general. Whether the specific differentials in price/earnings ratios
are “justified” by the facts—or will be vindicated by future devel-
opments—cannot be answered with confidence. On the other hand
we do have quite a few instances here in which a worthwhile judg-
ment can be reached. These include virtually all the cases where
there has been great market activity in companies of questionable
underlying soundness. Such stocks not only were speculative—
which means inherently risky—but a good deal of the time they
were and are obviously overvalued. Other issues appeared to be
worth more than their price, being affected by the opposite sort of
market attitude—which we might call “underspeculation”—or by
undue pessimism because of a shrinkage in earnings.
In Table 18-9 we provide some data on the price fluctuations of
the issues covered in this chapter. Most of them had large declines
between 1961 and 1962, as well as from 1969 to 1970. Clearly the
investor must be prepared for this type of adverse market move-
ment in future stock markets. In Table 18-10 we show year-to-yearA Comparison of Eight Pairs of Companies 471TABLE 18-10. Large Year-to-Year Fluctuations of
McGraw-Hill, 1958–1971a
From To Advances Declines
1958 1959 39–72
1959 1960 54–109^3 ⁄ 4
1960 1961 213 ⁄ 4 –43^1 ⁄ 8
1961 1962 181 ⁄ 4 –32^1 ⁄ 4 431 ⁄ 8 –18^1 ⁄ 4
1963 1964 233 ⁄ 8 –38^7 ⁄ 8
1964 1965 283 ⁄ 8 –61
1965 1966 371 ⁄ 2 –79^1 ⁄ 2
1966 1967 541 ⁄ 2 –1121967 1968 561 ⁄ 4 –37^1 ⁄ 2
1968 1969 545 ⁄ 8 –241969 1970 391 ⁄ 2 –10
1970 1971 10–24^1 ⁄ 8
aPrices not adjusted for stock-splits.