The Soaring Sixties

The Soaring Sixties

The New “New Era”: The Growth-Stock/New-Issue Craze

In the 1959-1961 period, growth was the magic word. It was the corollary to the Soaring Sixties, the wonderful decade to come. Growth stocks (those issues for which an extraordinary rate of earning growth was expected), especially those associated with glamorous new technologies like Texas Instruments an Varian Associates, far outdistanced the standard blue-chip stocks. Wall Street was eager to pay good money for space travel, transistors, klystron tubes, optical scanners, and other esoteric things. Backed bu this strong enthusiasm, the price of securities in these businesses rose wildly.

By 1959 the traditional rule that stocks should sell at a multiple of 10 to 15 times their earnings had been supplanted by multiples of 50 to 100 times earnings, or even more for the most glamorous issues. For example, in 1961 Control Data sold for over 200 times its previous year’s earnings. Even well-established growth companies such as IBM an Texas Instruments sold at price-earnings multiples over 80. A year later they sold at multiples in the 20s and 30s.)

Soaring Sixties. Photo by Elena

Growth took on an almost mystical significance, and questioning the propriety of such valuations became, as in the generation past, almost heretical. These prices could not be justified on firm-foundation principles. But investors firmly believed that later in the wonderful decade of the sixties, buyers would eagerly come forward to pay even higher prices. Lord Keynes must have smiled quietly from wherever it is that economists go when they die.

Those who worked on Wall Street during the boom recalled vividly senior partners of their firms shaking their heads and admitting that they knew of no one over forty, with any recollection of the 1929-32 crash, who would buy and hold their high-priced growth stocks. But the young Turks held away. Newsweek quoted one broker as saying that speculators have the idea that anything they buy “will double overnight. The horrible thing is, it has happened.”

More was to come.