The Washington herald., 1914-06-27
In THE AGE OF
EXPERIMENT

CCopyright. 1914. By C. n. Keys. New York;
The investor nowadays is the object Of
a thousand experiments. He Is the pa
tient in a continuous financial clinic at
which the authorities Of the money world
would attend to discover, If possible. how
he should be treated so as to make him
continue to produce the necessary cash
to finance the railroads, municipalities
and all the various other kinds Of cor
porations that require money in a con-
tinuous stream. By some of these ex-
periments the investor, may be benefited:
but out Of many Of them he comes not
much wiser. but considerably sadder than
he was before.
In the old days a man who had money
and wanted to put II into securities at
all had two things to choose from. He
could buy bonds and feel that he was
perfectly safe. whether he really was or
not: or he GOULD buy stocks and feel that
he was taking an ordinary business
chance to grow up with the country.
After a while this simple bill OF fare
grew tiresome to the investor and ne
would buy neither stocks nor bonds. He
did not seem to want to be either an
owner or a creditor Of a corporation.
That gave rise to years Of experiment.
The financial experts devised a kind of
security that was neither a bond nor 4
stock, according to the old definitions.
In appearance and name IL was a bond.
but they made 1t convertible into stock.
so as to give II also some Of the advan-
tages Of a stock. hoping that in this way
II would attract both the bond buyers
and the stock buyers. That worked very
well for a while. Most OF the early con-
vertible bonds, particularly those issued
by the railroads, turned out very well
for the investor as well as for the cor
poration.
In addition, Of course, many other kinds
of securities were invented. Notes and
bonds were put on the market that only
had a year or two or three or four to
run. and that would be paid of at par
at the end of that short period. In this
security the inventors tried to combine
the advantages OF a bond with the short
term of a mortgage on real estate, or
of an ordinary piece Of commercial paper.
This was very popular for a while and
worked fairly well About the same time
the equipment trust securities became
popular. this being a sort of mortgage
on railroad equipment, some of II COM
ing due in a year. two years. etc. Usu-
ally the limit was about fifteen years.
In this security also they aimed at max
ing a short-tern security with an abso-
lutte first mortgage under it
Then came another experiment in the
form of the holding company bond. which
was not a bond on any specific piece Of
property alone, but was a bond on a
whole lot Of properties, thereby osten-
sibly dividing the risk. This was intend
ed to Offset in some degree the feeling
of uncertainty that the average investor
has when he owns a mortgage on little
bit of property some place a long way
of.
Out of all these various experiments in
finance there came a tremendous variety
of securities. One traction company is
sued a note which was convertible into
bonds, which in turn was convertible in
to stock. Here was a combination OF
the short term. the security of a bond
and the attractiveness Of a stock. This,
however, was too much for the public and
only professional dealers liked the looks
Of this security. Similarly the holding
company bond had a very short and mar
row vogue. II came at a time when the
investor had begun to get sick of ex-
perlments and was beginning to hope that
pretty soon he would again be able to
90 into the bond market and buy bonds,
or into the stock market and buy stocks,
without feeling that somehow or another
he would be landed with something that
was neither one thing nor the other.
Just now there Is a slight reaction
from the spirit of experiment in finance.
Bond buyers in fact, are working back
toward first principles. They want some
real bonds with some real security and
at real prices. They look with suspicion
on all the fancy names that are attached
to bond issues. They are not interested
in the fact that such and such a boni
is prior lien. collateral" What they
want to know is whether il is a real
bond on real property. They suspect also
the prices at which things are offered,
and a great many people nowadays are
buying nothing that looks like a bar
gain There is a widespread willingness
in fact, in the bond market to pay good
prices for good securities. and to pay
nothing at all for securities that are not
good.
OF. course. the age Of experiment Is