MONEY Snakes and ladders 1970
NICHOLAS DAVENPORT
It has been a year of extraordinary violence, as we all know, and the City has not
escaped. I have never before seen in a lifetime spent in the money markets such brutal attacks .upon security values. Highly respectable shares have been knocked down, trampled upon and left, it seems, permanently injured. Rolls-Royce comes im-
mediately to mind. Official support—with an IRC man on the board—could not prevent
its former profits being blown away by the wind of change. From a 1969 high of 49s the shares dropped down to 7s 3d (now 9s 3d). One does not expect a 'blue chip' to fall by over 80 per cent. But many did.
Take machine tools: Alfred Herbert fell from top to bottom by 70 per cent. Take motors : British Leyland were down by over 60 per cent. In shipbuilding Doxford fell by 80 per cent, Hawthorn Leslie by nearly 80 per cent and Harland and Wolff by over 70 per cent. Here the companies were undone by quoting firm contract prices without an escalation clause for rising costs. In toy-mak- ing there was a universal disaster for much the same reason : Lesney shares were down by 80 per cent, Lines by 70 per cent and Met- toy by nearly 60 per cent. In electrical con- tracting, which you would imagine to be much safer, there was a fall of over 70 per cent in Aberdare and Shipton Automation.
Yet Electro-Components were 50 per cent up. Ernest Scragg in engineering were down by nearly 80 per cent before a fair recovery set in. In textiles, always an unstable in- dustry, the outstanding calamity was Staflex International which fell by 80 per cent before making some recovery. Apart from these volatiles many old established com- panies suffered falls of 50 per cent or more in the market, for example Cunard, Vickers, Spillers and Associated Newspapers. Some recovery is now taking place—these percen- tages express the fall from the high to the low—but if any private investor had tried to carry on the market game of snakes and ladders this year he would by now have been tempted to give up. There were so few ladders to climb up and so many snakes to slither down. The falsity of the equity cult was revealed to even the blind.
To put this appalling slump in proper perspective I will use the Fr index of thirty industrial shares. (Being composed of tradi- tional 'blue chips' it has fallen much more than the wider Fr-Actuaries index of 600 shares which is only down by 10 per cent.) The last bull market came to a final end in January 1969 when the Fr index reached 520.
(The chartists called this a 'double top', for 522 had been marked up in September 1968.) It had lasted two years and two months and had scored a gain of 83 per cent. Down it fell from 520 to 357 by the end of October 1969, recovered to 423 by January 1970, but down again to 315 by 15 June. As Mr Heath took the market by surprise by winning the general election 315 was hailed as the end of the bear market—eighteen months and a drop of close on 40 per cent—but the wage- cost inflation went galloping up and strike after strike greeted the 'quiet Tory revolu- tion'. So after the post-election recovery to close on 380 the index is back again-330 as I write—and no one is quite certain that it will not fall to around 280. This would put the investor back to where he was at the end of the bear market in 1966 What a snake!
Even so, the FT index has moved in a normal bull-to-bear movement and has behaved much better than the leading shares which I have mentioned. The appalling performance of many of them may have been due to special liquidation. There was plenty of that around in 1970 when disaster fell upon the world's largest unit trust management—the los. At the beginning of the year the tos was managing thirteen mutual funds covering the world with an aggregate value of over $2,000 million. From March onwards confidence began to break and heavy selling of the shares followed. Ex- travagance and bad investment blunders came to light and the savers began to withdraw from the funds at the net rate of over $1 million a day! A new board is now gradually restoring confidence, having ap- pointed supervisory trustees, but the liqui- dation which this debacle brought upon the stock markets had wide and serious repercussions. The small investors of the uK lost their appetite for unit trust offers—their advertising could no longer play upon the magic of the equity cult—and by the end of October the net sales of the unit trusts had fallen to £90 million. At the peak of their popularity in 1968 their net annual sales had been £252 million. The sad story of the tos decline is told in the market prices of the shares. From a high of 155s tos shares fell to 12s and los Management from $37 to $3i. The collapse of los shares was paralleled in our market by that of Surinvest Holdings which fell from 110s to 8s 3d (now 11s). There has been nothing like it since the Wall Street slump of 1929-30.
It has been estimated that the German holders of tos and some other American mutual funds are poorer by £200 million since they fell for the ferociously hard selling tactics of the financial sharks. British holders must have suffered even more. Ought we to do something to protect them? Door to door selling of unit trusts has always been pro- hibited in this country. This privilege is allowed only to the salesmen of life insurance but as unit trusts can now be linked with life insurance and with genuine savings plans the doors are virtually open. There is no censorship of unit trust ad- vertising as in South Africa. But on the whole unit trust advertising in this country is frank. ingenious and sophisticated and the Board of Trade regulations seem wide and adequate enough for the protection of the small in- vestor. Besides, it is traditional in this coun- try that we should always allow the fool to be parted from his money. It fits in nicely with the new Tory philosophy of self- responsibility. You might imagine that after his disastrous experience of the stock markets in 1970 the wounded investor would be cured for ever of this dangerous money game. But not a bit of it! Tell him that the bear market will be closing in the first half of 1971 after an innings of two and a half years and that the next bull market will be starting up by the time another Christmas comes round; which is not impossible, and he will be jumping in before you can say Jack Robinson Rentals.
ffolkes's investors' alphabet
U is for Ulcer
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