Only a Few Are Authoritative

Master Letters

NEVER before has there been so much advice pouring out of Wall Street on the state of the stock market, and never have investors cupped their ears so eagerly. In 1956, according to the New York Stock Exchange, no fewer than 30,700 market letters poured forth from 296 of its member firms, giving advice on what to buy and sell. Total circulation: an estimated 10 million. Estimated worth of most of them, in the opinion of most Wall Street professionals: "Not a hoot in hell."

Wall Streeters praise carefully prepared securities reports on particular stocks or industries, which go largely to brokerage houses and are rarely seen by the public. What they lambaste are the glib, hastily prepared market letters, the short daily or weekly tip sheets on market movements and particular stocks, which brokers pass out to their customers like pretzels.

Market letters earned a sour reputation for themselves in the 1920s and '30s--and have done little to redeem it. In those days, brokers used the letters to push sales of the securities they handled, loaded them with glib predictions and tips on questionable stocks. According to a 1933 survey by the Cowles Commission for economic research, 1928-32 forecasts of how certain stocks would perform were actually 4% less accurate than if the choices had been made at random from the list. Eleven years later a similar survey by the commission found that accuracy had improved hardly at all; since then, experts who follow the letters have noted little change. At the end of 1956, for example, most market letters touted steels and airlines as good bets for 1957; as it turned out, these stocks, many of them blue-chips, suffered some of the biggest losses in the current market slump.

Merrill Lynch, Pierce, Fenner & Beane, the biggest U.S. brokerage house, has never put out a market letter for its customers. Virtually every other firm puts out at least a weekly or bimonthly letter, considers it as vital to business as a scratch sheet is to a race track. "When a speculator walks into our office," says one big broker, "he wants a copy of the market letter. If we don't have one, he'll march right across the hall to another brokerage office that does."

Such letters are often only a rehash of the previous day's trading, and are rarely models of literary clarity. They are so carefully hedged with ifs, ands and buts that the writer can always look back to prove omniscience, no matter which way the market turns. One recent sample: "If stocks hold at their present levels, the prospect of a continuation of the current trading range for the next few months appears likely. On the other hand, if the range is penetrated shortly on the downside, a deterioration of investor confidence could result in lower prices."

There is a small, growing cluster of painstakingly written market letters which make an honest attempt to give investors a solid appraisal of market trends. Financial men think highly of Carl M. Loeb, Rhoades & Co.'s fortnightly review, which has a circulation of 40,000, also respect Walston & Co., which sends out daily and weekly letters to 138,000 customers and investors. Others near the top are sent out by Goodbody & Co., W. E. Button, Du Pont Homsey, Filor Bullard & Smyth, and Harris, Upham. With a research staff of 25 workers to help him, Paine, Webber Partner Harry D. Comer was able to warn readers of an impending slump in the market as early as last September. Wrote Comer: "The risk of a big drop seems very great. It is suggested that profits be accepted, especially in growth stocks, where the gains have been very large." Jacques Coe & Co. also took up the alarm: "Bank and credit relationship is shaping up in a manner to prophesy an end to the bull market."

The letters grew increasingly bearish as the market slipped lower. Careful analysts fill their letters with warnings to avoid rash speculation, advise investors to shift into bonds or high-yield defensive stocks. Yet few go so far as to predict an end to the greatest bull market of all time. Said A. M. Kidder & Co. last week: "It may be that the letdown will run somewhat further than expected, but there does not appear to be anything in the picture to justify a bear market in stock prices."

What should the wise investor do? Writes H. J. Nelson, author of "The Trader" in Barren's magazine and among the most respected analysts of all: "In the light of all the lugubrious and cross-purpose comments from Washington, it is small wonder that timid owners of stocks emotionally lightened holdings. However, the stoutest tenet of the Bernard M. Baruch successful investment policy has always been, 'Never follow the crowd.' The readjustment of prices in the past six months, extreme in some cases, has now brought the market into buying range for new money."

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