The Washington herald., 1912-04-13
HOW A sHREwD INVESTOR BUYS.
ny c. N KEYS.
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tcorsIlshtl
one day early in December bond
broker happened TO meet at his club in
New York man who Is known to be
one OF the shrewdeSt and wisest indi-
viduaI investors % the business class In
New York City. As the talk swung to
ward business. the broker commented
upon the way the bonds Of the Wabash
Railroad were acting in the market. They
had been sinking.
Il think said he. shat they would
not be a bad business investment. partic-
ularly the old mortgage bonds. Even IL
any trouble comes, they ought to be all
right"
The other man thought it over for a
minute before he replied.
They are all right" he said, land II
the market is depressed by commence
ment OF a receiyership, cali me up on the
phone as soon as you hear Of 1t, and
maybe III give you an order
Two weeks later receivership was an
nouneed. The broker called the business
man on tine telephone. The wouid-be
customer asked him to call again i'm
medlately after the opening Of the mar
ket. He did so. He told the customer
the prices and the general Wabash news
or the morning.
"TH take up to 10000 Of the second
5s." said the customer, "at a price up
to but not over S.
The order was not quite filed that day;
but II was filled q little later on. The
average price was between "a and IS. So
far as / know, all these bonds are still
held, although the price has been as
high as 100 since then.
nj. -
ing.
In this episode, there Is a real prin-
cipIe of investment buying. In putting
away money. the only thing that really
counts is value. Incidental things like
riots, wrecks. crops, receiverships. and
the divers other matters that are so
vital to men who are following specu-
lation In the market do not greatly trou-
BILE the real investor. He figures out by
actual rule Of fact that certain security
is worth so much money. Nothing else
matters. The stocks that come after his
security may drop TO nothing-they did
almost In the Wabash-but he knows
perfectly well that his bond represents
a loan secured by mortgage which has to
BE paid on at 100 II they disturb II at all
before the people who own the other Sc
curities get anything. and he rests con-
tent with that.
That Is investment The real investor
does not buy for large profits, because he
knows that large profits only grow where
large losses are liable. He uses common
sense TO make his purchases at times and
under circumstances that permit OF a pos
sible or probable growth IN value; but
that is incidental value" L. his real
gospel. A receivership TO him represents
only a possible opportunity to show his
common sense in buying.
One day in September, 1904. a bank Of
fcer from a country town upstate came
into New York to get counsel about an
investment he had made for the bank
some time before. It was $4,000 OF Chi
cago Terminal Transfer 4 per cent bonds
They had been dropping steadily. They
were worth about 70 when he began to
investigate.
rs II going broker" he asked.
1T Is" was the answer. probably IN
January: but in all probability your
bonds will be worth a good deal more
then than they are now. You just sit
tight II you have nerve enough, go and
buy some more"
de sat tight. The bonds defaulted In
January, and within a few days sold I'D
TO almost 100. 1t was inevitable that they
would: for all men knew perfectly well
that there were half a dozen railroads
that would have been willing to buy that
big railroad terminal in the heart OF Chi
cage at the face value of its bonds.
These incidents are told here TO illus
trate the first principle Of sound invest
msnt-namely. the study OF established
and inalienable value. The critics call II
intrinsic value; but few. and least OF
all the critics, know what intrinsic"
means.