Evening star., 1938-01-02
BONDS REGISTER
STEADY DECLINE
Holders Suffer Less Than
Share OWners-Hiqh
Grades Hold Well.
BY AARON M. JONES.
Cambridge Associates Stan.


Judged by the 1885 standard Of
stability, the 1887 bond markets
movements hardly permit Of de-
scription in terms of what Disraeli
called the "blissful certainty Of the
3 per cents" Compared to the almost
unwavering steadiness of bond prices
in 1896. the slow but steady pairing
down Of the Dow-Jones 40 bond index
from around los in the early months
Of 1887 to "a, near its close, appears
as a severely deflationary process.
Indeed. it is not improbable that
the average bondholder is more con-
cerned with the shrinkage in his hold
ings over the last year than is the
far more definitely debated owner of
common stock. This probably arises
from the fundamental difference in
attitude OF the bondholder and the
stockholder. The bond buyer suspi-
ciously queries, How much can I
lose?" The stock buyer hopefully asks
How much can make?" So now
the bond investor is worried over his
relatively small losses on the average,
while the average stockholder looks
hopefully about for the best oppor-
tunities for staging a comeback.
But assayed by the standard of 1T
isn't what you make, but what you
keep that counts" the bondholder
who stuck pretty close to quality and
safety in his commitments, despite
the inflationary propaganda OF early
1887, has every reason to count 1887
as relatively satisfactory year. Ger
tainly he is better of than his neigh
Dor, Mr.. Average Stockholder-wno
saw five months Of liquidation wipe
out practically all the gains OF the
preceding three years of bull market.
Like the plodding tortoise in the
familiar fable, the holder of good
bonds won the 1887 contest for sue
cessful investing despite the long odds
quoted against him by the soothsayers
of early 1887.
Averages" Hide Vital Facts.
AS always happens in down mar
kets. bond or stock, the averages"
conceal the widely varying perform
ances Of various groups and qualities
of securities. There are bonds, and
bonds, and if stability is the essential
quality sought in bond investments.
the two-sided bond market of 1887
proved that there can be no colnprc-
mise with safety. Second grade.
equity or credit bonds. particularly
in the rail classification, suffered
losses only slightly less drastic than
were suffered by the stockholders of
the same companies. An average OF
five second-grade rail bonds slumped
from 88 in February to 48 at the year
end, almost so per cent loss, for
which the high yields afforded at
either price were but small consola-
ton.
Convertible issues. too, turned in
1887 performance which cast heavy
doubts on the desirability Of trying
to get out of any one investment We
hicle the safety" OF bond and the
potential profits of a stock. Almost
always the conversion feature is the
lure by which some deficiencies in
safety or coupon rate are offset in the
mind of the prospective purchaser.
Then, too, the issuance Of convertible
bonds tends to occur after the COM
pany has made considerable progress
into prosperity earning power. Most
of the safest appreciation profits in
the companys stock are therefore al
ready behind it. This means chat, ex-
cept for relatively brief periods Of
market gyrations in a high area, the
convertible bondholder sees very little
profit and may, as in 1887. suffer size
able losses when the turn downward
comes.
Security Taxes Aid.
A definite factor in maintaining
the high-grade section OF the bond
market was the Treasury's ability to
absorb bank offerings OF United
States Government securities through
out the year. The increasing flow Of
social security taxes to Washington.
which funds must, by law, be invested
In Federal issues, has been a major
factor in keeping high-grade bond
prices up and interest rates down.