Investor Trading

Common-stock ownership carries with it all the risks of ownership, and these include the fluctuations in our national economy. Should business conditions be good, then a given company may enjoy continued success, and its dividends may be steady and even increase; should general business conditions take a turn for the worse, it may happen that earnings will fall sharply and the dividend rate may be reduced or perhaps even suspended for a period of time. It may be emphasized here that there are a few exceptions to the above statements, because certain essential industries (utilities are a good example) feel such fluctuations in business conditions far less than others; since they represent what might be called basic or “defensive” stock ownerships, their dividends may continue without interruption, although a change in rate is sometimes justified. There are numerous public utilities which have paid steady dividends for over half a century, which is a strong recommendation of them for the investor of modest means (see Appendix D).
Who owns common stocks? A recent census of shareholders, as prepared by the Department of Public Relations and Market Development of the New York Stock Exchange indicated that approximately 12,500,000 people (1 in every 8 adults) owned shares in publicly held corporations. Women outnumber men (52.5 per cent), the typical shareholder is forty-nine years of age, and what is most striking of all of the statistics is the fact that the average shareholder’s median income is $7,000, while only 23 per cent of shareholders have incomes of over $10,000 per year!
The rate of return from any stock investment will depend upon two things: the price paid for it, and the dividend received. For example, suppose that Fred Frostingcake owns twenty shares of Supergadgette Manufacturing Company and that he bought these shares at a price of $10 per share (we omit any commission charges at this time) ; suppose further that during the year Fred has received a total dividend of 50 cents upon each share. Then his rate of return is 5 per cent, which is obtained by dividing $0.50 by $10. As long as this dividend remains

unchanged, his rate of return will also remain unchanged, since the rate of return is entirely independent of the current market price of the stock; for the moment, at least, Fred is scarcely interested in the current price. Suppose, however, that Fred is in need of cash because his wife is about to have a baby; he wants to sell the stock, but first would like some idea of what the current price may be. How does he go about finding out?