,,h[ ,,to ,,inve/ ,,money ,,by ,,george ,,g>r ,,h5ry ,vice-,presid5t ,gu>anty ,tru/ ,company1 ( ,new ,york ,illu/ration ,,funk ,,wagnalls ,,company ,,new ,,york ,,& ,,london #aijh ,,copyright1 #aijh1 ,,by ,,funk ,,wagnalls ,,company ,pr9t$ 9 ! ,unit$ ,/ates ( ,am]ica ,publi%$ ,april1 #aijh ,,cont5ts ,,page ,,preface #e ,i4 ,,g5]al ,,pr9ciples ,,( ,,inve/m5t #g ,,ii4 ,,railroad ,,mortgage ,,bonds #bc ,,iii4 ,,railroad ,,equipm5t ,,bonds #dj ,,iv4 ,,real-,,e/ate ,,mortgages #ea ,v4 ,,indu/rial ,,bonds #fc ,,vi4 ,,public-,,utility ,,bonds #gf ,,vii4 ,,municipal ,,bonds #ia ,,viii4 ,,/ocks #ajj ,,ix4 ,,m>ket ,,movem5ts ,,( ,,securities #ajh ,,preface ,! aim ( ?is book is to pres5t 9 cle> =m ! simple pr9ciples ( inve/m5t1 & to af=d ! read] a work+ k ( ! v>i\s classes ( securities :i* are available z inve/m5ts & _! relative adaptability to diff]5t ne$s4 ,! book is an outgr[? ( ! writ]'s p]sonal exp]i5ce z an inve/m5t bank]4 ,mo/ ( ! matt] :i* is pres5t$ has appe>$ 9 ! pages ( ,sy/em ,magaz9e1 ?r\gh ! c\rtesy ( ^: editors x is n[ re>rang$ & consolidat$ = publication 9 book =m4 ,g4 ,g4 ,h4 ,,h[ ,,to ,,inve/ ,,money ,i ,,g5]al ,,pr9ciples ,,( ,,inve/m5t ,) ! imm5se increase 9 weal? 9 ! ,unit$ ,/ates dur+ ! la/ decade & its m g5]al di/ribution1 ! problem ( inve/m5t has assum$ correspond+ly great] importance4 ,z long z ! av]age bus9ess man 0 an habitual borr[] ( money & posse/ no private =tune outside ( 8 int]e/ 9 8 bus9ess1 he 0 n greatly conc]n$ ) inve/m5t problems4 ,! surplus weal? ( ! c\ntry = a long "t 0 9 ! h&s ( f9ancial in/itutions & a few weal?y capitali/s4 ,^! m51 ! (fic]s & directors ( banks1 sav+s-banks1 & insurance companies1 & ! possessors ( h]$it>y weal?1 7 ?or\ghly equipp$ by tra9+ & exp]i5ce = ! solv+ ( inve/m5t problems & ne$$ no help 9 ! disposition ( ! funds "u _! control4 ,dur+ ! la/ t5 ye>s1 h[ev]1 ^! conditions h be5 greatly alt]$4 ,! numb] ( bus9ess m5 to-day 9 possession ( funds 9 excess ( _! private wants & bus9ess requirem5ts is f> great] ?an x 0 t5 ye>s ago1 & is con/antly increas+4 ,^! m5 are confront$ ) a real inve/m5t problem4 ,:ile !y h n always recogniz$ x1 ! problem :i* !y are call$ ^u to solve is really tw(old--x conc]ns ! safegu>d+ ( _! private =tune & ! wise disposition ( _! bus9ess surplus4 ,!y h usually se5 ! fir/ "p ( ?is problem1 b n all h succe$$ 9 cle>ly und]/&+ ! second4 ,:5 ! treatm5t ( a man's bus9ess surplus is spok5 ( z an inve/m5t problem1 x is meant1 ( c\rse1 n 8 work+ capital1 :i* %\ld be kept 9 liquid =m = imm$iate ne$s1 b t portion ( 8 surplus :i* is set aside = em]g5cies4 ,x is com+ to be a recogniz$ pr9ciple t e bus9ess ent]prise ( :atev] k9d or size %\ld e/abli% a res]ve fund4 ,x is felt t ! possession ( a res]ve fund puts ! bus9ess ^u a secure f\ndation1 adds to its f9ancial /r5g? & reputation1 & greatly increases its cr$it & borr[+ capacity4 ,! recognition ( ?is fact1 comb9$ ) ! ability to set aside a res]ve fund1 has br\ght _m m5 to a consid]ation ( ! be/ way 9 :i* to dispose ( x4 ,x is obvi\sly a wa/e ( income to h ! surplus 9 bank-acc\nts2 m ?an t1 !re w\ld be a con/ant temptation to use x & to confuse x ) work+ capital4 ,its be/ disposition is pla9ly 9 "s safe int]e/-be>+ security1 :i* c be readily sold1 s t x w be available = use if necessity dem&s4 ,confront$ ) ! d\ble problem ?us outl9$1 :at measure ( success has att5d$ ! av]age bus9ess man 9 its solution8 ,x is safe to say t ! av]age man has f\nd x easi] to make money ?an to take c>e ( x4 ,money-mak+1 = him1 is ! result ( successful activity 9 8 own l9e ( bus9ess1 ) :i* he is ?or\ghly famili>2 :ile ! inve/m5t ( money is a ?