The Washington herald., 1914-04-18

! paid their interest for q while and then
| came b receivership and at the present
| time they can be bought In almost any
amount from 10 to Il cents on the dollar.
That Is an extreme case Of bad nnanc-
ing.
At about the same time a group Of men
| bought out the old Rock Island Rail-
way. In doing this. they created a bond
| issue called the Chicago. Rock Island and
Pacific Railroad Company 4 per cent
bonds Of 2002 These bonds were sold to
the general public at prices ranging from
20 to 90. 1t is now expected that they
will default their interest on May 1 next
| and consequently the bonds have been
selling heavily In the market at about 70
cents on the dollar.
Starting with the institutions, II appears
that out OF the SIS. .o0o. 900, par value, Wa
bash Pittsburgh first mortgage Is, instltu-
tions whose holdings are recorded in the
public press. owned about IS. 900 par
value on the first of January. 1913. That
is very large proportion, being nearly
quarter Of the whole issue. II Is an
extraordinarily large propotion when one
considers that II is now some years since
they ceased to pay interest, and that
institutions as a rule. do not continue TO
hold bonds or other securities after a
default
IN tne case OF the ROCk Island IS. the
individual investment was much larger
in proportion than in the case of the
Wabash Pittsburgh Is. but It appears aIs1
to be fact that the bonds were not
sold TO the same class OF investors who
bought the Wabash Pittsburgh 4s. Most
Of the people who were attracted by the
very high income offered by these Rock
Island bonds were people who bought
them knowing perfectly well that they
were not a perfectly gilt-edge investment
On the contrary they were bought much
as one buys a stock, in the expectation
of getting a high return and also possibly
Of making some money in the course Of
time. The great bulk of the Rock Island
Is is supposed to be owned by what
might be called middle-class investors.
men Of substantial means. who have a
considerable diversity in their funds, and
who will lose only a relatively small pro-
portion of their income through a de-
fault. They are not widely held by wOm-
en-. The writer has never seen them rec
commended by any conservative banking
house as an investment fit for women
and does not believe that they have ever
been SO recommended. OF course a great
many women hold them. for there are
lots OF women who will buy anything that
yields a big return and who take mighty
little pains to find out whether it is
worth while buying or not.
As a matter OF fact. probably a good
third OF this issue was never distributed
at all. but remains in the hands OF very
wealthy men who can afford the loss.
The biggest holder of the bonds is prob
ably one of the directors OF the road.
He had a good deal to do with the man
agement and will take his loss with as
good grace as he can. Other big blocks
of the bonds are held by other directors
of the road and capitalists identified with |
it.
On the whole, it may be said that the |
most deplOrable kind Of failure is the |
failure that involves a mortgage bond |
like the Wabash Pittsburgh bonds. The !
kind OF failure that does less harm to |
the country and to the investment public |
is the kind that involves speculative Sc
curities like the Rock Island IS, or the |
stocks of the same companies. Also il is !
a fact that failures of this kind Of securi- |
ty are more frequent than in the other |
The investor may learn. IL he cares to !
study the records OF such failures, that |
il will pay him on a percentage basis to |
leave the speculative securities alone and !
stick to conservative investments.