A Strong Stock Market

The increase in the margin rate from 50% to 70% was not anattempt to stem any rampant speculation on the part of thepublic—actually the market seemed technically quite strong,with public participation essentially dignified—but rather anattempt by the Federal Reserve Board to preserve the soundunderpinnings that existed in the market. Naturally, such amove had a momentarily chilling effect upon prices but if theFRB had been preoccupied with undue speculation, the increase might have been to the 80% oreven 90% level. Such an increases in the margin rate is a confirmation of a strong stock marketand since 19…,such increases have resulted in interim market highs over twelve months later.Obviously, there could be no guarantee that this would once again be the case, but if history isany guideline—and if business and corporate earnings were to continue on the samecourse—continued optimism over the outlook for the stock market would seem more prudentthan pessimism.

The margin increase underscored the good rise that stocks had enjoyed for the previousyear—and the fact that a 50% rate was maintained as long as it was pointed up the fact that therise was mainly conservative in that it was concentrated in the blue chips for the most part. In pastInvestment Letters we have voiced the thought that speciality stocks could outperform thegeneral market from this point. We continue to believe that this could be the case. For example,steel stocks tend to sell at certain fixed price/earnings ratios. Below a certain ratio they areconsidered good value—above a certain ratio, overpriced. If a company produces a uniqueproduct it is far more difficult for market analysis to place a numerical ratio upon the company’searnings. We have also contended in the past Letters that the stock market reflects masspsychology as well as the business outlook. When investors—both the public and theinstitutions—are nervous and pessimistic they definitely hesitate to buy stocks: they seek lowprice/earnings multiples and high yields. These same investors—when they are in an optimisticframe of mind—become for less preoccupied with yields and more wiling to pay a premium(highp/e multiples) for accelerated growth. If the public’s attitude towards the auto industry is anymeasure, then this period seems to have been one of optimism.

1. The title that best expresses the ideas of this passage is
[A] A Time to Sell Stock. ? ? [B] A Strong Stock Market
[C] Raising the Margin Rate [D] Price/earnings Ratio in Steel

2. When investors are pessimistic what do they do?
[A] They look to the FRB for help. [B] They buy steel
[C] They buy automobile stocks. ? [D] They look for high yields.

3. Why does the writer believe that speciality stocks could outperform the general market?
[A] Because analysis have difficulty in deciding upon a fixed price/earnings ratio.
[B] Because the activity had been limited to blue chips.
[C] Because the rise was conservative.
[D] Because of the FRB action.

4. When investors are optimistic, what do they do?
[A] They look for accelerated growth. [B] They buy speciality stocks.
[C] They look for high yields. ? ? ? ? ? ? [D] They are more prudent.

答案詳解（反白可見）：
1. B. 強勁證券市場（強市）。見難句譯注1和第一段第三句：“那種保證金率的增長有力的鞏固了強勁證券市場。從19……年起，這種增長導(dǎo)致一年來股市屢創(chuàng)新高。
A. 買出股票的時候。 C. 提高保證金率。 D. 鋼的市盈率。這三項都不對，它們只是文中涉及的方面。
2. D. 他尋找高業(yè)績（即公司的產(chǎn)量或投資收益）。見文章倒數(shù)第三句：“當投資者——公眾和團體機構(gòu)——緊張而又悲觀時，他們肯定在買進股票上舉棋不定；他們尋求低價格/利潤倍數(shù)和高額利潤。
A. 他們尋求聯(lián)邦儲備委員會的幫助。 B. 他們買進鋼材。 C. 他們買進汽車股票。
3. A. 因為在決定定價/利潤比上難以分析。見第二段第二句：“在過去的投資保證上我們一直表達了這樣的思想：行業(yè)股票在使用上可能超過普通股。我們依然相信情況可能就是這樣。舉例說：鋼股往往在一定價格/利潤比上拋出。低于一定比率，可認為股是好價值，而高于一定比率就是超價。如果一個公司就生產(chǎn)獨一無二的產(chǎn)品，那市場分析就很難對公司所得定出數(shù)比?！?br> B. 因為股市活動受蘭籌股所限。 C. 因為行情上升保守。這兩項見難句譯注3。
D. 由于聯(lián)邦儲備基金會的行動。
4. A. 他們尋求加速的增長。見文章倒數(shù)第二句：“同樣是這些股民，當投資者（對股市前景）持樂觀態(tài)度時，他們不太關(guān)注（公司的）業(yè)績（產(chǎn)值）而愿意以高價來購買具有高成長性的股票?！?/span>

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