The Washington herald., 1912-12-28
Why the Investor in
Stocks Loses Money

tCopgTight. 1872. By C. NJ Keys, New York;
One day during a recent break in
the stock market. a visitor in New
York who lived in a small city near
Buffalo. happened to glance over the
stock exchange papers. In one of the
morning papers he observed with
amazement that the standard railroad
stocks, of which he had bought fifty
shares only a few weeks before at s175
a share, were selling in the market at
s14. He had bought that stock and paid
cash for it, considering it a safe invest
ment security. The quotation OF i154 not
only amazed him but It frightened him
He took a car downtown and call
ed upon the broker through whom he
had bought the stock. He introduced
himself, because he has done all his
business by mail, and asked what was
the matter with this particular railroad
stock. The broker told him that he
did not know, but that the market posi-
ton seemed TO be very weak. that there
was tremendous amount Of heavy SELL
ing, and that the support seemed TO be
feeble in comparison with the selling
The trouble was due, he said. to n legal
decision which had unsettled conditions.
He did not know how far the decline
was going to go. The customer said he
did not care anything about the market
aspect, but wanted to know about his
dividend. On this point the broker SEEM
ed dazed and uncertain. The CUSTOM
err grew more and more frightened and
finally asked IL il We're possible for him
10 sell the stock that day IL delivered
as soon as he got back home. The
broker said it was. The sale was made
and the customer took a net loss Of lit
tie over 1900 on his investment.
II happened that this broker was just
an ordinary stock broker without any
very large idea OF investment values.
or about anything except market huctua-
ton. He belonged In a class OF brokers
perhaps the least competent to guide
an investor in making outright purchases
of investment securities; for he figures,
In his daily tasks. on market fluctuations
to and fro on passing conditions which
make or unmake speculative fortunes
in the market. on money rates, and on
all the other passing, but very import
ant, conditions which surround the daily
operations of the stock exchange. The
investor, on the other hand, is figuring
on intrinsic conditions, simply safety of
principal and income, and a reasonable
assurance that he is not buying at in
hated prices. or selling at unduly de-
pressed prices.
This same investor talked over his ven
lures in the market later with an invest
ment banker. He stated that out of six
times that he had bought stock as an
investment. he had four times sold out
at loss, and that he has the other two
securities still.
why is It," he asked. that an Inv |
weston like me almost invariably loses |
in the stock market"
The banker, who has had great
many years of somewhat varied eN-
perience in matters Of investment and
speculation, and who has, on a great
many occasions, tried to rescue small
funds badly invested, thought 1t oyer
for a while before he answered:
II think" he said. lit is very largely |
because il takes a tremendous amount |
Of moral courage for an investor to sell
stock when II shows him profits;
whereas he takes losses through coward
Toe. which is human attribute"
You" he said, ''if your railroad stock
had gone up to $50 a share would not
have sold II. Perhaps nobody could
have induced you to sell, and anybody
that would have suggested selling would ,
be looked upon with suspicion. That Is
because you are an investor and not a
speculator, and because you bought the
stock for investment and not for the
sake of making profits quickly. On the
other hand you sold it at loss of q |
thousand dollars because you were
afraid, and It is very natural to be afraid 4
when you see values apparently crumble 4
away, when your common sense tells
you that perhaps you are in danger and
when almost everybody you turn to tells
you that in all probability something is
going to smash"
Speculation and investment are vastly
different sciences: for man who is
skiIlful IN one is seldom wise in the
other. The Spectator, turning to in
vestment. very often buys outright the
things that he has been trading In onl
margin, but he finds It very difficult to
hold them, because whenever. they go
up he is tempted to sell them and buy
something else. He does not like things
that stay around one price.
I know Of an investor. not a Spectator,
who tucked away a million dollars in the
bonds of one of our great cities; but he
could not keep them as an investment.
because, as he put 1t. "the money did
not seem to be working hard enough"
He regarded it as idle money, and he
finally began to use his bonds as mar
gin for various other enterprises and
ventures in securities
The investor. on the other hand. when