+ ap>t f 8 bus9ess1 ) :i* he is n famili>1 & ( :i* he may h _h little practical exp]i5ce4 ,8 failure to inve/ money wisely is n due to any want ( intellig5ce or ( prop] c>e & =esight on 8 "p1 z he sometimes seems to believe1 b simply because he is ignorant ( ! pr9ciples ( a bus9ess :i* diff]s radically f 8 own4 ,! inve/m5t ( money is a bank]'s bus9ess4 ,:5 ! av]age man has funds to inve/1 :e!r he be a bus9ess man or a pure inve/or1 he %\ld consult "s exp]i5c$ & reliable inve/m5t bank] j z he w\ld consult a doctor or a lawy] if he 7 9 ne$ ( m$ical or legal advice4 ,?is book is n int5d$ to take ! place ( consultation ) a bank]1 b to supplem5t x4 ,! advantage ( su* consultation is %[n by ! fact t if a man attempts to rely on 8 own judgm5t1 he is almo/ c]ta9 n to d ! be/ ?+1 ev5 if 8 bus9ess in/9ct leads him to avoid ^? ent]prises :i* are m pla9ly unpromis+ or fraudul5t4 ,x %\ld be rememb]$1 h[ev]1 t wid[s & orphans are n ! only ones ensn>$ by attractive adv]tisem5ts & ! promise ( brilliant returns4 ,9 mo/ cases1 wid[s' & orphans' funds are protect$ by consci5ti\s & cons]vative tru/ees1 & x is ! av]age bus9ess man :o furni%es ! money :i* is ultimately lo/ 9 all propositions :i* violate ! fundam5tal laws ( inve/m5t4 ,! av]age man is l$ into ^! unwise inve/m5ts ?r\gh a v natural error ( judgm5t4 ,accu/om$ to take reasonable *ances & to make l>ge returns 9 8 own bus9ess1 he fails to detect any?+ fundam5tally wrong 9 a proposition simply because x promises to pay well4 ,he =gets t ! rate ( int]e/ on inve/$ money1 or pure int]e/1 is v small1 & t any?+ above t c only come z paym5t = managem5t1 z he makes 9 8 own bus9ess1 or at ! sacrifice ( "s ess5tial factor ( safety :i* w usually lead to disa/]4 ,= ! successful inve/m5t ( money1 h[ev]1 a good deal m is requir$ ?an ! m]e ability to select a safe security4 ,t is only "o phase ( ! problem4 ,sci5tific inve/m5t dem&s a cle> und]/&+ ( ! fundam5tal di/9ctions betwe5 diff]5t classes ( securities & /rict adh]5ce to ! two c>d9al pr9ciples1 di/ribution ( risk & selection ( securities 9 accordance ) real requirem5ts4 ,"o ( ! mo/ important di/9ctions is t betwe5 promises to pay & equities4 ,bonds1 real-e/ate mortgages1 & loans on collat]al repres5t somebody's promise to pay a c]ta9 sum ( money at a future date2 & if ! promise be good & ! security ample1 ! hold] ( ! promise w be paid ! money at ! "t due4 ,on ! o!r h&1 equities1 su* z ! capital /ocks ( bank+1 railway1 & indu/rial corporations1 repres5t only a c]ta9 residu>y %>e 9 ! assets & pr(its ( a work+ conc]n1 aft] paym5t ( its obligations & fixt *>ges4 ,! value ( ?is residu>y %>e may be l>ge or small1 may increase or dim9i%1 b 9 no case c ! hold] ( su* a %>e require any "o1 lea/ ( all ! company itself1 to r$eem ! c]tificate repres5t+ 8 int]e/ at ! price he paid = x1 nor inde$ at any price4 ,if a man buys a #a1jjj railroad bond1 he kn[s t ! railroad1 if solv5t1 w pay him #a1jjj 9 ca% :5 ! bond is due4 ,b if he buys a %>e ( railroad /ock1 8 only *ance ( gett+ 8 money back1 if he %\ld wi% x1 is t "s "o else w want to buy 8 %>e = :at he paid = x1 or m4 ,9 "o case he has b\ght a promise to pay1 & 9 ! o!r an equity4 ,x is n ! int5tion1 f ! =ego+1 to draw ! conclusion t equities "u no circum/ances are to be reg>d$ z inve/m5ts1 because _m ( our bank & railroad /ocks1 & ev5 "s ( our public-utility & indu/rial /ocks1 h atta9$ a /ability & p]man5ce ( value & possess suffici5tly long divid5d records to ju/ify _! consid]ation :5 inve/m5ts are contemplat$2 b x is ess5tial t ! inve/or %\ld h a ?or\gh und]/&+ ( ! di/9ction involv$4 ,! pr9ciple ( di/ribution ( risk is a simple "o4 ,x involves no m ?an ob$i5ce to ! old rule :i* =bids putt+ all "o's eggs 9 ! same basket4 ,! numb] ( m5 :o c>ry out ?is pr9ciple ) any ?or\ghness1 h[ev]1 is v