Arizona republican., 1922-05-15
BY Roaer w. Rabson

WELLESLEY HILLS. Mass. May
1S.-When asked for his plan for Sc
lecting industrial stocks. Roger W.
Babson. the statistieian, today
sounded new note in recommending
what he calls "the repeats
Manufacturing concerns are di
vided into three main groups" said
Mr.. Babson, according to the nature
of what they produce. These groups
are as follows:
Group one includes those concerns
making products that are bought
eventually by every person. but in
small quantities. Coffins are sim
pie illustration of this group. For
each of us one coffin will some day
be bought. This is known as the
essential group.
Group two includes those con-
Germs manufacturing products which
only a certain percentage of the peo-
pie buy at all and which only a very
few buy more than once. There are
hosts of illustrations of this group
Pianos, automobiles, yes, even gar
den tools, are in this group.
Group three includes those con-
Germs who are engaged in the manu-
facture of repeat merchandise. The
breakfast food people are an illus
tration of such manufacturers. You
get into the habit of using a certain
breakfast food and you keep buying
it. The soap people are engaged in
this repeat business. Such business
is the most profitable both to the
manufacturer and to the investor.
Industrial securities which are
founded on the third group are gen.
orally recognized as the most at
tractive.
"One might think that the essen
tial group is the best group in which
to invest ones money, but a study
of the situation convinces one that
this is not so. Although some one
is sure some day to buy coffin for
each one of us, yet the coffin indus
try is a very easy industry to get
overstocked. Surely the sale of cof-
fins can be increased very little by
advertising. salesmanship or any
other means known to the most
clever sales managers.
"Take SALT continued Mr. Babson,
salt is the prime essential of food
yet the cleverest advertising in the
world could not increase the natural
consumption of salt. Although off
hand you might think it much safer
to loan money to the salt industry
than to the candy industry, yet a
study of failure records show that
the candy industry is safer than the
salt industry Although musical in
struments are not essential, the de-
mand for them can be increased to an
almost unlimited extent. Hence. in
dustries producing products of the
second group are prefable to those of
the first group.
The third group, including those
industries based upon repeating pur-
The securities of the Gillette Razor
are a very good illustration. The
Gillette company can afford to sell a
razor at loss because of the blades
they sell later.
Another illustration is the East
man Kodak company Eastman can
we'll afford to sell kodak at cost
because of the great source of in
come in films and supplies. Another
illustration is the photograph. A
piano would go in group two, a
phonograph would also go in group
two. but phonograph records would
go in group three. The Victor COM
pany has made it's greatest profits
on the records rather than on the
monographs. This fact is very in
teresting when looking over the stock
market, because you will see that
the most profitable stocks are those
of companies like Gillette. Kodak
and Victor. all of which come under
this third group.
Investors should not be fright
ened at the word industrials.' Every
class of securities has its strong fea-
lures and its weak features. No
class of investments has monopoly
of all the good points. The wise in
vestor will diversity. taking part
governments and municipals. part
railroads. part industrials, part pub
lie utilities. part other classes. When.
however. seeking industrial securi-
ties select those industries that are
based upon repeat orders and where
the market is more less unlimited.
Some people bank on monopoly.
They will buy only into industries
which have monopolies. Temporarily,
they may win. but the fact of the
comDany's having a monopoly usu-
ally tends to make the company in
efficient and often ultimately brings
disaster. The investor who depends
on monopoly is playing a dangerous
game 1t is far better TO buy into
an industry which has a great unde-
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