the institutions which sold stocks automatically when the proportion of common stock rose from 30 to 40 or from 40 to 50 per cent would obviously not be able to capitalize on a steadily rising market. Consider, for example, the rise in stock-market prices from 1939 at 100 to 442 in 1959. The institution that put itself in such a strait jacket was bound to lose in such a period. Of course much of the rise reflected inflation rather than speculative influences.
The formula approach was not even dead in the 1950s. H. L. Wells, financial officer of Northwestern, referred to a formula at Northwestern in the early 1950s: one-third in bonds, one-third in common stocks, and one-third in real estate. According to a vote in 1955 of the trustees of a men's college with endowments in excess of $50 million, when equities exceed 70 per cent of the portfolio, the committee on investments is to report back to the trustees.1
Perhaps the most important reason for the failures under the formula approach is that the underlying theory of this procedure is that cyclic fluctuations explain the movements in value and yield. But this leaves out of account the long-run (secular) movements.