The Clio messenger. (Clio, Mich.) 1907-current, 1920-04-29

L
eyes. as that why the big mining
companies pay such big dividends? /
| thought 1t was all clear profit !"
mo. sir. The dividends of a min
| ing company have 10 be very high to
| be attractive at all; they have TO
make good that depreciation. Well,
we make the boys incorporate, as
| said, for two million dollars, on which
we can pay ten per cent. I'll show
| you what the setup looks like" He
| wrote on the back of an old envelope:
capitalization 100000 - 100000
shares ut $40 each.
"NOw, the company (and you must
| remember that so far we haven't
any official connection with it), agrees
10 take over the property, and pay the
| present owners for ii with $4,000
shares of stock, and il also agrees TO
! sell 10 you and Angela and me the
| other 10000 shares at dollar apiece,
| or Sl20,0O0, of which we agree TO pay
| half I'm cash, and the balance in about
ninety days.
Now then, we own 10000 shares
for which we've paid, and agreed TO
pay $4,000. That is, we've under
written these shares for dollar
| apiece, and paid down half the amount.
| Now let's begin 10 look at 1t from the
public's standpoint. Here's mine
with plenty of ore: and a company
with cash enough on hand 10 begin
producing nj q profit very soon-fA-
though nobody pretends that it's ac-
tually producing now. 1t has 100000
In the bank. and another 100000 due
in ninety days. 1t can go ahead and
contract for machinery and workmen,
ana Ii does, and you and Angela and
/ are still letting the former owners
manage IL, hut since we're in control
OF the stock, we either elect ourselves
as directors. or elect other people
whose names carry weight with the
public. so that we can always direct
the general policy, and see that it's
careful and conservative. From every
angle, then. financial and moral, the
venture looks like big success. So
you and Angela and / go to a good
broker, or TO group of brokers, and
make them proposition. We con-
vince them of the value we have; we
let them send their own engineers out
to make a report, and as evidence of
good faith, we pay all their expenses;
we let them 90 over our books. Every
things fair and square and above
board. And we agree that these bro
kerS will take some of this stock off
our hands 10 sell to the public (be-
cause they've got selling organiza-
ton already established, and plenty Of
customers who look to them for adj
vice. and It's agreed that they'll pay
us-say, four dollars share for what
they think they can sell. The brokers
then do some advertising, send out
their circulars and bulletins and
pamphlets to their customers, and sell
that stock to the public for anywhere
from six to eight dollars a share. That
is, the public Is glad enough, when the
prospects a good one. to pay seven or
eight dollars because every shares
going to be worth ten) for what cost
the broker four dollars, and cost us
one dolar-which we've already got
back from the brokers, and we've still
got the half Of those 10000 shares OF
ours left besides! So here's the final
balance Sheet" He hastily totaled
the list, and handed 1t over to Cullen.
Capitalization Oo,OOO-2Oo,OOO shares at
$40.
Stock maid individual
owners Observation-Disclosures. $1,000 shares
Stock sold to syndicate for
sL2O,OW ....................l2O,OO 200 shares
Total .......................... 2OoO 600 shares
or our 10000 shares
We sell to brokers'. .... 10000 shares
Leaving NEUTRALITY-SUSPICIOUS.. 10000 shares
We give brokers a two year
option at s. apiece on...... 10000 shares
Leaving ..........,............ 10000 shares
We pay lawyers, experts etc. 10000 shares
Leaving ......................6 $1,000 shares
"And that balance of 10000 shares"
he said, belongs to us three. The
brokers are making a market and es-
tablishlng price; and in order to pro-
itCl lHtluStlNtS, lllcy tdn L dHOIu 10
let the stock sell under the price
they're charging the public-because
IL they did, the public wouldn't buy up
the rest of what the brokers have TO
sell, but they'd buy it in the open mar
ket SO the brokers protect the MAJ
ket. by what's considered perfectly
legitimate means, although some folks
call 1t manipulation, and they keep the
price up by main strength until the
first dividend Is paid, and after that
they don't have TO worry, because now
everybody sees what good thing it is,
and .1ocks in to take advantage Of It,
and the quotations jump up TO twelve
or fifteen. Everybodys made money;
the brokers have made theirs; the pub.
lies making theirs, and when the price
is right the syndicate sells in open
market the 10000 shares II had left,
and YOU and Angela and I have each