The Uh-Uh Market

By William R. Doerner

SUPERMONEY

by "ADAM SMITH"

301 pages. Random House. $7.95.

In The Money Game, George J.W Goodman, alias Adam Smith, told all about the stock market surge of the mid-'60s: spiraling "gogo" mutual funds and other forms of seemingly instant wealth. Now that the party has, to put it mildly, ended, Smith takes an equally knowledgeable and witty look at the market's four-year hangover. Former go-go artists will enjoy Supermoney (already a bestseller) about as much as Napoleon would have liked War and Peace.

"Supermoney" is ordinary, old-fashioned wealth that has been transformed--and sometimes wildly inflated--by America's voracious capital market. Should Frank and Jim of Frank & Jim's Bar become lucky enough to find themselves the target of an ITT takeover, for example, they might well walk away with ITT stock worth 25 times their annual earnings. In the period of reckless conglomerateering a few years ago, countless paper fortunes were traded away by the big boys on Frank & Jim ventures. Then credit got tight, a lot of good buyers turned out to be terrible managers, and the system came appallingly close to collapse. Smith shows how both the commercial banks and the brokers just about went under in the superbad year of 1970.

The book is at its best describing the follies committed by people and institutions that are supposed to be the epitome of reason and prudence. During the great splurge, dividend money in the hands of aggressive investors was often looked on as merely another tool to manipulate stock prices. As a source of stable income, the philosophy went, "dividends are for old ladies." The eventual losers included some of the hitherto most conservatively managed money groups in the country--including university endowment funds, whose trustees were urged to pursue "unconventional investing" by no less influential a benefactor than the president of the Ford Foundation. Result: many funds got stuck with worthless paper.

Not everyone in the land of Supermoney is a villain. For instance, there is Warren Buffett, manager of a private investment fund that grew to $105 million at the incredible appreciation rate of 31% compounded annually over 15 years. Buffett was not exactly one of your Wall Street hotshots. Headquartered in a pleasant residential section of Omaha, he rarely talked to the security-analyst savants of New York City, and operated on the out-of-date theory that a stock should reflect a company's intrinsic value.

qed William R. Doerner

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