Ruder: Stocks Make Sense for Small Investors

WASHINGTON â€”  Securities and Exchange Commission Chairman David S. Ruder on Thursday said that the stock market is “exactly the placeâ€� for small investors, provided that stocks are picked carefully and held for long periods.

“Oh, I think that the stock market is exactly the place that the small investor should be,� Ruder said in an interview. “But I think that the small investor ought to have some realistic assumptions.�

While Ruder said the small investor “cannot engage in market-timing activities,� he praised investing in stocks as a long-term strategy. “That’s the way that people become immensely wealthy in the United States,� he added.

The SEC chairman, appointed in August, 1987, said U.S. financial markets were less risky now--one year after the October, 1987, stock market crash--because of improvements in the automated systems that speed the flow of buy and sell orders on U.S. exchanges.

The market is also less uncertain, Ruder said, because stock prices are not “overbought� now in a way that they were before the crash.

Ruder has been lauding the long-term approach to stock market investing during the past year. He has criticized large institutional investors several times for adopting short-term strategies that increase the market’s volatility.

But Ruder seems more satisfied now with institutional investors.

“I think most institutions are indeed long-term investors in the market,� he said. “The only question is what is the mix of your debt portfolio to your stock portfolio.�

Ruder said he personally saw no problem with the current U.S. wave of leveraged buyouts--in which small groups of investors buy a company’s stock from shareholders, borrowing money rather than selling shares to pay for the deal.

Such buyouts cause companies to have higher debt levels than have traditionally been considered prudent. But Ruder did not necessarily condemn these highly leveraged transactions.

Improved Efficiency

“I don’t purport to be able to decide what the best debt-to-equity ratio is for America’s companies,� he said. “If the market forces in the United States have moved to the point that there’s greater leverage for the companies, then that may be the right way,� he said.

Ruder also said he expects corporate streamlining to improve the economy’s efficiency.

Ruder’s views appeared to conflict with those of Federal Reserve Board Chairman Alan Greenspan, who said Wednesday that he was concerned about Wall Street’s growing volume of leveraged-buyout debt.

In a letter to the Senate Banking Committee, Greenspan urged banks to consider how these loans would fare during a recession or periods of high inflation.

Ruder agreed that some of these deals might fail, but said he “philosophically� favors allowing the leveraged buyout movement to continue, provided that shareholders are treated fairly.

Backs Lower Tax Rate

During the interview, Ruder also said margin requirements on stock index futures contracts are at their appropriate levels and that he still favors shifting regulatory jurisdiction over stock index futures to the SEC from the Commodity Futures Trading Commission.

Ruder also believes that a lower U.S. capital gains tax rate--such as that urged by Republican presidential candidate George Bush--would help the stock market and possibly dampen market volatility.