The Racine Journal-Times Sunday Bulletin from Racine, Wisconsin on July 18, 1965 · Page 30
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The Racine Journal-Times Sunday Bulletin from Racine, Wisconsin · Page 30

Racine, Wisconsin
Issue Date:
Sunday, July 18, 1965
Page 30
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RACINE SUNDAY BULLETIN Sunday, July 18, 1965 Roger Spear Says: Dow-Jones Averages Can Be Misleading Editor's Note: Because of the recent'performance of the stock market, this analysis of the Dow-Jones Industrial Average of 30 stocks has been made by investment adviser Roger E. Spear whose syndicated column, "Successful Investing," is carried by the Journal-Times. BABSON PARK, Mass. — An analysis of the Dow-Jones Industrial Average reveals large discrepancies between component stocks and the Average. During much of the October '62-May '65 interval it was apparent that the Dow-Jones Industrial Average was a misleading indicator of the action of individual stocks not in the Average itself. For the most part the general market rise was a blue chip affair with higher quality secondary issues joining the rise in 1964. Many third echelon and speculative issues did not start to show any real progress until late in 1964 and early 1965, Discusses Selectivity The apparent failure of the Dow to reflect over-all market sentiment is much less evident when a sharp selloff occurs. At such times the DJIA is an excellent pulse of over-all market health for the simple reason that a swift decline is typically not selective, whereas the subsequent recovery after its initial bounce-back phase usually turns into a very selective affair. But even within the Dow itself we find remarkable variations of price behavior. To say the Dow is high or low is not really meaningful until you scrutinize the behavior of the component stocks. For example, on May 14, 1965, the Dow closed at an all-time high of 939.62, yet all but one of the component issues were off from their respective all-time highs. If you will refer to the accompanying table you will find in column No. 1 the aH- time high for each of the 30 Dow stocks and the year in which each such high was attained. Each price has been adjusted for all subsequent splits and pertinent stock dividends. Column No. 2 gives the closing price of each issue on DOW EVALUATION TABLE (1) All-Tlme High (2) Closing Price As Of J/14/65 (3) Closing Price As Of 8/28/65 (4) Chunge From AIl-Tlme Highs To 8/14/85 Closing Prices (6) Change From 5/14/65 Close To 6/28/65 Close (6) Recent Clo.slng Price 7/7/65 (7) Change From 6/28/65 Close To 7/7/65 Close Allied Chemical Alcoa American Can Am. Tel. & Tel. Amer. Tobacco Anaconda Bethlehem Steel Chrysler duPont Eastman Kodak General Electric General Foods General Motors Goodyear Int'l. Harvester Int'l. Nickel Int'l. Paper Johns-Manville Owens-Ill. Glass 66 ('61) 133 ('56) 52 ('58) 75 ('64) 56 ('61) 88 ('56) 59 ('59) 65 ('64) 294 ('64) 85 ('65) 107 (-65) 108 ('61) 110 ('65) 57 ('65) 44 ('65) 94 ('65) 45 ('59) 75 ('61) 60 ('65) Procter & Gamble 102 ('61) Sears, Roebuck S. O, of Calif. S. O. of N. J. Swift & Co. Texaco Union Carbide United Aircraft U.S. Steel Westinghouse Woolworth 77 ('65) 76 ('65) 93 ('64) 65 ('65) 90 ('64) 74 ('60) 80 ('65) 109 ('59) 65 ('60) 33 ('65) 55 79 47 70 38 66 38 55 261 84 106 83 106 56 38 94 35 62 59 74 73 70 78 53 80 69 78 52 54 30 47 71 43 66 34 59 35 42 228 77 92 78 92 48 36 81 30 57 53 71 66 67 76 45 76 59 • 68 46 44 28 -17% -41% -10% - 7% -32% -25% -36% -15% -10% - 1% - 1% -23% - 4% - 2% -14% -15% -10% - 9% - 6% -11% -11% - 8% -24% -13% - 8% -13% • 6% -13% -14% - 5% Unchanged -14% -22% -17% - 2% -27% - 5% • 8% -16% -18% -11% - 7% - 3% -52% -17% - 9% -14% - 8% -10% - 4% -10% - 4% - 3% -15% - 5% -14% -13% -12% -19% - 7% 48 73 47 68 37 64 35 46 233 81 99 79 97 51 37 84 31 57 55 73 67 70 77 46 77 59 71 47 48 29 DJIA 939.62 ('65) 939,62 840.59 -10.5% 870.77 + 2% + 3% + 9% -t-3% -f9% + 8% Unchanged + 10% + 2% -t-5% -f8% + 1% -f8% + 6% + 3% •)-4% + 3% Unchanged -H4% + 3% 4-1% + 4% + 1% + 2% + 1% Unchanged -^4% + 2% + 9% -^4% -f3.6% May 14, 1965, the aforementioned date at which th Dow- Jones Industrial Average peaked. Column No. 4 gives the percentage change from each issue's