small4 ,prop] di/ribution means n only ! division ( prop]ty among ! v>i\s =ms ( inve/m5t1 z railroad bonds1 municipals1 mortgages1 public-utility bonds1 etc41 b also ! pres]vation ( prop] geographical proportions )9 ea* =m4 ,adh]5ce to ?is pr9ciple is p]haps n s important = private inve/ors z = in/itutions4 ,a /rik+ in/ance ( ! ne$ = insi/5ce ^u its obs]vance 9 ! in/itutional field 0 furni%$ by "o ( ! fire-insurance companies ( ,san ,francisco aft] ! e>?quake4 ,x appe>$ t ! company's assets 7 l>gely inve/$ 9 ,san ,francisco real e/ate & 9 local ent]prises g5]ally1 :]e ! bulk ( its fire risks 7 conc5trat$4 ,z a result1 ! v cata/rophe :i* conv]t$ its risks into actual liabilities depriv$ its assets ( all imm$iate value4 ,?is in/ance s]ves to %[ ! importance ( ! pr9ciple & ! necessity = its obs]vance4 ,! pr9ciple ( selection 9 accordance ) real requirem5ts is m complex4 ,x involves a ?or\gh und]/&+ ( ! *ief po9ts :i* mu/ be consid]$ 9 ! selection ( all inve/m5ts4 ,^! are five 9 numb]3 7#a7 ,safety ( pr9cipal & int]e/1 or ! assurance ( receiv+ ! pr9cipal & int]e/ on ! dates due2 7#b7 rate ( income1 or ! net return :i* is realiz$ on ! actual am\nt ( money inve/$2 7#c7 conv]tibility into ca%1 or ! read9ess ) :i* x is possible to realize on ! inve/m5t2 7#d7 prospect ( appreciation 9 value1 or t gr[? 9 intr9sic value :i* t5ds to advance m>ket price2 & 7#e7 /ability ( m>ket price1 or ! likelihood ( ma9ta9+ ! integrity ( ! pr9cipal inve/$4 ,! five qualities above enum]at$ are pres5t 9 diff]5t degrees 9 e inve/m5t1 & ! sci5tific inve/or naturally selects ^? securities :i* possess 9 a high degree ! qualities ^u :i* he wi%es to place emphasis4 ,a l>ge "p ( ! problem ( inve/m5t lies 9 ! c>eful selection ( securities to meet "o's actual requirem5ts4 ,! av]age inve/or does n ?or\ghly und]/& ?is po9t4 ,he does n realize t a high degree ( "o quality involves a l[] degree ( o!r qualities4 ,he may h a g5]al impression t a high rate ( income is apt to indicate less assurance ( safety1 b he r>ely applies ! same reason+ to o!r qualities4 ,:5 he buys securities1 he is q likely to pay = qualities :i* he does n ne$4 ,x is v common1 = example1 :5 he wi%es to make a p]man5t inve/m5t & has no ?\ght ( resell+1 to f9d him pur*as+ securities :i* possess 9 a high degree ! quality ( conv]tibility4 ,f 8 po9t ( view1 ?is is pure wa/e4 ,a high degree ( conv]tibility is only obta9$ at ! sacrifice ( "s o!r quality--usually rate ( income4 ,if he 7 to use m c>e 9 8 selections1 he c\ld probably f9d "s o!r security possess+ equal safety1 equal /ability1 & equal promise ( appreciation 9 value1 :i* w\ld yield consid]ably great] rev5ue1 lack+ only ready conv]tibility4 ,?us he w\ld satisfy 8 real requirem5ts & obta9 a great] income1 at ! exp5se only ( a quality :i* he does n ne$4 ,! quality ( conv]tibility divides inve/ors into classes m %>ply ?an any o!r quality4 ,= "s inve/ors conv]tibility is a matt] ( small importance2 = o!rs x is ! p>am\nt consid]ation4 ,g5]ally speak+1 ! private inve/or does n ne$ to place mu* emphasis ^u ! quality ( conv]tibility1 at lea/ = ! l>g] "p ( 8 e/ate4 ,on ! o!r h&1 = a bus9ess surplus1 ready conv]tibility is an absolute necessity1 & 9 ord] to secure x1 some?+ 9 ! way ( income mu/ usually be sacrific$4 ,aga91 "s inve/ors are s situat$ t !y c insi/ /rongly ^u promise ( appreciation 9 value1 :ile o!rs c n af=d to d s4 ,ri* m5 ^: income is 9 excess ( _! wants1 c af=d to =ego some?