IIs, blocks, 1971
The money beat Brokers drowned in wave of trading Moskowitz By MTLTON MOSKOW1TZ One cry you don't hear any more from Wall Street is "people's capitalism." That was the slogan dreamed up about 15 years ago by the New York Stock Exchange to get people to take their money out of the bank and put it into the market. This is a beautiful case history of a strategy that worked. It worked so well it backfired. Over the past 15 years, more and more Americans have been indulging in the delicious game of buying and selling stocks. This should have been good news for the brokerage houses. They asked for this business and, as you know, you can't play this game without going through a broker. But guess what? The influx of business proved to be too much for the brokers. They couldn't handle it. Stock certificates got lost. Checks were thrown away. Bills were late. Dividends that were supposed to be forwarded to customers piled up in the back office. ; Now stockbrokers, like all brokers, make their money on •commissions. They get it both ways, buying and selling. So ;when trading increases, the brokers should be deliriously ;happy. The reverse was true here. Increased trading in ^stocks brought the greatest disaster in brokerage house •history. ; Two of the biggest houses on Wall Street, McDonnell & €o. and Dempsey-Tegler, closed their doors. Another giant, .Hayden, Stone, Inc., was merged into two other firms. And ;Goodbody & Co., which ranked among the first five brokers in dealings with the general public, was in such bad shape lit had to be rescued by the biggest broker of them all, .Merrill Lynch, Pierce, Fenner & Smith. : During 1969 only 12 of the 32 largest brokerage houses made money on their commission business. ; You might be interested to learn that the firms having •the greatest difficulties are the ones which service you, the. Ordinary investor who saves up to buy 10 shares of General [Motors or who takes a $1,500 flier on a stock that has been touted to him. • Virtually all of these brokers ran in the red last year on .'this commission business. EVen Merrill Lynch took a $6.4 • 'million loss. «#SIM " ™SSi«I ;; Which brokers are in good shape? Well, here are the three •which led the parade in profits: Salomon Brothers; Donald- ison, Lufkin & Jenrette; and Goldman, Sachs & Co. If you • ;never heard of them, that's not too surprising. They're not interested in your account. They do trading for the big in; in; .stitutions—banks, mutual funds, pension trusts. When they ; ;buy and sell, they deal in huge blocks—10,000 shares or more. ;; The market virtually has been taken over by these insti- • -tutional customers. Last year they accounted for 62 per cent : of the dollar value of all trading on the New York Stock ; Exchange; individuals accounted for 38 per cent. That rep. rep. resented a complete reversal of the picture in 1960, when ; individuals accounted for more than 60 per cent of trading. !. You can see how this works on any given day. Take Dec. .10, 1970, for example. On that day Pan American World • Airways was the second most heavily traded stock with ! a volume of 153,700 shares. More than half of this volume— ; 81,400 shares—came on a single trade. Another heavily • traded stock on that day was the American Broadcasting ; .Co. Of the 139,300 shares of ABC stock traded on December ;10 no fewer than 117,700 came ,on a single trade. And who brought the buyers and sellers, together? Why, Salomon Brothers. • ->• • There's a very old saying, "He who pays the piper calls the tune." It's clear who's paying, the piper on Wall Street- land it's not you. Not unless you're running a mutual fund or heading up the trust department of.a bank.