all-time high and its respective closing price on May 14. Note that at that date two stocks—Alcoa and U.S. Steel—were off 41 per cent and 52 per cent from their record highs; two others — American Tobacco and Bethlehem Steel—were off 32 per cent and 36 per cent respectively; four more—Anaconda, General Foods, Int'l Paper, and Procter & Gamble—were each off at least 22 per cent. One Stock Didn't Drop Ten additional Dow stocks were down at least 10 per cent. So far, that makes 18 issues down 10 per cent or more. Of the remaining 12, four were off at least 5 per cent from their all-time highs. In fact, the only stock that was not down from its all-time * * * high on May 14 was Int'l Nickel and that stock was virtually unchanged. What this all means is clear enough: despite the fact that the Dow Average hit a record high of 939.62 on May 14, only one of the issues that make up the Average managed to equal its historic peak at that time. If your own portfolio seemed to lag the Dow last May, you should not feel that you somehow missed the boat. All but one of the Dow stocks missed the boat, too! Adding up the percentage declines and dividing by 30 you come up with -15. per cent, the average decline for the individual Dow stocks from their historic highs to May 14, 1965. How can the stocks be off when the Average itself is at record peaks? Basically, the root of the problem lies in the behavior of high priced stocks which by 1 2.278. substantial dollar (as opposed to percentage) changes can greatly distort the behavior of a price average. Or to look at the matter in another way: a stock price average can hit a record high when its high priced stocks are off the least from their respective highs! Column No. 5 in the table shows the individual percentage declines registered by Dow stocks during the recent selloff. Note that whereas the Dow Average fell 10.5 per cent, thirteen of the issues were off at least 12 per cent and that a total of four were down at least 15 per cent. A similar disparity showed up in the rally through July 7. The Dow advanced 3.6 per cent from the low of June 28, but individual gains ranged from no change to plus 10 per cent Incidentally, if all the Dow stocks had hit their all-time highs on the same date, the DJIA would be 1,114 based the present divisor of Economists Surprised by Rousing 2d Quarter on NEW YORK—W)—The nation's economy sprung a pleasant surprise on many economists and did better in the second quarter of the year than they had guessed it would. Some government officials described the advance as "bullish" last week and said it's likely that the pace of economic growth will speed up a bit in the months to come. Others, though, still look for a slight fall-off. The Gross National Product — sum of all goods and services produced — in the April-May -June period rose by $9.2 billion, not nearly so big as the $14.2 billion gain in the first quarter, but still better than many predictions, some as low as $6 billion. Weak Sectors There were two factors that had led to gloomy forecasts for the second quarter: 1. Automobile buying was expected to drop off after the phenomenal first quarter, when there was much "catchup" buying following the auto strikes late last year. 2. Buying for business inventories was expectfed to decline, particularly steel purchases. In the first quarter steel users built . up inventories against a possible strike May 1, which didn't occur. Neither factor had as drastic an effect as had been feared. Auto buying continued strong. Steel purchases continued at a high rate as users kept up inventories against the Sept. 1 strike threat and apparently in response to heavy demand for their products. GNP Data The second-quarter advance —the 17th straight — lifted the Gross National Product to a record annual rate of $658 billion, compared to $622.6 billion for 1964 as a whole. President Johnson's Council of Economic Advisers reported the figures to him on Thursday and generally expressed optimism for the future. The report said that manufacturing industries have "reached an historic turning point." . "An extended period of slow growth of factory output, of declining' job oppor­ tunities and of relatively low investment in factories