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.

答案详解（反白可见）：
1. B. 强劲证券市场（强市）。见难句译注1和第一段第三句：“那种保证金率的增长有力的巩固了强劲证券市场。从19……年起，这种增长导致一年来股市屡创新高。
A. 买出股票的时候。 C. 提高保证金率。 D. 钢的市盈率。这三项都不对，它们只是文中涉及的方面。
2. D. 他寻找高业绩（即公司的产量或投资收益）。见文章倒数第三句：“当投资者——公众和团体机构——紧张而又悲观时，他们肯定在买进股票上举棋不定；他们寻求低价格/利润倍数和高额利润。
A. 他们寻求联邦储备委员会的帮助。 B. 他们买进钢材。 C. 他们买进汽车股票。
3. A. 因为在决定定价/利润比上难以分析。见第二段第二句：“在过去的投资保证上我们一直表达了这样的思想：行业股票在使用上可能超过普通股。我们依然相信情况可能就是这样。举例说：钢股往往在一定价格/利润比上抛出。低于一定比率，可认为股是好价值，而高于一定比率就是超价。如果一个公司就生产独一无二的产品，那市场分析就很难对公司所得定出数比。“
B. 因为股市活动受兰筹股所限。 C. 因为行情上升保守。这两项见难句译注3。
D. 由于联邦储备基金会的行动。
4. A. 他们寻求加速的增长。见文章倒数第二句：“同样是这些股民，当投资者（对股市前景）持乐观态度时，他们不太关注（公司的）业绩（产值）而愿意以高价来购买具有高成长性的股票。”

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