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The New Pedigree. But the Bull of 1950 had an entirely different pedigree from the 1929 breed. This time there was no bobtail following of shoeshine boys, elevator operators and other shoestring speculators trying to make a killing with 90% of their stock bought on credit. Tightening-up of margins had ended that. Nor did the Bull of 1950 look like the 1946 animal, when the market was overrun with speculators, the easy-come, easy-go war rich and black-marketeers. This time the bull had fattened on the cash of those who bought for investment—security buyers who were less interested in a short-term quick profit than in the prospect of good dividends for the long pull.
Despite the 50% margin rule (i.e., half the purchase price must be cash), many an investor in the current market had paid in full—and then tucked his stock away. Merrill Lynch, Pierce, Fenner & Beane, biggest U.S. brokerage house, reported that for every margin trader on its books today, there are five others who pay in full. Said Managing Partner Winthrop Smith: "In 1929, it was just the other way around."
The 1950 market was different in other respects, thanks to the watchful eyes of the SEC. There were no oldtime insider pools to run up the price of a poor stock and then unload it on unwary outsiders. Although the short interest (those who had sold stocks they didn't own in the expectation that the price would drop and the stock could be bought back at a profit for delivery) had risen to above 2,000,000 shares, there was small chance of any old-fashioned bear raids. The trick of selling short while the market is falling and thus driving it even lower has been barred by SEC rules. Now short sales may be made only on the "up tick," i.e., when the stock has risen at least ⅛ of a point.
But the chief discouragement to short-term speculating is the high tax rate. Only by holding a stock for six months can an investor in the higher income brackets take advantage of the long-term capital gains tax, thus pay only 25% on his profits instead of an income tax up to 82%. None of these restrictions and safeguards means that investors can not lose. In Wall Street, a fool can still be separated from his money as fast as anywhere else. But to date, the bull has been a well-behaved animal. How long will he remain so?
The Wild Look? Traditionally, the bull gets a wild light in his eye when the public comes in—the thousands of eager buyers who think that the market is something like a horse race and that it's no trick to pick the winner. The public last week was not yet in the market, but it was beginning to take an increasing interest in the form sheet. Around the nation, brokers' offices were filling up with excited newcomers wanting to know what was being bought by the mysterious and nebulous group of big speculators known as "they," so that the little fellows could buy some of the same.* And many young investors who had stayed out of the market because they had been told what had happened in 1929, were now coming in. In a Seattle broker's office, one cocky young man said: "Father lost heavily in 1929, but then Dad didn't know how to do it."