The Corner for Oct. 11, 2013

This is the last of a two-part series on Wall Street in the 1950s and 1960s.

When compared with the 1960s Wall Street, the 1950s were tame indeed and would rightly take their place as a nostalgic decade when things seemed fairly placid. The 1960s were years of great scientific and technological innovations, political upheaval and assassination. On Wall Street, they were years of great volatility. The Dow Jones Industrial Average began a slow climb toward the 1,000 level but never made the milestone. More significantly, the market took several sharp plunges during the decade that made investors increasingly wary of the effects that these events could have on the economy.

The decade of the 1960s witnessed the birth of the modern merger and acquisition business on Wall Street. Helping conglomerates accumulate companies became a major source of profits for many firms. Mergers grew at their strongest rate since the 1920s. Many well-known companies became the targets of conglomerates and the “hostile bid” became the popular method of acquiring an unsuspecting company. Conglomerates were often painted as hostile acquirers, “gunslingers” out to shoot down even established companies if the price was right. The characterization was often correct.

Another almost forgotten factor reared its head during the 1960s — inflation. Inflation caused by the war in Vietnam began to rise and adversely affect the market. It affected stock and bond returns and made investors nervous. Investor activism also continued. Taking a cue from political activists, investors began to more openly question companies than in the past. And there were many more investors in the market. Main Street and Wall Street were closer than at anytime before.

Building n the foundations established in the 1950s, Wall Street opened more brokerage offices around the country, bringing more and more investment “products” to Main Street. Interest in mutual funds continued and increasingly more people began speculating in the market. But unlike the 1920s, many of the investment advisers were using solid investment information rather than “tips.” The tipster had given way to the equity analyst. Tips based upon inside information were now illegal.
Wall Street fondly called the 1960s the “go-go years.” Companies that emphasized growth quickly became investment favorites and their stock prices soared.

Conglomerates were at the top of the list, registering prices that had not been seen since the 1920s. Many of the conglomerates became household names and their chief executive officers became popular figures with the media. Some ventured outside their established lines of business with disastrous results. Companies in all sorts of businesses finally fizzled as the market realized they were cumbersome and did not live up to expectations.

Toward the end of the decade, Wall Street began to feel the crunch of overexpansion. Several well-publicized scandals broke out over the financial results of some of the growth companies. And then the Street itself suffered its own problems when the sheer volume of paperwork put several member firms under strain. The exchanges had to proclaim “holidays” on otherwise normal business days in order to cope with the record-keeping mess. By the end of the decade, more than 150 firms had failed, showing that the Street was as vulnerable as its customers.

Despite the signs of strain, there was still much to cheer. Work began on the World Trade Center towers that would eventually house many Wall Street firms and commodity brokers and exchanges. The occasional tickertape parade was still held. And in the 18-year period between the return of Gen. MacArthur during the Korean War and the late 1960s, the celebrations now ranged from honoring war heroes to welcoming astronauts back from space.

Wall Street was on the verge of some its most momentous changes since the 1930s. But this time, the changes were to come from within, rather than being imposed from the outside. The days of relatively small member firms, run as partnerships, were quickly becoming a thing of the past. Large brokers would replace them as the idea of the financial department store began to make a comeback for the first time since the 1920s. Member firms made plans to go public, selling shares to investors for the first time. The 1920s were not totally forgotten. Some of the developments of 40 years before still seemed like a good idea during the go-go years. But implementing them would be difficult because the second great bear market of the century was just around the corner.

Quote of the week: “There is no security in this life, only opportunity” – Gen. Douglas MacArthur

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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