Common Stocks and Uncommon Profits and Other Writings

Partly as a result of all this, and partly as a cause helping to bring 
it about, basic changes have come in our laws and institutions as they 
affect the stock market. The Securities and Exchange Commission
has been created to prevent the type of manipulation and pool oper- 
ation that spurred on the rampant stock market gambling of the past. 
Rules are in force limiting margin buying to a fraction of what was 
formerly considered customary. But most important of all, as already dis- 
cussed in an earlier chapter, the corporation of today is a very different 

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thing from what it used to be. For the reasons already explained,
today’s corporation is designed to be far more suitable as an invest- 
ment medium for those desiring long-range growth than as a vehicle
for in-and-out trading. 
All this has profoundly changed the market place. It undoubtedly
represents tremendous improvement—improvement, however, at the
expense of marketability. The liquidity of the average stock has 
decreased rather than increased. In spite of breathtaking economic 
growth and a seemingly endless procession of stock splits, the volume of 
trading on the New York Stock Exchange has declined. For the smaller 
exchanges it has almost vanished. The gambler, the in-and-out buyer, 
and even the “sucker” trying to outguess the pool manipulator were not
conducive to a healthy economy. They did, however, help provide a 
ready market. 
I do not want to get involved in semantics. Nevertheless, it must be
realized that this has resulted in the gradual decline of the “stock
broker” and the rise of what might be called the “stock salesman.” So far
as stocks are concerned, the broker works in an auction market. He takes
an order from someone who has already decided on his investment 
course. He matches this order with an order he or some other broker
has received to sell. This process is not overly time-consuming. If the 
orders received are for a large rather than small number of shares, the 
broker can operate on a very small commission for each share handled 
and still end the year with a handsome profit. 
Contrast him with the salesman, who must go through the far more 
time-consuming routine of persuading the customer on the course of 
action to be taken. There are only a given number of hours in the day. 
Therefore, to make a profit commensurate with that of a broker, he
must charge a higher commission for his services. This is particularly 
true if the salesman is serving a large number of small customers rather 
than a few big ones. Under todays economic conditions, small customers 
are the ones most salesmen must serve. 
The stock exchanges are still primarily operating as a vehicle for 
stock brokers rather than stock salesmen. Their commission rates have 
gone up. They have only gone up, however, about in proportion to that 
of most other types of services. In contrast, the over-the-counter mar-
kets work on a quite different principle. Each day, designated members 
of the National Association of Securities Dealers furnish the newspapers
of that region with quotations on a long list of the more active unlisted 

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