The Washington herald., 1914-04-04

is growing nervous over what he has not
and is inclined TO leave this market alons
| for a while.
This kind OF buying is professional In
its character II should never be done
| by any uninformed investor merely be-
| cause prices have gone down. In the
case of the bonds bought by this investor
year ago. he did not buy the bond:
that were selling At the cheapest prices,
for II he did, he would still be facing very
low prices. It is not the last bond issue
that grows strong in a recsvership. II
may be the second last. bt II is very
likely indeed 10 be something that really
has a first mortgage on property that
Is indispensable and cannot be allowed &c
get away. Such issues are heavily sold
before trouble comes and when trouble
really comes. people study closely and
generally come to the conclusion that
they were scared without reason so far
as the old underlying securities are con-
cerned. The period of railroad weakness
serves to point the lesson that every in-
vestOr ought to get OF by heart. namely,
that when il comes to real investment,
of the sort that creates no worry. seeks
no chances. and invites no disaster. one
finds il at its best in we'll chosen securi-
ties Of some sort that have a positive
and actual claim upon property which
process of law, or by any flimfiam game
Of any sort. There is a certain collateral
trust bond secured by stock whose hold
ers are now trying to discover what
collateral trust bond really is and whers
the bondholder will find himself when
the whole tangIe is Strengthened out. u
is more instructive than any other SIM
liar episode of recent years.
In this case the bonds are secured by
-, Il n ~
dividends for about sixty years Now,
apparently lue to mismanagement and
partly due to economic causes. II Is
tound impossible to pay dividends suffi-
rient to give the trustee of the bonds
money enough to pay the interest on
the bonds. Therefore. there is going to
be a default. The bonds provide that in
case of default. the trustees should sell
collateral and pay the bonds out ~ the
proceeds Unfortunately as in nearly
every such case. the only time when THAI
provision is effective in ;he interest OF
the honihOlder. is at a time when the
security is not worth as much as Il
ought to be- and as it seemed to be when
-he bond issue was made Therefore.
the bonds now are selling at about 3
cents on the dollar. In addition the stock
holders. holders of other bonds. and even
people who seem to have no great in
mittees to represent their interests under
a reorganiZa ton. and the bOndholders.
instead of being absolutely in command
of the whole situation. are not quite sure
whether they have anything to say at
all They are distressed and frightened.
as indeed they ought to be. \ good many
Of them ,,ho bought the bonds in good
faith, figure that they did not buy q
bond at all. but only bought a stock
which has no legal claim on any actual
property and which does not give them
any commanding rights in the situation.
When you go to buy a bond, buy q
bond. II You want to buy stocks. buy
stocks and understand when you buy
them that all they give you is a vote
in the management of the company per-
haps a vote amongst a million. Under
stand also that they carry with them
business risks that are intrinsic in their
very nature, no matter whether their
stock is selling at 500 a share or $50 a
share Investment and speculation are
both Legitimate and essential functions
Of finance. but investment and specula-
ton mixed together are pitfall and .
sIara