has come to an end," the report said. The rapid rise in the gross national product has been the main reason for the surge in jobs. Non-Farm Jobs The Labor Department said Tuesday that non-farm employment gained strongly in June, with all major industry divisions advancing. There were 60,807,000 em­ ployes on non-farm payrolls, up 750,000 from the May total. Manufacturing jobs climbed to 18,068,000, highest since the wartime peak of November 1943, when the figure was 18,074,000, "We are within a whisper of the highest level that manufacturing e m p 1 oyment has ever attained in the United States," said a department official. Steel production was declining slightly, probably reflecting the first signs of easing demand since users began building strike-hedge inventories at the turn of the year. Production for the previous week was reported down for the third straight week. However, the decline was only 1 per cent and output was still 14 per cent above the same week last summer. Auto Sales Off Auto sales in the first 10 days of July fell about 11 per cent from the selling rate in all June, a decline considered about normal for July. But, as with the steel figures, auto sales were ahead of the year-ago figures. Sales of 197,670 cars were up 11 per cent and were a record for the July 1-10 period. Chevrolet and ,F o r d sales were each down 7 per cent. Chrysler, Oldsmobile, Pon- How the Dow-Jones is Computed The industrial average is based on 30 stocks, the rail average on 20 issues, and the utility average on the prices of 15 utility company stocks. Originally, the computation consisted simply of adding together the prices of the component stocks, and dividing the total .by the number of stocks involved ("The Dow started with 12 stocks in 1896, grew to 20 in 1914, 30 in 1928). However, assume that we are dealing with three stocks selling at $5, $10 and $15. Their average is $10. If we assume that the $15 stock is split 3-for-l and that on the same day the split stock advances to $6 and that the $5ij,,c . , ,j u .• ^ • stock gains $1 to $6, and thatjf ^ 7"/,^ divided by ^ '3 to reflect the forthcoming plus 6 plus 11 divided by 3 or 11.67. But as time passed it became evident that this method gave undue "weight" to some stocks that were not only high priced but had a habit of splitting. For example, the price of duPont, split 3 times since 1925 in varying amounts, would now have to be multiplied by 28 before adding it to the prices of other Dow stocks in the calculation of the average! A neat little trick gets around this difficulty quite nicely. Nowadays, on the evening be- for a split or other change, theoretical computation is made. In the previous example the liiii usiness views N iBiiii tiac, Dodge and Cadillac reported their best July 1-10 sales record in history. International Business Machines Corp., the nation's, 13th-biggest company measured by sales or revenues, reported that revenues .and earnings in the second quarter set records for any three- month period. Earnings were $117 million or $3.32 a share on revenues of .$869 million. The previous three-month high was the first quarter. Westinghouse Electric Cor^. sales and earnings ia ^Iso set records for the second quarter. Earnings of $26.5 million of 7\ cents a share topped the year-ago period by 57 per cent. Sales were $606.6 million. P. Lorillard Co., which makes Kent and Old Gold cigarets, elected Manuel Yellen, executive vice president, as its new chairman. He also replaces Morgan J. Cramer as chief executive. Cramer became chairman of the company's international division. Fri. and Sat., July 23 and 24 10 A.M. to 10 P.M. FOR DEMONSTRATION of ' All New General MC-8 2-WAY RADIO • FOR HOME • BOAT • CARS • TRUCKS BUSINESS • INDUSTRIAL Feat-ures Suppressed Carrier if Dual Conversion ^ Built-in PA System if Silent Service Operation if 24 Channels PLUS CAP See Our Used Equipment Specials FREE Coffee & Kringle Door Prizes Area CB Call Directories Available Here COLORTRON SALES & SERVICE Complete CB Line of Antennas and Accessories 1613 Douglas Ave. . 