Essex County herald. [volume] (Guildhall, Vt.) 1873-1964, 1920-03-26

company must pay at least ten per
cent-half for bona fide dividends and
half for depreciation"
"Oho" said Cullen, opening his
eyes. us that why the big mining
companies pay such big dividends? l
thought it was all clear profit"
mo, sin. The dividends of a min
ing company have to be very high to
be attractive at all; they have to
make good that depreciation. Well,
we make the boys incorporate, as l
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 at $40 each.
'Now, the company (and you must
remember that so far we haven't
! any official connection with it), agrees
to take over the property, and pay the
| present owners for it with $4,000
| shares of stock, and it also agrees to
| sell to you and Angela and me the
| other 10000 shares at a dollar apiece,
or $4,000, of which we agree to pay
| half in cash, and the balance in about
ninety days.
Nov then, we own 100000 shares
for which we've paid, and agreed to
| pay 100000. That is, we've under
written these shares for a dollar
apiece, and paid down half the amount.
Now let's begin to look at it from the
public's standpoint. Here's a mine
with plenty of ore; and a company
with cash enough on hand to begin
| producing at a profit very sOon-al-
| 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,
and it does and you and Angela and
l are still letting the former owners
manage it, but 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 a big success. SO
| you and Angela and | go to a good
| broker, or to a group of brokers, and
make them a proposition. We con-
vince them of the value we have; we
let them send their own engineers out
| to make q report, and as evidence of
| good faith, we pay all their expenses;
we let them go 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 to sell to the public (be-
cause they've got a 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 good one, to pay seven Or
| eight dollars because every shares
going to be worth tenn for what cost
the broker four dollars, and cost us
one dOllar--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 totaIed
the list, and handed it over to Cullen.
Capitalization 5000, OcO-2OoO0O shares at
$40
Stock paid to individual
| owners Observation-Disclosures. 5000 shares
| Stock sold to syndicate for
| 100000 .........................l2O 900 shares
| Iotal ..............,.......,... NouD sT&reS
OF our 10000 shares
| We sell to brokers'. 49,. 10000 shares
| Leaving Observation-Disclosures. S0OpO shares
! We give brokers a two year
option at s. apiece on..... 10000 shares
Leaving ACKNOWLEDGEMENTS 10000 shares
| We pay lawyers, experts etc. 1000 shares
| Leaving ....ssss......s........ oVVDU SnaTeS
"And that balance of 10000 shares"
he said, belongs to us three. The
brokers are making market and es-
tablishing price; and in order to pro-
tect themselves, they can't afford to
let the stock sell under the price
they're charging the public-because
If 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 mar
ket. by what's considered perfectly
legitimate means, although some folks
call it 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 flocks in to take advantage of it,
and the quotations jump up to twelve
or fifteen. Everybody's made money;
the brokers have made theirs the pub
He's making theirs, and when the price