+ 9 ! way ( ye>ly return = ! sake ( a /rong prospect ( appreciation 9 value4 ,su* m5 naturally buy bank & tru/-company /ocks1 ^: g5]al *>act]i/ic is a small return ^u ! money inve/$1 b a /rong likelihood ( appreciation 9 value4 ,?is is ow+ to ! g5]al practise ( well-regulat$ banks to di/ribute only ab\t half _! e>n+s 9 divid5ds & to cr$it ! re/ to surplus1 ?us insur+ a /eady rise 9 ! book value ( ! /ock4 ,ri* m51 aga91 c af=d to take *ances ) ! quality ( safety1 = ! sake ( great] income1 9 a way :i* poor m5 %\ld nev] d4 ,9 practise1 h[ev]1 if ! writ]'s obs]vation c be dep5d$ ^u1 x is usually ! poor m5 :o take ! *ances--& lose _! money4 ,9 ! quality ( safety1 !re is a m>k$ diff]5ce betwe5 safety ( pr9cipal & safety ( int]e/4 ,) "s inve/m5ts ! pr9cipal is mu* saf] ?an ! int]e/1 & vice v]sa4 ,?is c be/ be illu/rat$ by examples4 ,! bonds ( t]m9al companies1 :i* are gu>ante$ z to int]e/1 "u ! t]ms ( a lease1 by ! railroads :i* use ! t]m9al1 are usually f> saf] z to int]e/ ?an z to pr9cipal4 ,:ile ! lease la/s1 ! int]e/ is probably p]fectly secure1 b :5 ! lease expires & ! bonds mature1 ! railroads may see fit to ab&on ! t]m9al & build "o else:]e1 if ! city has gr[n 9 ano!r direction1 & ! t]m9al may cease to h any value except z real e/ate4 ,on ! o!r h&1 a new railroad1 built 9 a ?9ly settl$ b rapidly gr[+ "p ( ! c\ntry1 may h difficulty 9 bad ye>s 9 meet+ its int]e/ *>ges1 & may ev5 g into tempor>y default1 b if ! bonds are issu$ at a l[ rate p] mile & ! managem5t ( ! road is hone/ & capable1 ! safety ( ! pr9cipal c sc>cely be que/ion$4 ,/ability ( m>ket price is frequ5tly a consid]ation ( great importance4 ,?is quality %\ld nev] be confus$ ) ! quality ( safety4 ,safety means ! assurance t ! mak] ( ! obligation w pay pr9cipal & int]e/ :5 due2 /ability ( m>ket price means t ! inve/m5t %all n %r9k 9 quot$ value4 ,^! are v diff]5t ?+s1 ?o frequ5tly id5tifi$ 9 p's m9ds4 ,an inve/m5t may possess assur$ safety ( pr9cipal & int]e/ & yet suff] a viol5t decl9e 9 quot$ price1 ow+ to a *ange 9 g5]al bus9ess & f9ancial conditions4 ,9 times ( cont9u$ bus9ess prosp]ity v high rates are dem&$ = ! use ( money1 because ! liquid capital ( ! c\ntry1 to a l>ge ext5t1 has be5 conv]t$ into fixt =ms1 9 ! developm5t ( new m9es1 ! build+ ( new factories & railroads1 & 9 ! improvem5t & ext5sion ( exi/+ prop]ties4 ,^! high rates h ! effect ( r$uc+ ! price level ( inve/m5t securities because p hav+ su* securities are apt to sell !m 9 ord] to l5d ! money s releas$1 ?us ma9ta9+ ! p>ity betwe5 ! yields ^u free & inve/$ capital4 ,z an illu/ration ( ?is t5d5cy1 )9 ! la/ few ye>s ,new ,york ,city #c-a_/b-p]-c5t bonds h decl9$ f #aaj to #ij1 )\t ! slighte/ suspicion ( _! safety4 ,_! inh]5t qualities h *ang$ 9 no respect except t _! prospect ( appreciation 9 quot$ price has become decid$ly bright]4 ,_! fall 9 price has be5 due to two factors1 "o g5]al & ! o!r special--fir/1 ! absorption ( liquid capital & consequ5t rise 9 int]e/ rates1 occasion$ by ! unprec$5t$ bus9ess activity ( ! c\ntry1 &1 second1 to ! unfavorable te*nical position ( ! bonds1 due to an increas$ supply 9 ! face ( a decreas$ dem&4 ,x w be se5 t ! "q ( ma9ta9+ ! integrity ( ! money inve/$ is a matt] ( great importance & des]ves to rank z a fif? factor 9 det]m9+ ! selection ( inve/m5ts1 al?o x is n an inh]5t quality ( ea* inve/m5t1 b is dep5d5t = its effect ^u g5]al conditions4 ,if x is ess5tial to ! inve/or t 8 security %\ld n %r9k 9 quot$ price1 8 be/ inve/m5t is a real-e/ate mortgage1 :i* is n quot$ & consequ5tly does n fluctate4 ,= ! inve/m5t ( a bus9ess surplus1 h[ev]1 :]e a high degree ( conv]tibility is requir$1 real-e/ate mortgages w n answ]1 & ! be/ way to gu>d aga9/ %r9kage is to pur*ase a %ort-t]m security1 ^: approa* to maturity w ma9ta9 ! price close to p>4 ,! =ego+ comm5ts1 9 a brief & imp]fect way1 s]ve to indicate ! ma9 po9ts :i* %\ld be consid]$ 9 ! selection ( securities = inve/m5t4 ,! consid]ations advanc$ w be amplifi$ z