweries and plastics which advanced just over 80 per cent.. building materials and newspapers over 65 'per cent, and chemicals 54 per cent., with Imperial Chemical Industries, the leader of the 'blue chips.' rising by no less than 74 per cent. Yet the highest score I know was made by a share right outside the leader class —in fact non-U because it once made a 'partial' bid—and that was tiling- worth Morris, At the beginning of the year it was ElS low as 4s. It ended up at I 2s. Od., a rise of over 210 per cent.
Throughout the year--after a reactionary first month—the bull market behaved in a most logical manner : it advanced continually. It was always busy. discounting the trade recovery which Mr. Amory started in 1958 by ending the bank credit squeeze and removing the hire-purchase restric- tions. It was logical, too, for the bank and their new allies, the hire-purchase finance companies. to lead the advance, for the profits these . com- panies were making on their rapidly expanding business was stupendous. LOgical, also, for the stores and the Hoovers, etc., to be in the. van, for the trade recovery in its initial stage sprang from the rising demand for consumer and con- sumer durable goods. Mr. Amory, of course, gave a fillip to the Stock Exchange advance—another toast, please, to the father of the bull market, God bless him ! —by introducing a wonderful Budget in April. (In the past two years the Gov- ernment has reduced taxation by about £400 mil- lion.) Nor must we forget the tonic which the Chancellor gave to every .equity investor when he rationalised the profits tax in April, 1958, with a flat 10 per cent. This started off the boom in property shares, for property companies had been badly hit by the distributed profits tax. It was natural for the rise in dividends in 1959 to exceed the rise in profits: a more liberal distribution policy in . the changed circumstances seemed proper to most companies.
There was no external shock to upset the Stock Exchange boom except the general election. And how magnificently the market rode that storm ! After a period of hesitation it began to rise in anticipation of a Conservative victory some weeks before the event. There are times when the 'market' seems to acquire a soul of-its own, when it develops a prescience denied 1.0 statesmen, dons and journalists, when it behaves like history or Arnold Toynbee. How did it know that the Tories would increase their majority? Yet the movement of Stock Exchange prices is merely the end-result of the thousands and thousands of investment decisions being taken every minute up and down the country, big and little people making up their minds to buy or sell, to speculate or invest, to
take a risk or cut. The astonishing fact is that since the election the market seems to have had no second thoughts. It can see nothing ahead but sunshine. Yet all bull markets eventually go too far and come to an end.
At this season no decent reader will expect me to prophesy the end. I stuck out my neck on September 18 when I said that the index of in- dustrial equities, then 225, would rise by about 27 per cent. to 323 to bring the average yield down to 31 per cent. As I write it has got to 317 and the average yield is 3.9 per cent. Enough is as good as a feast.
(Custos is on holiday.)
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