Slow Motors

The maxim used to be that a stock should sell, other things being equal, for about ten times earnings. The maxim now says "15 times earnings." This is known as Raskob's Rule, because one day in March 1928, John Jacob Raskob, then finance director of General Motors, walked up a gangplank on his way to Europe and remarked that 15-times was a proper modern ratio--that General Motors ought to have been selling at that time at 225.*

Since Raskob's Rule came from a motor-maker, quidnuncs laughingly pointed to automobile stocks as they studied belated earnings reports for the first six months of 1929. Though many another stock was up to 20, 25 and even 30 times earnings, only three prominent motor stocks were selling at "15 times" or more. Many were below the ten times ratio even in the bull market of 1929. The following table shows recent prices of a number of representative automobile stocks and the price they would command at "15 times" according to first-six-months reports:

Last week's closing Price at 15 times

Auburn 420 338 3/8 Graham Paige 24 24 Packard 153 1/4 151 3/4 General Motors 70 101 3/8 Hupp 42 1/4 60 5/8 Nash 86 1/8 117 7/8 Reo 21 3/4 25 1/4 Chrysler 71 5/8 122 1/8 Franklin 41 1/4 104 3/4 Hudson 82 5/8 199 1/2 Jordan 6 12 Studebaker 75 5/8 144 3/8

*It was selling at 187 1/4. Within two hours it sold at 199.