Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-06-08

stock exchange outside of New York
But last weeks sales of the stock did
not exceed 10000 shares. Yet the price
fixed for the 100000 shares by this
narrow trading market is the price per
share used by this large investment
trust to figure the value of the total
issue held-some $60,000,0 900, or two
thirds of the value of its portfolio
shares.
One student of investment trusts has
recently made the statement that the
market value of investment trust
shares is bound to show lag" from
20 to 80 per cent below the market
value of its various securities owned.
He holds that this lag" is capable of
mathematical demonstration.
Let us suppose that an investment
trust sells its stock at $25 share and
in units of 40 shares each-or $1,000.
For this 81 900 suppose the trust buys
one share of Santa Fe Railroad, one
Of Consolidated Gas and one of United
States Steel at the lowest prices re-
corded in 1929. 1t would total $425.
The annual dividends-$10 ST and So
would be $21, giving return of 494
per cent. The remaining cash left of
the 81, 000-$575-let us say is invested
at per cent and kept liquid This
would mean $2875. Let us suppose
that the total unit of 40 shares, costing
$1,000, is earning $49.75, or $l24 per
share, or return of 4.975 per cent.
Now, as the book value of the share
is S25, here is a lag" of 81 per cent
in earnings. or Is cents per share,
granting that per cent, or $3.50 a
share, is fair return.
Now, take the same unit at the high
est prices for the same stocks in 1880.
These three stocks-one share each
would cost 1915, but they would have
the same annual dividends per wear of
S2l. This would bring the annual re-
turn on the stocks down to 3.65 per
cent. With the remaining cash-S575-
Invested at per cent-S28.75-the
total OF 40 shares. now worth on the
books sl.151, would still be earning
$49.75, or $l.24 per share, or an annual
return Of 49, per cent
Question of Income.
But the book value of the shares is
now s28.77 each. To be bought at
that price, they should return at per
cent annually S172 per share Thus.
at the increased book value, the lag
OF 4S cents a share would be 80 per
cent in earnings
So, says this investment trust critic
with the increase in the book value. due
% the rise in the market value of the
stock, the income itself in return has
decreased 10 per cent-from S4975 to
1892. Hence the trust shares could
never expect to sell at their book value
The trust shares. at no stage, either al
the beginning nor as they increase
represent an investment, but a specu-
1ation, the results of which depend
entirely upon the timely sale of Sc.
curities at higher than cost.
OF course in these estimates, moth.
ing Is figured in for trust expenses
taxes, etc.
Watson washburn, United State.
Assistant Attorney General, is nov
asking for data dealing with invest.
nent trusts: When this material il
compiled, something of constructive
suggestion might be expected from thu
Federal Government.
Investment trusts are here. The!
have large accumulations of capital a
their cornmand-that is billions of dol
lars. Some are good, and some-no
so good.
'{conyrirht, $780, by North American News
nMnaS Altance.)