Evening star., 1928-12-15

NEW YORK, December 15.-During
the recent sharp rise of prices on the
Stock Exchange, attention was so closely
fixed on the gyrations of the stock
market that bonds were neglected. Bond
men patiently awaited the time when
a break in stock prices would again at
tract attention to one of the main
selling points of bonds-ther stability.
Biding Their Time.
While in recent years the tremendous
increase in the popularity Of common
stocks has led many to believe that
stocks would supplant bonds, in reality
the situation has not changed so
radically as that There is nothing un-
usual in the fact that during a period
when speculative fever is at high
pitch the greater stability of bonds
should be overlooked in favor of quick
profits in stocks Undoubtedly public
interest in securities is far greater today
than ever before. But even in the past
when the stock market has risen sharply
people have never been interested in
buying fixed incomes, offered by bonds.
AT such times they are attracted by the
lure of large immediate profits. They
must have stocks at any cost and bonds
must await the day when a bad break
minded that an investment list should
include certain proportion of bonds
for stability's sake.
Reserve for Contingencies.
The events of the past two weeks
bring out one of the principal weak
nesses of common stocks. On November
% the average price of a group of 80
stocks in leading industrial companies
was $295.62 and eight days later they
had dropped to S257.33, a decline of
almost 13 per cent in value in slightly
over a week.
To be sure, one might hold these
securities with the assurance that some
day the growth of the country will in
crease the value of his securities beyond
that old high point But the fact re-
mains that many investors are called
upon from time to time to sell some or
all of their securities in order to meet
| some unforeseen contingency. Experience
has shown that since the small in
vestor is most apt to run into this
difficulty during a period of dull busi-
ness-when stock prices would normally
be low-it is quite possible that he
might have to take some heavy losses
on his security holdings by forced
selling. To meet this situation conServa-
mend any other type of security than
those in which there is a good chance
that the investor can.recover his money,
dollar for dollar, when the need arises.
AS he grows to become a more expert
enced investor and has acquired suf-
flcient back log to meet contingencies
he can afford to risk more and more of
his money. He can then safely put
larger part of his savings into common
stocks.
Price Stability of Bonds.
The action of the bond market dur
ing the recent break in stock prices
seems to clinch this one argument of
the bond men, On November %, when
the stock market touched its high,
group of 30 high-grade bonds sold at
an average price of $96.69. At the bot
Som of the break they sold at $96.14,
decline of about one-half of l per cent
during the period that leading stocks
dropped Is per cent. Of course, if con-
vertible bonds or certain other highly
speculative issues were used they would
have suffered more severe declines, but
so too would stocks if an investor had
held some of the more highly specula-
tive issues rather than stocks in the
leading company in each industry. The
stock list and the bond list compared
above both include securities of COM
parable quality.
Over a period of time high money
rates and rising cost of living can
drive the prices of long-term bonds
down considerably, but over the period
of year or so Bonds boast a price
stability that common stocks by their
very nature can never hope to attain.
ee Copyright, 1929