Arizona republican., 1922-05-08
ARIZONA REPUBLICANS WEEKLY BUSINESS REVIEW
Babson Advises
On PURCHASING
Mining Stocks


WELLESLEY HILLS. May g.
When asked for an opinion on GER
tain mining stocks, Roger w. Bah
son, advisor to over 10000 investors,
today pointed out three basic prin-
ciples that should be borne clearly
in mind by any one contemplating
the purchase OF this group Of stocks.
THE industries engaged in pro-
duction OF raw materials" observed
Mr.. Baason, may be divided roughly
into three groups: Mineral, vegetable
and animal.
THE first group, mineral, includes
Fundamentally it is the weakest
group because the investors divi-
dends from mining stocks come
largely from his principal. A min
ing companv Is very much like a
barrel of apples, when you take one
apple from the barrel there is one
less apple in the barrel. Every divi-
dend one gets from the stock OF a
mining company represents the re-
turn of portion of the principal in
vested. This means that IL you
have stock, for instance, in a cer-
tain mine that has a life of 33 Id
years, and you receive dividend of
per cent on that stock, you are
really receiving a dividend of only
3 per cent on your investment, the
other per cent is the return of
your principal.
You see mining stock, to compare
fayorabiy with any other kind OF
stock, should pay at least 8 per cent
or per cert more to cover this re-
turn of principal The only proper
way for the investor to keep his
books is to divide the dividends he
receives on mining stocks into two
portions. One portion is to be
credited to principal and the other
to interest
There, however, is another rea-
son why mining stocks are different
from other stocks, When buying a
mining stock one bets on what is
in the ground Yet one never knows
what thers is in the ground until
after he has spent his money to get
it out. Ar admission fee must be
paid before one knows what there is
inside to see. As 9S per cent of
the mining companies never get ore
ON paying basis and per cent are
very profitable, this is gambling TO
the nth degree.
mining securities for these rea-
sons represent the most speculative
class OF stocks, altho most people do
not appreciate this fact. A Meth
odist who does not believe in play
ing cards, may buy mining stocks.
and it is considered perfectly all
right. He would, however. get far
better mental training if he played
poker and in many instances his per-
centage of loss would be less.
Il do not mean to infer" continued
Mr.. Babson, that mining stocks as
a class should not be purchased, only
that they should not be bought on
a hit or miss basis. The copper in
dustry. for instance, is absolutely
legitimate. as farming, building, or
operating a water power. it is here TO
stay. When you buy an interest in
the copper Industry you are getting
into legitimate business, in legi-
innate way The distinction between
buying into the industry instead OF
buying stock in a single company
must however be kept clearly in
mind.
There are several thousand diff
ferent copper mining stocks on the
market today and yet Is OF these
companies produce 80 per cent of
the copper. BY buying the stocks
of these Is companies, you can have
an interest in so per cent of the in
dustry. The point is this: IL YOU
put say $500 into these Is COM
panies, you are not betting on any
one company. You are buying an in
terest in the copper of America, and
the value OF your stock depends not
on whether copper is found here or
there. bur rather on the price OF
copper as determined by the law OF
supply and demand.
"This particular group OF stocks,
representing the industry naturally
fluctuates with it. With a great sur
plus of copper on the market. as was
the case last year. the stocks go to
the low levels. That is the time to
buy your interest in the industry. II
you hold Ties, stocks until the sur
plus is absorbed and the price of
copper goes UP, these securities in
crease iL price and should then be
sold out. BY following this basic
plan you can make a very handsome
profit over period OF two or three
years, and you assume practically no
risk. As you are not planning on
them as a permanent investment,
you need noe bother with alIortiza-
ton, or the setting aside OF q portion
of dividends to cover dimE,nishing
principal.
"This is the safest way B. invest
In mining stocks of any kind. Coal
stocks, lumber stocks, oil stocks. fer
tilizer stocks and pulp stocks, in
fact the stock Of any industry en-
gagged primarily in the production
of raw. materials, the supply OF
which 10 constantly diminishing.
should be placed in the same group"
When asked the names of the iS
companies who practically control
the copper industry, Mr.. Babson
named several including. Anaconda.
Phelps Dodge, Utah, Kennecott, In-
spiration, Ray Consolidated, Calu-
met and Heda. Chino, Nevada Con-
solidated. Green Cananea, Miami,
Calumet and Arizona, Copper Range.
The recent improvement in the
general feeling among business men
Is beginning TO be reflected in gen.
eral bushes. conditions. The index
of the Babsonchart for instance
shows general business Is per cent
below normal as compared with 10