Evening star., 1926-04-24
BY ROGER w. BABSON.


10 first mortgages as investments--in
Guiding first mortgages on houses,
public utilities and railroads. Now in
order for any one to hold a first mort
gage. some one must give it and be
the promisor. In the case OF q house,
his is the owner who holds the equity.
Tie Is the one who must do the worry
ing about the house, collect the rents,
attend to repairs and see that money
Is available for interest and for the
payment of the mortgage when due.
In the case Of railroads or public uttl-
ty corporations, the owners are known
as stockholders and such ownership is
represented by shares Of common
stock. These stockholders. however,
have the same worries and RESPONSE
oilities as any borrower. Although
the common stockholders get all the
earnings, after taxes, interest and ex-
oenses are paid. yet these common
stockholders get nothing unless all
these other things are first paid.
or course, there must be common
stockholders In order that we may buy
mortgage bonds, but ordinary common
stocks are not suitable for small IN
Vestors except under circumstances
which / will now describe. In other
tHt COIflI1CU StDCh vi Nci
poration should, so far as possible, be
owned by the men who are directly
operating the business. These are the
men VINO are entitled to the profits
anu who should suffer the losses. In
nocent investors who have nothing to
do with operating the business are
neither entitled to profits nor should
be made to suffer the losses. Corpora
tions are justified in distributing their
bonds, and in the case of public utii
ties and certain industries are justified
in distributing the preferred stocks to
the public, but there is considerable
question as to the advisability Of small
investors buying common stock in
companies by which they are not en-
ployed or are not in any way con-
nected.
When to Buy Stocks.
1.-The capitalist can afford to buy
common stocks when a new COM
pany Is formed or when additional
treasury stock is issued. The own
ers of "a corporation and its friends
are justified in protecting the market
at all times. borrowing or selling as
their judgment dictates. 1t. how
ever, Is very questionable whether
the small investor should buy com
mon stocks except during depres-
sions. The majority of new COM
panies fail or are reorganized, IN
which case the common stockhold-
ers are either wiped out or are as
sessed. Surely. small investors usu-
ally make mistakes in buying com
mon stocks during good times when
wages are high and money is plenti-
full. The time when you have money
to invest Is usually the very time
when you should not invest in com
mon stocks. 1t is usually UNSAFE
to buy common stocks during pros
porous times when the public IS
bullish. It is always dangerous TO
buy stocks when people have mage
a lot of money from buying stocks.
The very fact that your 1rlends
have made money buying common
stocks signifies that 1t Is too late
for you to try them. For any one
To bI,v common stocks because his
friends have bought them and have
made money Is like farmer plant
ing potatoes in the Fail because his
friends have just gathered and soId
at a profit a harvest OF polatoeS,
Yet. when buying common STOCKS w
nor cent of investors buy them at
the wrong time, when they are al
their highest prices; and sell them
at the wrong time, when they are
at their lowest prices.
"The time to buy common stocks Is
during a panic or when business IS
very bad, and there is large
amount of unemployment. The tine
to buy common stocks is when every
ono is bearish and your frlends are
telling Of the money which they nave
lost in the stock market.
.'These times come about once IN
Eve wears. They are times When pls
hawks are failing and money is tight
and il is almost impossible for tnem
to borrow. II is perfectly sate 10
hrv common stocks at such time as
that. first. because such stocks are
then selling below their real value; ano'
secondly. because investors then can
nerforrn a real service by buying such
stocks, The only sure way OF max
ing a. profit in the stock market Is pE
huying when you can render a tedl
service bv buying, and selling When
Io,, ran render real service by sell
ing or course some people some
times get something for nothing; puI
this ia gambling and not investing.
The investor, however, who stores up
cash during a time of prosperity such
as we are in today and tnen freely
invests such money during panlCs
narforms a. real service TO ms 1el-
low men and Is richly rewarded there-
for He performs the same service
oa does the ice man who stores up ice
~, Winter when 1t is a nuisance, IN
order that It may be available in the
summer to make life more COM
Portable.