FROM its inception, the stock market was meant to be a place where
businessmen could raise capital by selling shares in their enterprises,
and where investors could turn a profit when those enterprises
prospered. The market still serves both purposes, but today it is
judged less by what it does for businessmen seeking capital than by
what it accomplishes for investors seeking gain. In a time of high and rising taxes, investment in stocks is one of the
few ways by which a wage or salary earner can hope to become rich—at
least on paper. As a result, the number of Americans who own shares has
risen to 24 million. An estimated 76 million others own stock
indirectly through their holdings in pension funds and the like. Now
that the market has become the prime source of a second income for many
Americans, they are increasingly asking a puzzling question: What makes
the market go up—and down? With so many people and so much money involved in investments, the
market is inevitably fluttered by politics at home and alarms abroad,
by racy tips and wild rumors that whisper along Wall Street. No matter
that the rumors usually have the reliability quotient of the
market-rallying report two weeks ago that the Pueblo was about to be
released by North Korea. That word apparently came from Red China by
way of Paris. Last week the market fell and then rebounded in a swirl
of contradictory reports that President Johnson was
planning to call for wartime controls on the economy, that profits were
heading up. The New Managers In many cases, such “inside” information reflects a broker's
rationalization, a story confected for customers to account for a swing
in paper profits. Or it follows a line laid down by overnight
experts—financial writers required to fill columns of type with solemn
economic logic to explain short-term market moves that may reflect
neither economics nor logic. Too often, day-to-day stock gyrations
obscure a basic fact: markets are made and moved over the long haul,
not by vague forces but by the conscious decisions of men. The
important question is not what makes stocks move—but who. The most powerful men in the market are the managers of the
fastest-growing pools of investment capital—the mutual funds,
profit-sharing funds, and corporate-and union-pension funds. To a
surprising degree, the institutional managers are men in their 30s and
early 40s, and they are changing many of the old rules with new
attitudes. Instead of aiming to preserve capital or achieve steady
dividends, they are confidently committed to a cult of growth. In their
search for short-term gain, many are taking longer risks for larger
profits, trading in and out for the quick turn. They are a world removed from the robber barons of the '20s, who
manipulated markets for their own gain. But while their motives are
proper enough, and their actions usually beneficial, Federal Reserve
Chairman William McChesney Martin, the apolitical conscience of the
nation's economy, has warned that the managers of the institutions
wield a potentially dangerous amount of market influence.
