Middletown transcript., 1914-02-07
THE HIGH INCOME
Fundamental Principles Of Invest
ment Remain the Same
A VERY GOOD OBJECT LESSON

A VERY GOOD OBJECT LESSON
InDecember two wellknown industrial
companies located in the central part of
New York state suffered sensational
collapses. Both had been financed by
well-known banking house which had
sold the preferred stocks to purely in
vestment public as sound z per cent
investment. 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 in
dustries The collapse in each case was
due to bad management and bad ethics
of the inside.
The investor who finds himself sud
denly plunged from the ease and secur-
ity of SAFE per cent. 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 somehow or another ad-
vantage has been taken of him, no
matter how much faith he may continue
to have in his advisor. It is unfortunate
that in the great boom in industrial
stocks from which we suffered year
or two ago, the class of people who
bought the new securities as safe and
sound investments consisted largely of
people who in past times had been ac-
customed to buying mortgages and
bonds paying from IA per cent. to
per cent. and affording real solid secur-
ity.
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
principles of old-fashioned conservation
will justify. There have been, of course,
happy exceptions to the rule. but the
rule has been that already in the
course of two years, those who deserted
the well tried field of conservative old
fashioned investment for the sake of
buying high-yield investments, have ac-
quired a keen sense of regret, a great
deal of experience and a large deficit in
their investment accounts. That the
rule is not universal is due to the law
of averages more than to anything else
for it is a sound principle of finance
that out of five business properties
financed to do business, a certain per-
centage is due to succeed and 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.
1t was all part of the struggle to
increase the income in order to meet
the increased cost of living. That
struggle had two effects, the first being
to depress the price of all standard in
vestment securities; and the second be-
ing to lead to the creation of a class of
securities that seemed to offer the
same security and safety as the old
fashioned investments and so meet the
insistent demand of the investment
public for higher rate of income. The
first of these tendencies made bargain
market in standard stocks and bonds
and afforded to such part of the invest
ment public as remained conservative
and kept its feet upon sound ground,
real opportunity for good investment at
prices that have hardly been equalled
since the panic of 1893. The second
tendency entailed upon the other part
of the investment public which aband-
oned it's principle. very large losses both
in income and principal.
Out of all this misery and error, the
same old lesson stands quite clearly.
All the fundamental principles of true
investment were worked out. developed
and demonstrated generations ago.
THERE'S 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 or
5 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 in
vestment and to drive him into other
fields.
Even though all these events trans
pire and it seems an act of sheer folly
to resist them and to stick to the old
and established fundamental principles
of investment, it seems to be demoa
strated over and over again that hewhO
departs from these principles and fol-
lows new gods and strikes outnew lines
of investments for himself, or evolves
new principles and innovations in the
field of finance, will ultimately bring
loss and error to himself and to those
who follow him. The principles of real
investment will apparently remain for
all time, as sound and true as the Gospel
itself, and he who undertakes to reform
those principles, to change them, to limit
them even in the slightest degree, or to
expand them even in trifes, runs the
same risk as he who POUNDS or follows
new code of moral, ethics or religion,
Eop GAZE Two cers of Cu0Tcr