637-5884 Starz the $10 stock moves to $11, the "average" is 6 plus 6 plus 11 divided by 3 or 7.67, which is down from the prior day's average of 10 even though all three issues rose. Until 1928, the technique used to avoid this obvious distortion was to multiply the price of the split stock by the amount of the split. Thus, our average would be 6 times 3 SI'iRVICF-S AIR CONDITIONING For Your Complete Air Conditioning and Refrigeration Requirements • COMMERCIAL • RESIDENTIAL • ROOM AIR CARRIER Authorized Dealer BELLE CITY REFRIGERATION 1321 Illinois St. 634-7765 Gene F. Starz has joined the marketing services staff of Modine Manufacturing Co. as a marketing analyst. Starz received his B.A. degree in busi- n e s s administration from Hamline University, Minneapolis, Minn, and has completed a d d i- tional studies in s t a t i s tics and income tax accounting. He was formerly associated with Brown & Bigelow Co., St. Paul, as market planner. A former Racine man, Vincent J. Webers, has been named a research associate at the Du Pont Co. photo products research laboratory at Parlin, N.J. The son of Mrs. Leo Weber of 1653 West Blvd. and the late Mr. Webers, he is a 1943 chemistry graduate of the University of Wisconsin and received a doctorate in organic chemistry from the University of Minne- isota in 1949. He joined Du ^ As a result of numerous'Pont in 1949 and has been I splits since 1928, the divisor with the photo products de- for the 30 industrials is now'parlment at Carlin since 1953. down to only 2.278 (during the Several patents in fields re- Depression, it was over I0).ilated to photography have An unfortunate result is that been issued in Doctor Weber's the Dow daily swings, in|name. terms of points, are now often wider than of any of Harry W. Kessler has been the component issues. named Virginia district man— Mner for the Johnson Waxj j Household Products Division. ; Kessler joined Johnson as a ! salesman in 1952 and in his Imost recent assignment had ibeen office administrator in Racine. split and this result, $5, would be added to the prices of the other two stocks $5 and $10. The total, $20, would then be divided by the day's actual average of 10 and the result, the figure 2, would be the new "divisor" for pui"poses of calculating the average the following day. Thus, in the example, our average is not 23 divided by 3, but 23 divided by 2 or 11.50. But all is not sweetness and light: the current method results in lower divisors every time there is a split. and Bettendorf, Iowa, and the facilities of Kern County Land Co. at Bakersfield, Calif. The agenda also includes stops at Case installations in Vierzon, France, and Leeds, England, plus world pleasure stops. Alvin Shovers was elected president and Frank Fiala secretary of the Association of Mutual Service Career Agents 0 f Wisconsin at the association's meeting in LaCrosse recently. It was the first election of a Ra- -iresident in the associa- . . o .. .J nine Shovers years. PRINTING • lakeside • Printing Compani Milzl and Harn* Smith -tlh St. Dial «.1,'i-Jllil We Carrj the Allied Union L»bel • STORAGE • MERCHANTS • MOVING • LOCAL AND LONG DISTANCE 1215 Stote St. Agents NORTH AMERICAN VAN LINES . "World Wide Movers' ' Thirty-five J. I. Case Co. dealers, distributors and em­ ployes from Australia will \ isit the firm's Racine head- luarters and plant Tuesday, during a five-week world tour awarded them on the basis of; sales performance. While in the United States, the group will also visit Case plants at Rockford, 111. and Burlington, AUTO GIASS We carry complete windshield and window replacement stocks for all popular make cars and trucks. • Fret Estimatts • Installed while you watch • Insurance-Approved Servke M\ Union Workmanship ^AUTO PARTS 1314 Albert St. 632-8808 Profit leads to new pleasures FORSAVERS You get more out of living as you put more into saving. Start now, save regularly and when next summer rolls around you'll be money-wiser, tool Wise people save ahead to get more out of life. Join these clever people who know what they want and how to get it quickly, safely. As you save, your cash accumulates and we add generous earnings. Plan ahead by savings. Enjoy a special vacation, buy those extra luxuries, or build a nest egg for your future. UNION SAVINGS AND LOAN ASSOCIATION Downtown On College at Fifth St,

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