occasion dem&s 9 ! foll[+ pages4 ,= ! pres5t1 ! ma9 lesson :i* x is s\ght to draw is ! necessity t a man %\ld h a ?or\gh und]/&+ ( 8 real requirem5ts be=e he attempts to make inve/m5ts4 ,= a private inve/or to g to a bank] & ask him to sugge/ a security to him )\t tell+ him ! exact nature ( 8 wants is ab\t z fooli% z x w\ld be = a pati5t to g to a physician & ask him to give him "s m$ic9e )\t tell+ him ! symptoms ( ! tr\ble :i* he wi%$ cur$4 ,9 nei!r case c ! advis] act intellig5tly unless he kn[s :at end he is seek+ to accompli%4 ,x is pla9ly impossible )9 ! limits ( a small volume to consid] ! ne$s ( all classes ( inve/ors4 ,special att5tion w be paid to ! requirem5ts ( a bus9ess surplus & ( ! private inve/or4 ,9 ! field ( private inve/m5t two di/9ct classes c be recogniz$--^? :o are dep5d5t ^u income f inve/m5ts & ^? :o are n4 ,bo? classes w be consid]$4 ,= ! inve/m5t ( a bus9ess surplus1 safety1 conv]tibility1 & /ability ( price are ! qualities to be emphasiz$2 = inve/ors dep5d5t ^u income1 safety & a high return2 & = ^? n dep5d5t ^u income1 a high return & prospect ( appreciation 9 value4 ,9 ! foll[+ *apt]s railroad bonds1 real-e/ate mortgages1 indu/rial1 public-utility1 & municipal bonds & /ocks w be consid]$ 9 turn2 _! advantages & disadvantages w be analyz$ 9 accordance ) ! det]m9+ qualities above enum]at$1 & _! adaptability to ! requirem5ts ( a bus9ess surplus & ( private inve/m5t w be discu/4 ,,ii ,,railroad ,,mortgage ,,bonds ,a railroad bond is an obligation ( a railroad company 7usually secur$ by mortgage ^u railroad prop]ty7 :i* runs = a c]ta9 l5g? ( "t at a c]ta9 rate ( int]e/4 ,x is app>5t1 f ?is def9ition1 t ! price ( a railroad bond1 z di/9ct f its value1 is affect$ by two accid5tal conditions q ap>t f ! five det]m9+ qualities describ$ 9 ! prec$+ *apt]4 ,^! accid5tal conditions are ! l5g? ( "t t ! bond has to run & ! rate ( int]e/ t x be>s4 ,to und]/& cle>ly ! influ5ce ( ^! accid5tal conditions is a matt] ( ! utmo/ importance4 ,x is evid5t1 = in/ance1 t a #e-p]-c5t fifty-ye> bond1 bas$ on a giv5 security1 w sell at a widely diff]5t price f a #c-a_/b-p]-c5t tw5ty-ye> bond1 bas$ on ! same security2 yet ! only diff]5ce is 9 ! accid5tal conditions :i* are "u ! control ( ! bo>d ( directors4 ,9 ord] to elim9ate ^! accid5tal features f ! situation1 x is cu/om>y = bond-deal]s to classify bonds purely on ! basis ( _! yield1 or net income return4 ,z a ?or\gh und]/&+ ( ?is po9t is ess5tial to an accurate judgm5t ( bond values1 :e!r railroad bonds or o!rwise1 x mu/ be develop$ 9 detail1 ev5 at ! risk ( c>ry+ ! read] ov] famili> gr\nd4 ,if a bond sells above p>1 x does n yield its pur*as] a net return z great z ! rate ( int]e/ :i* ! bond be>s1 = two reasons3 fir/1 because ! loss 9 pr9cipal1 repres5t$ by ! premium :i* ! pur*as] pays1 mu/ be di/ribut$ ov] ! numb] ( ye>s :i* ! bond has to run1 & op]ates to r$uce ! rate ( int]e/ :i* ! hold] receives2 &1 secondly1 because ! rate is paid only on ! p> value ( ! bond in/ead ( on ! actual money inve/$4 ,?us1 if a #f-p]c5t bond ) eight ye>s to run sells at #aaj-c_/d1 x w yield only #d4dj p] c5t1 :i* means t if ! hold] sp5ds m ?an #dh4gc 7#d4dj p] c5t ( #a1ajg4ej7 out ( ! #fj :i* he receives annually1 he is sp5d+ ! excess out ( pr9cipal1 & n out ( income4 ,conv]sely1 if a bond sells bel[ p>1 x yields m ?an ! rate ( int]e/ :i* ! bond be>s4 ,^! yields h be5 calculat$ ) ! utmo/ exactness = all bonds pay+ f #b p] c5t to #g p] c5t & runn+ f six mon?s to "o hundr$ ye>s1 s t x is only necess>y to turn to ! tables to discov] :at w be ! net return ^u a giv5 bond at a giv5 price4 ,?is net return is g5]ally kn[n z ! basis1 & bonds are spok5 ( z sell+ ^u a #c4hj p] c5t basis or a #d4fe