Taken with a Polaroid camera, enjoyed sixty seconds later. The picture is of Johnny and Henry.

Wall Street: Page Four

There was one stock that was an exception to our flexibility rule. We bought it for long-term investment. The stock was Polaroid. It was by accident that I knew about Polaroid. My brother-in-law, Dr. Elkan Blout, was head of research at the company and told me about the 3-D glasses they were making. Some of you will recall that for a while movies were being made in three-dimensions. It required special glasses to see them. Once I got interested in Polaroid, because of the glasses, my upside-downness saw the value of the camera. I thought if that had been the first camera invented, you would have had a devil of a time selling an Eastman Kodak camera, even with its larger picture and negative. The Dreyfus Fund took a large position in Polaroid. Dreyfus & Co., of which I owned about fifty-one percent, did also. Polaroid was an outstanding growth company.

Dr. Blout introduced me to Hal Booth, Vice President in charge of advertising at Polaroid. I designed a few ads, which Hal ran. I include one here, with a picture of my son Johnny, and my bulldog Henry.

When I found it necessary to retire from the management of the Fund, for reasons of medical research, I had an important decision to make. Who should take my job as head of the Dreyfus Fund? A fine firm called Head Hunters introduced me to four candidates, one at a time. After each introduction, Howard Stein, in our own organization, began to look better and better. I offered Howard the position and he accepted. One of the best decisions of my life. When Howard took over the management of the Fund it was less than $1 billion. With his creative management the Dreyfus Corporation now manages over $70 billion. Howard is one of my best friends.

To shift to today’s markets for a moment. The indexes are not a large part of the investments, but they have a powerful effect. You can buy an interest in hundreds of stocks in an index on less than ten percent margin. But if you want to buy General Motors or Dupont, you have to put up fifty percent. This is one of the strangest things I have ever seen. It happened when I was looking the other way—not that I care one way or the other. But you have in those indexes a tail that can wag the dog.

It’s just possible the market of 1987 was an index market. You don’t have bear markets that quickly. While people were looking for the second leg of the bear market to go down, the whole bear market had happened, not just one leg, but a leg, an ankle and a foot. I don’t want the reader to get the impression that markets of today can be approached with the methods of twenty-five years ago. Let me say flatly they can’t. Today’s markets are no longer dominated by margin traders. The investor’s money is largely in the hands of professionals, mutual funds, and other funds. Many of these investors are not on margin. Although these managers are flexible, they don’t act in concert.

I’d like to be able to give you a suggestion as to how to manage money now, but I’m not competent to do so. However, I think some general advice is as good now as it was then. About fifty years ago, Tobias Stone, an excellent bridge player and friend, and I were dining sumptuously at Horn & Hardart’s Automat (thirty-five cents apiece). Stoney asked me a hypothetical question, what would I do if I had a million dollars. I asked him what he would do if he found himself on the moon. But his question stimulated a thought. I asked him, if he had a million dollars, would he bet it if someone offered him ten-to-one on the toss of a coin? He said, “Of course. I’d be getting so much the best of the odds.” I told him he was nuts. His first million was worth a lot more than the next ten million, so he’d be getting the worst of the odds. That brings us to the general subject of investments.

A young person with $30,000 and a good salary should not be unwilling to put that money in a speculative account. If it’s lost, it’s not a disaster since most of his capital is his earning power. On the other hand, an older person with a substantial amount of money and not much earning ability, I believe, should put twenty-five to forty percent of his money in very conservative holdings and the rest in the hands of someone who would try to make the money grow. No longer can one keep one’s money in dollar bills because of inflation. There’s no sure way to be safe and one should split the difference.

One other thing. Unless you have made a study of the market and have time to continue to study it, and have confidence in your judgment, it’s well worth a half a percent or one percent to put your money in the hands of professionals. Good professionals will keep up to date on current events and study the many factors that are involved in this complicated market, and earn their money. Of course some professionals are better than others. If one wants, one can diversify by putting his or her money in the hands of more than one professional. Let us leave Wall Street now. The last thirty years of my life have been occupied with medical research. It’s a different field, but in it objectivity and sense of probabilities are the same.

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