Come Back, Little Trader

Individual investors, take heart - Senator Bentsen has put on his white hat and he's going after those Big Money Managers with a vengeance.

At that hoped for time in the future when the institutions have been
properly chastised and the small investors come gamboling back into the
stock market, they will pause to listen to fading hoof beats and ask:

“Who was that Masked Man?”

A hearty “ HI HO, White House” will echo as someone answers: “Why,
that’s Lloyd Bentsen!”

The junior senator from Texas has staked out his claim as defender
of the rights of small investors and stern task-master to institutional
money managers. His Stockholders Investment Act of 1973-to be continued
in 1974-strikes at a problem many investors have been worrying about for
the last several years: institutional domination of the American
securities markets. Senator Bentsen’s motives may be suspect since he is
emerging as a potential presidential candidate and there are more
individual investors than money managers. However, his turning the
spotlight of national publicity on the problem is welcome, indeed. Also,
Mr. Bentsen may prove, as did Joseph Kennedy as first chairman of the
Securities Exchange Commission, that it takes one to know one. Prior to
his interest in politics, Mr. Bentsen was noted for his controlling
interests in Texas banks, insurance companies and mutual funds, the very
institutions whose playhouse his legislation is designed to mess up.

Hearings conducted by Bentsen’s sub-committee on financial markets
reveal the thrust of his contemplated legislation. First, he wants to
bring the small investor back through liberalized taxes on gains and
losses. Secondly, he wants to put institutional holdings under a
microscope to see if a few changes in limitations on concentration might
help equity capital markets in general.

Monkeying around with
the tax laws generally tends to make a bad situation worse, but Bentsen
believes investors deserve a break in writing off losses on investments
and a capital gains tax that would encourage the taking of profits and
reinvestment rather than locking away appreciated stocks for the milder
bite of estate taxes. Stockbrokers certainly agree with this approach
since it would generate more commissions and prompt the investor, who
would rather “lose the whole damn thing than pay one penny to Uncle
Sam,” to jar loose from lock box stocks. Some analysts estimate that the
change proposed by Mr. Bentsen could produce some $20 billion in capital
gains taxes that would never be generated otherwise.

But thinking that these suggested changes will look the same when
and if they ever come out of the congressional meatgrinder is like
planning to hit the four-horse super exacta.

The finger of shame Bentsen points at institutional investors also
points at the basic problem in the securities market today:
concentration of institutionally managed investment money in a handful
of securities while the rest of the list languishes. (See TM, “The
Market Sheds a Tier,” January, 1974).

“Suspicions confirmed!” shouts the individual investor when he reads
some of the statistics revealed by Senator Bentsen. Institutions account
for 70 percent of the trading on the New York Exchange. The eight-man
investment committee of the largest bank trust department manages $21
billion worth of common stock. One large bank trust department has
concentrated more than 20 percent of its discretionary stock market
investments in two issues.

The banks, in fact, seem to be the main target of Bentsen’s
fusillade, and rightly so. While mutual funds are undergoing a
persistent and perhaps terminal case of net redemptions, bank trust
departments’ managed assets continue to grow rapidly, thanks primarily
to the growth in pension fund money. Such assets currently exceed $150
billion, and the figure is increasing by over $14 billion a year,
according to Bentsen. Most of this is managed by

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