Henderson daily dispatch., 1936-02-14

loans are only one-ninth the 1929
level
Another important influence on re-
cent market activity has been the re-
newal of initiation fear. For the past
year we heard little about this SUBJ
ject, but with the AAA decision and
the passage of the bonus, unsound
money talk plopped right back into
the headlines. The chaotic effects of
currency initiation have been given
great publicity in the United States.
The majority of thinking people are
coming to realize that they must pro-
tect themselves against it. Hence, On
every occasion that an initiation scare
develops, there is a lot of shifting
from one class of securities to an
other.
Basic Program
Because of the above, readers may
be interested in my thoughts on a
sound investment policy today. I
would base such a program on my
Babsonchart of physical volume of
business. This chart shows graphical
ly the long cyclical areas of depres-
sion and prosperity which proved the
opportunity to buy and to sell securi-
ties successfully. During times of de-
preston and recovery, securities of all
kinds may be accumulated profitably.
During periods of prosperity, profits
should be taken in most common
stocks and some junior bonds. The
proceeds should be invested in short
term bonds or held in cash to await
the net favorable buying opportunity.
Usually high-grade bonds can Ebe re-
tanned as a protective backlog.
The above outline, brief as it is,
contains the primary elements of a
successful investment program. Right
now business is in a recovery period
but it is still below normal 90 per
cent below according to the Babson-
chart). Therefore, I feel that we are
in a period when many securities can
still be purchased advantageously.
With the outlook for better business
during the net year or two, every in
dicator points to higher stock prices.
There will be, of course intermediate
periods of reaction; but the market is
still in a fundamental upward swing.
Carefully selected stocks (and I can
not over-emphasize the Importance of
selection) should sell much higher be-
fore the movement eliminates.
Good Bonds at Ceiling
High-grade bonds, on the other hand
may be at the peak of their upward
swing. Many classes of gilt-edged Sc
curities are selling higher and yield
ing less today than ever before. AS
industrial activity continues to i'm
prove, opportunities for earning a sat-
isfactory return on money in business
channels will be better than in the
bond and mortgage markets. Further
more, as dividends increase, possioili-
ties for better yield and appreciation
in stocks will attract money away
from bonds. Hence, it now looks as
ing a ceiling.
Nevertheless, in the thirty-five years
in which l have been studying invest
ments [ have become more and more
impressed with the fact that you can
never be sure you are right. Hence, I
believe that every portfolio should
still contain backlog of bonds as
security against the unexpected.
There are possibilities, for instance,
that trouble abroad or a tremendous
tax program at home might bring on
period of business hestiancy. Bonds
are the cyclone cellars of a defla-
tionary period. Experience proves con-
clusively that any balanced invest
ment list must contain a portion of
good bonds as we'll as common stocks