p] c5t basis or :atev] ! figure may be1 ) no ref]5ce :atev] to ! price or to ! rate ( int]e/ :i* ! bond be>s4 ,inde$1 s exclusively is ! basis consid]$ by bond-deal]s t v (t5 bonds are b\ght & sold ^u a basis price1 & ! actual figures at :i* ! bonds *ange h&s are n det]m9$ until aft] ! transaction is conclud$4 ,x is n expect$1 ( c\rse1 t ! av]age bus9ess man w pur*ase bonds 9 q z sci5tific a way z ?is1 b x is ess5tial t he %\ld und]/& t :ile ! intr9sic value ( a bond is det]m9$ only by ! five g5]al factors describ$1 its money value1 or price1 is affect$ also by ^! two accid5tal conditions4 ,expre/ 9 o!r words1 he mu/ realize t ! g5]al factor describ$ z rate ( income does n mean ! c\pon rate ( int]e/ :i* ! bond be>s1 b ! sci5tific basis1 d]iv$ by elim9ation ( ! accid5tal features4 ,)9 ! pa/ ye> !re has be5 a good deal ( un9=m$ comm5t ab\t ! safety ( railroad bonds4 ,be=e ! era ( popul> agitation & gov]nm5tal antagonism1 railroad bonds enjoy$ a l>ge measure ( public confid5ce2 b x c n be d5i$ t "s "p ( ?is confid5ce has be5 %ak5 z a result ( ! rec5t exposures4 ,ev5 cle>head$ m5 h exagg]at$ ! importance ( ! developm5ts2 & too (t5 railroad (ficials1 :o %\ld h insi/$ ^u ! s\ndness & /ability ( _! prop]ties1 :5 !y elect$ to talk = publication1 h giv5 way in/ead to dismal & unw>rant$ =ebod+s4 ,!re is no my/]y involv$ 9 det]m9+ ! safety ( railroad bonds4 ,any man ( bus9ess exp]i5ce1 keep+ 9 m9d ! g5]al pr9ciple :i* measures ! value ( all obligations1 c easily det]m9e1 ) ! aid ( two docum5ts1 ! degree ( safety :i* atta*es to any p>ticul> railroad bond4 ,! g5]al pr9ciple to be obs]v$ is t ! safety ( any obligation dep5ds ^u ! m>g9 ( security 9 excess ( ! am\nt ( ! loan2 & ! two docum5ts to be consult$ are ! mortgage or tru/ ind5ture secur+ ! bonds1 :i* describes ! prop]ty mortgag$1 & ! la/ annual report ( ! railroad1 :i* %[s its f9ancial condition4 ,conf9+ ! analysis1 = ! pres5t1 to mortgage bonds ^u ! g5]al mileage ( a railroad1 ! foll[+ po9ts %\ld be consid]$3 7#a7 ,rate p] mile at :i* ! bond is issu$4 ,apply+ ! g5]al pr9ciple indicat$ above1 x mu/ be le>n$ :at proportion ! bond$ debt ( a railroad be>s to ! total m>ket value ( ! prop]ty4 ,x is mu* easi] to make ?is comp>ison on a p]-mile basis4 ,9 det]m9+ :e!r ! rate p] mile is excessive1 ref]5ce mu/ be made n s mu* to ! p>ticul> bond 9 "q z to ! total bond$ debt p] mile ( ! railroad1 & to ! relation :i* t figure be>s to ! total m>ket value ( ! prop]ty p] mile4 ,! total m>ket value p] mile is obta9$ by add+ ! m>ket value ( ! /ock p] mile to ! p> value ( ! bond$ debt p] mile4 ,a s+le issue ( bonds v>ies all ! way f #e1jjj to #ajj1jjj p] mile1 accord+ to ! location ( ! railroad4 ,total capitalization p] mile--/ocks & bonds at p>--v>ies 9 ab\t ! same proportion1 f #ce1jjj to #cjj1jjj4 ,! av]age = all ! railroads ( ! ,unit$ ,/ates is #fg1icf p] mile4 ,! actual co/ ( ! railroad1 z %[n by ! balance-%eet1 mu/ be tak5 into consid]ation1 & also ! e/imat$ co/ ( duplicat+ ! prop]ty4 ,physical difficulties ( con/ruction mu/ be weigh$1 = a railroad ?r\gh a flat1 s&y c\ntry %\ld n be bond$ = z mu*1 o!r ?+s be+ equal1 z a railroad ?r\gh a m\nta9\s c\ntry1 :]e mu* cutt+1 fill+1 & bridg+ are requir$4 ,! section ( c\ntry 9 :i* ! railroad is locat$ mu/ be consid]$1 = #ce1jjj p] mile on a s+le-track l9e 9 a poor c\ntry may be high] ?an #cjj1jjj p] mile on a f\r-track trunk l9e :i* owns valuable t]m9als & rights ( way ?r\gh sev]al l>ge cities4 7#b7 ,am\nt ( prior li5 bonds out/&+ p] mile4 ,! am\nt ( bonds :i* come ahead ( ! bond 9 "q on ! same mileage is a matt] ( great importance & works directly aga9/ ! security ( ! bond4 ,pur*as+ a bond :i* is prec$$ by a prior l9e bond is l tak+ a real-e/ate