Henderson daily dispatch., 1936-02-14
Bondholders, Danger Signals


The important Job for tOday's 1nVeS-
tor is to protect himself against either
initiation or deflation. At the moment,
the prospects -avor the former. Inc
stage is all set for some kind of in
flation in the United States-either
creit or currency BondhOlders should
watch out for the very first evidence
of the following danger signals: O
living costs rising faster than business
activity; CD business recedlng unless
more and more public money is spent;
and 90 high-grade bond prices slip
ping while commodity prices go ahead
During a period of violent initiation,
those people whose investments in
clude only bonds or other fixed-in-
come-Ioearing assets would be ruined.
Even if prices of bonds should not
decline, their yield, expressed in terms
of living costs, could evaporate.
The history of initiation in other ma
tons shows that while bondholders
were hard hit, stockholders came
through in fair shape. Investors who
pride themselves on being conserva-
tive are not being conservative today
if they have their money invested
SOl01y Ill JULIUS dIlA 4A1O1 Coo5Oos AoANAA
investors are just as reckless as those
who pin all their faith on common
stocks The most important lesson
that I have learned in lifetime de-
voted to helping people with their fl
nancial problems is that diversified
ton is the primary principle of in
vesting. Moreover, under today's con-
ditions, diversification is more essen
tial than ever before.
Complete DiversificatiOn
Diversif1cation does not simply ap-
ply to a division of capital between
stocks and bonds. It means the spread
ing of funds over different grades of
securities A bond list should contain
second-grade as we'll as gift-edge is
sues, while a stock list should con-
tain a few outright speculations as
well as sound dividend-paying issues.
Diversification should also extend to
the type Of industry. Investors should
never load up on oils or utilities but
should spread their funds over many
industries. Diversification should be
applied geographically. Investments
should not be concentrated in one To-
cality but should embrace a nation
wide interest.
Finally, broad Investigation in
cludes investments other than stocks
and bonds. The careful investor
should hold bank accounts, insurance
policies, and material possessions. In
Germany and other countries where
initiation went wild, commodities, real
estate particularly small homes and
farms) home furnishings, collections,
and the like all weathered the storm
in relatively good condition. When
shaping an investment program today,
the wise man will take all these fac
tors into consideration.
"InflatiOn Insurance.
There are thousands of small inves-
tors, however, whose funds are too Ii
mited to get the benefit of diversifi-
cation protection. For this class, the
most practical form of limitation in
surance" would be a group Of five or
ten low-priced common stocks of in
vestment trusts. In this way the small
investor secures a share in a thorough
ly diversified portfolio of investments
which would cover most of the points
outlined above The principal thought
I want to leave is that sound invest
ing under today's conditions means
first, diversification; second, careful
selection; and third, insurance against
both initiation and deflation.