New-York tribune., 1920-03-21
Wants Money to Grow

question: have decided to invest $40, 600
as follows: 100 shares United Fruit, 100
American International Corporation. and the
balance in Dominion of Canada bonds pro-
vided you O. X. the transaction. ] want my
money to grow, and the only way, it appears
to me. to do this is to buy good common
stocks. l find that in the long run common
stocks pay better than preferred and where
the common failed to pay dividends the pre-
terred soon followed suit. In buying pre-
ferrcd stocks l cannot make anything, no
matter how prosperous the business. yet l
can lose if the business goes to the bad
United Fruit has no bonds preferred stock
so the common owns the property, which has
been marked down each year the books
while values have been increasing, until now
am told that the property is worth three
times what it is carried on the books. and
the gross business will double in the next
three years. l have owned a few shares for
years, and it is the most profitable invest
ment l have made, and when | look
back and the wonderful growth and
strong cash position. equal to 500 per share
after calling in the bonds, while most COR
porations resortng to note issues to
finance increased business. I am than
ever impressed. True market value of Fruit
assets is s4o0 per share. American Interna-
tional I buy on the record of the board of
directors. which has made a success of every
thing. Dominion of Canada bonds buy as
the nearest TO a sure thing there is except
Liberty bonds, and they pay better Do
minion bonds good ours and l per
cent more. Do you think my argument is
sound? I have preferred stocks bought
twenty years or more ago now worth about
same time my capital would have now been
doubled On the other hand. 1 have never
lost dollar of the principal I wait for
them to get seasoned by going through a
period of depress ion.-J. j. Van V.
Answer-We do not entirely agree
with you regarding the purchase of
common stocks for investment. We ad-
nit that many fortunes have been made
by doing so, but the purchase of such
issues is speculative. Because q man
had been successful in his operations
does not, in our opinion, mean that he
had made wise investments. Many peo-
pie after they have accumulated an in
vestment fund SO invest their money
that the element of speculation is
largely eliminated. We regard this as
real investment wisdom. All that you
say about United Fruit may be true.
Nevertheless, we cannot agree that the
stock is high grade investment issue.
Earnings are good at present, and have
been for some time past. The directors
have been forehanded in placing money
back into the property, thus adding to
the equity behind the stock. This may
be said of many corporations, and yet
there Is no assurance that earnings will
be maintained, nor that present divi-
depls will be maintained. That Is the
main reason why we do not regard
common issues as good investments, as
rule. You mention corporations
which, after passing the common divi-
dend, soon after passed the dividend on
the preferred We do not recall any
high grade preferred issue having
passed its dividend during the last
seven or eight years. United States
Steel common passed it's dividend, yet
there never was the slightest question
regarding preferred disbursement. Your
purchase of United Fruit may be wise
one, but we do consider that it has
large element of speculation. We con-
slider American International too specu
lative for pure investment purposes.
You state that you will purchase this
stock on the record of the board of di-
rectors. You are speculating on them,
then Your speculation may turn out
to have been wise, indeed, but it is not
an investment, according to our way ,of
reasoning. So far as Canadian bonds
are concerned, we agree with you. We
look upon Canada as we'll able to finance
herself through these troublous times.
You admit that you have preferred
stocks bought twenty years ago and
now worth about the same as then. You
purchased these securities for invest
ment, and you purchased wisely. Had
you bought the common issues your
capital, you say, would have more than
doubled. In that case you would have
speculated wisely.