Detroit evening times. (Detroit, Mich) 1921-1958, 1942-03-16
Cautious Buying
Of Stocks Urged;
Averages Drop
BY LEWIS HANEY
Professor Of Economics, New York
University.

University.
II must be admitted that
market action has not yet given
definite indications that the
bottom has been touched. Ac-
cordingly, the specializing trader
Will do we'll 10 remain cautious.
Any early rallying tendencies
should now be followed with
hesitation, and care be used to
avoid overeXtenSlon.
The composite average OF 100
stocks has definitely broken
through the 1894 level, sug-
costing that still lower levels
are a possibility.
But when all is said, | remain
impressed with the conclusion
that many good stocks are now
cheap and that the investor Tor
the long pull, who pays more
attention to yield and less 10
price fluctuations. may do we'll
10 increase his holdings OF care
fully selected stocks At this gen.
eral level For this conclusion,
/ rely on several bases, as fol-
lows:
First. the broad average re-
ferrcd to above shows that
stocks are not often available
at the present levels under SO.
l have before me a chart going
back through 1921. In all the
years from then 10 now. except
for part of 1924 and most OF
1882, one hardly had chance 10
buy stocks so cheap. Momcn-
tarily IN carly 1888 and late
1888 one might have got some
under 81. But If one had bought
whenever the average was UNI
der "a. one would have done
well. although the 1892 low was
1851.
Second, stocks are cheap in
terms of known-earningS and
dividends. Plenty of them seem
10 discount fully the prospects
for reductions on account OF the
war.
l compute regularly an av-
erage of the yields OF % repre-
sentative StockS-Even IN March.
1888, the highest average yield
Of the dividend payers was only
a little over 7 per cent.
Now the yield is 81 per cent.
Only one of the group tAmcrl-
can Locomotlve) pays no diNl-
dcndS. II VIII he generally con-
coded that when group Of good
stocks falls so low that yield
of s per cont results there j.
reason TO begin looking for boz
tom.
More conclusive. however, Is
the fact that high grade cor
poratlon bonds now yield only
about 3 per cent This is not
much above third of the stock
yield.
Third, 7 would emphasize the
fact that the belated decline of
such high priced issues as Allied
Chemical, Du Pont lnterna-
tlonal Business Machines and
others. is reminiscent OF 1892
and the later stages Of bear
market
Finally, I do not believe that
the leaders of organized labor
are going 10 get away with their
scheme to take control Of bust
ness. And / do not believe that
Congress Is going 10 tax business
10 death.
do believe that ConSId-
cradle number OF well managed
we'll osEar work THIS is con-
flrmed by the fact that good
many are now well above bot
tom and have been holding
firmly. For example, look at
Bethlehem Steel, ChrySler, Cen
eral Motors, Anaconda. Douglas
and AtChison.
There is something reaSSurlng
about the way General Motors
holds at 80. Steel at 30 and At
Gibson at So y.
Many new lows are being
made. Takes are going 10 hurt
and unfavorable dividend actions
are already appearing. The New
Deal is still with US. No SuS-
tanned rise is likely 10 begin
here. Traders should be very
cautious
But many stocks now look
hotter than money 10 mo