mortgage on prop]ty already encumb]$4 ,if ! bond is n foll[$ by o!r bonds1 !n ! m>g9 ( security 9 ! prop]ty is repres5t$ :olly by ! m>ket value ( ! /ock p] mile1 & ! inve/or mu/ figure c>efully ! value ( ?is equity4 7#c7 ,am\nt ( junior li5 bonds out/&+ p] mile4 ,! am\nt ( bonds :i* come aft] ! bond 9 "q1 on ! o!r h&1 works directly 9 favor ( ! bond1 = x increases ! m>g9 ( security4 ,x %[s also t o!r p h _h suffici5t confid5ce 9 ! prop]ty to inve/ _! money 9 obligations subject to ! "o 9 "q4 ,9 ! ev5t ( a receiv]%ip ?is is (t5 a matt] ( great importance2 = if a =eclosure sale is ord]$ ! junior bondhold]s1 9 ord] to protect _! own int]e/1 mu/ buy 9 ! prop]ty = an am\nt at lea/ equal to ! p> value ( ! prior li5 bonds4 ,! =ego+ consid]ations apply p>ticul>ly to ! safety ( ! pr9cipal inve/$ 9 railroad bonds2 ! foll[+ po9ts affect ! safety ( int]e/3 7#d7 ,gross e>n+s p] mile4 ,! gross e>n+s ( a railroad mu/ be comp>$ ) ^? ( o!r roads occupy+ ! same field1 & ! returns = a numb] ( ye>s mu/ be exam9$ to det]m9e :e!r su* e>n+s h increas$ or decreas$4 ,! position 9 :i* ! railroad /&s = obta9+ new traffic mu/ be not$4 ,?is is dep5d5t some:at ^u ! railroad's ability to take traffic f o!r railroads1 b m ^u ! probable gr[? & developm5t ( ! t]ritory :i* ! railroad s]ves1 & ! increas$ traffic :i* w probably be (f]$4 ,9 ?is connection ! rate ( increase 9 population 9 ! road's t]ritory is important4 ,! proportion betwe5 pass5g] & freight e>n+s1 ! div]sity & d5sity ( freight traffic1 & pass5g] & freight rates %\ld be exam9$4 ,! reputation ( ! managem5t = ability & integrity %\ld be consid]$4 ,gross e>n+s run f ab\t #c1jjj to #dj1jjj p] mile ) ! av]age #aj1dfj4 7#e7 ,net income p] mile4 ,net income is obta9$ by subtract+ f gross e>n+s op]at+ exp5ses 7& sometimes taxes7 & add+ to ! net e>n+s s obta9$ :atev] income f o!r s\rces ! railroad may d]ive4 ,?is is a v important figure4 ,z ) gross e>n+s1 ! reports %\ld be exam9$ to det]m9e :e!r net income is on ! increase or ! decrease1 & x %\ld be comp>$ ) ! net income ( o!r railroads occupy+ ! same field4 ,x involves a criticism ( op]at+ exp5ses4 ,! paym5ts ( ! railroad mu/ be analyz$ to det]m9e :e!r ! prop] sums h be5 exp5d$ = ma9t5ance ( way1 repl5i%m5t ( roll+ /ock1 & o!r improvem5ts suffici5t to keep ! road 9 good physical condition4 ,normally speak+1 op]at+ exp5ses %\ld absorb ab\t #fe p] c5t ( gross e>n+s4 ,if x is f\nd t a railroad op]ates = #fj p] c5t1 h[ev]1 x does n always foll[ t its op]at+ (ficials are exceptionally effici5t1 s t ! co/ ( conduct+ transportation is relatively small2 x may mean t ! physical condition ( ! prop]ty is be+ neglect$1 or t ord9>y improvem5ts1 :i* %\ld be *>g$ to ma9t5ance1 are be+ paid = by increase 9 capitalization4 ,x is v important = ! inve/or to f9d out :i* is ! case4 ,if analysis leads to ! suspicion t ! e>n+s result f neglect+ ! prop]ty or capitaliz+ e trivial improvem5t1 ! railroad's bonds %\ld be reject$4 ,net income v>ies f #a1ejj to #ab1jjj p] mile1 ) an av]age ( #d1gjb4 7#f7 ,fixt *>ges p] mile4 ,! fixt *>ges ( a railroad include int]e/ on its bonds1 r5tals1 & taxes 7:5 ! la/-nam$ are n report$ ) op]at+ exp5ses74 ,! importance ( ?is figure lies 9 its relation to net income4 ,if a railroad does n e>n well ov] d\ble its fixt *>ges1 its obligations c n be reg>d$ z 9 ! fir/ inve/m5t rank4 ,( c\rse1 :5 a railroad e>ns m ?an twice ! int]e/ requirem5t ^u its entire bond$ debt1 x is probable t "s ( ! und]ly+ bonds are protect$ by ?ree1 f\r1 or five times ! int]e/ requirem5t ^u !m1 & _! position is correspond+ly /r5g!n$4 ,! =ego+ analysis applies p>ticul>ly to mortgage bonds ^u ! g5]al mileage ( a railroad & n to su* special issues z collat]al tru/1 