The Washington herald., 1914-01-31
THE LURE OF
HIGH INCOME

CCopynght 1874. By q NJ. Ksys. New York;
| In December two welI-knOwn indus.
| t1sl companies located in the central
| Lart of New York State suffered sensa
tiOnal collaps Both had been financed
| by a well-known banking house which
| had sold the preferred stocks to a purely
| investment public as sound per cent in
vestment. Nobody questioned that the
banking house made its offering in good
faith and believed thoroughly in the
securities and in the companies. which
are old and well-established industries
The collapse in each case was due 10
bad mana cement and bad ethics on the
inside
To the investor who finds himself sud
denly plunged from the ease and Sc
curity OF a safe per cent invest
ment into the distress and discomfort
OF an investment that pays nothing and
has little hope of paying anything for
some time to come, there is not much
comfort in regrets. He feels that some
how or another advantage has been
taken OF him, no matter how much faith
he may continue TO have i'm his ad-
visor. II is unfortunate that in the great
boom in industrial stocks from which
We suffered a year or two ago the
class of people who bought. the new So
curities as safe and sound investments
past times had been accustomed to buy
ing mortgages and bonds paying from
Il per cent TO per cent and afford
ing real solid security.
This whole great campaign. with its
aftermath OF disaster and loss is a dis
NAL object lesson to the investor who
feels that he or she must get more in
terest on invested money than the prin-
ciples OF old-fa shioned conservatism will
There haN haa -
happy exceptions to the rule: but the
rule has been that already in the course
OF two years. those who deserted the
We'll tried field Of conservative oId-fash-
ioned investment for the sake OF buying
high-yield Investments. have acquired 4
keen sense of regret. great deal Of
experience and large deficit in their
investment accounts That the rule is
not universal is due TO the law of aver
ages more than To anything else: for il
is sound principle OF finance that out
OF five business properties financed to
do business. a certain percentage is due
TO succeed and a certain percentage is
sure to fail. What this percentage Is
depends altogether upon the nature of
the business and upon the character Of
the financial management.
IL was all a part OF the struggle to
increase the income in order to meet
shc COSN VI IndI
gle had two effects, the first being TO
depress the price of all standard invest
ment securities; and the second being
to lead to the creation Of class of Sc
curities that seemed to offer the same
security and safety as the old-fa shioned
investments and so meet the insistent
demand of the investment public for a
higher rate OF income. The first OF these
tendencies made a bargain market in
standard stocks and bonds and afforded
to such part of the investment public as
remained conservative and kept its feet
upon sound ground. a real opportunity
for good investment AZ prices that have
hardly been equaled since the panic OF
1895 The second tendency entailed upon
the other part of the investment public.
which abandoned its principle. very large
losses both in income and in principal.
Out of all this misery and error, the
same old lesson stands quite clearly. All
the fundamental principles of true in
vestment were worked out. developed.
and demonstrated generations ago. There
is nothing new in real investment. Times
may come when the old standards of
value and safety seem inadequate.
cramped and foolish. Bonds and the
best OF stocks may seem for a time
hopelessly slow, dead and uninteresting.
The purchasing power of the dollar may
diminish to such an extent that the 4
or per cent derived from safe invest
ments seems pitifully small and made
quate- All the tendencies of modern life
may seem to force the investor out OF his
well-tried and tested lines of invest
ment and to drive him into other fields.
Even though all these events transpire
and II seems an act of sheer folly to
resist them and to stick to the old and
esta bIished funda uentaI principIes of in |
yestment 1t seems to be demonstrated