t]m9al1 bridge1 or gu>ante$ bonds4 ,x w n be necess>y1 h[ev]1 to lay d[n any rules z to ^! classes ( bonds1 = ! g5]al pr9ciples outl9$ above1 ) slight modifications ( detail1 w be f\nd equally applicable to a judgm5t ( _! value4 ,equipm5t bonds1 on ! o!r h&1 ow+ to _! want ( simil>ity to any o!r railroad issues1 w receive sep>ate treatm5t lat]4 ,x is ( int]e/1 9 view ( ! pres5t dim9i%$ confid5ce 9 railroad securities1 to advance c]ta9 consid]ations t\*+ ^u ! safety ( railroad bonds 9 g5]al4 ,! la/ publi%$ report ( ! ,int]-,/ate ,comm]ce ,commission1 ye> #aijf1 furni%es int]e/+ te/imony on ?is subject4 ,a table on page #fj %[s t ! total railroad capital ( ! ,unit$ ,/ates = t ye> 0 #ad1egj1dba1dgh1 ( :i* #g1gff1ffa1che1 or #ec4ca p] c5t1 0 9 ! =m ( bond$ debt1 & ! re/ 9 capital /ock4 ,^! figures indicate a sub/antial equity1 b are some:at mislead+ because !y ref] to p> value4 ,a fair e/imate ( ! m>ket value ( ?is /ock equity1 :i* is ! m>g9 ( security 9 ! prop]ties f ! bondhold]'s po9t ( view1 c be obta9$ f a table on page #hb1 :i* %[s a balance available = divid5ds1 aft] pay+ all op]at+ exp5ses & fixt *>ges1 ( all ! railroads ( ! ,unit$ ,/ates = ! ye> end$ ,june #cj1 #aijf1 ( #deg1jfj1cbf4 ,?is am\nt is equival5t to ne>ly #g p] c5t ^u ! total p> value ( ! /ocks4 ,e/imat+ t a railroad /ock %\ld e>n #aj p] c5t ^u its m>ket price--& ev5 ! mo/ prejudic$ w admit t a /ock e>n+ #aj p] c5t is wor? p>--! total m>ket value ( ,am]ican railroad /ocks w\ld be #d1egj1fjc1bfj1 or m ?an half ! p> value ( ! bonds4 ,9 o!r words1 ! bond$ debt w\ld repres5t some?+ less ?an #fc p] c5t ( ! total m>ket value ( ! prop]ty4 ,?is comp>es favorably ) ! security ( fir/ mortgages ^u real e/ate4 ,:5 ! safety ( int]e/ is consid]$1 ! %[+ made is equally /rong4 ,page #hb ( ! report above quot$ %[s t ! net income ( ! railroads ( ! ,unit$ ,/ates = ! ye> end$ ,june #cj1 #aijf1 aft] paym5t ( all op]at+ exp5ses1 0 #hdh1hcf1gga1 & ! total fixt *>ges1 includ+ int]e/ on bonds1 int]e/ on curr5t liabilities1 & taxes1 am\nt$ to #cia1ggf1dde1 leav+ a balance available = divid5ds ( #deg1jfj1cbf4 ,x is app>5t1 !re=e1 t ! net e>n+s ( ! railroads ( ! ,unit$ ,/ates1 consid]$ z "o sy/em1 c\ld be cut 9 half )\t affect+ ! paym5t ( int]e/ ^u ! railroad's obligations4 ,?is af=ds a l>ge measure ( protection4 ,! foll[+ analysis %[s t ! actual m>ket value ( ! railroads is probably great] ?an ! e/imate made above4 ,! table %[s ! p]c5tage ( bond$ debt to total m>ket value ( "s ( ! m important railroad sy/ems4 ,two trunk l9es 9 ! ,ea/1 a nor? & s\? l9e 9 ! middle ,we/1 & two transcont95tal h be5 *os54 ,no attempt has be5 made to select railroads :i* w\ld make a favorable %[+4 ,inde$ ,p5nsylvania1 & ,union ,pacific1 by reason ( _! rec5t heavy bond issues1 probably comp>e unfavorably ) o!rs :i* might h be5 *os54 ,! figures %[+ ! p> value ( bonds out/&+ h be5 tak5 f la/ annual reports1 ) additions made = rec5t issues4 ,! figures %[+ ! m>ket value ( /ocks are bas$ on ! am\nts out/&+ ,april #a/1 #aijh1 at ! m>ket price4 ,p> value ( ,approx4 m>ket ,p] c5t bonds out/&+ value ( /ock ( bonds out/&+ to total value ,p5nsylvania #bgj1igd1fde #cfa1jjj1jjj #db4h ,new ,york ,c5tral #bee1dad1hde #agd1jjj1jjj #ei4d ,ill9ois ,c5tral #aef1jec1bge #abj1jjj1jjj #ef4f ,great ,nor!rn #bjg1eag1ici #bfj1jjj1jjj #dd4c ,union ,pacific #bgd1hbg1jjj #cbd1jjj1jjj #de4i ,9 view ( ! enorm\s decl9e :i* has occurr$ 9 railroad /ocks dur+ ! pa/ eighte5 mon?s1 ! %[+ above is truly rem>kable4 ,x is pla9 t ! entire bond$ debt ( any ( ^! /&>d railroads is less ?an #fj p] c5t ( ! total m>ket value ( ! prop]ty1 :ile 9 ! cases ( ! ,p5nsylvania1 ,great ,nor!rn1 & ,union ,pacific1 m ?an half ( ! pres5t m>ket value ( ! prop]ty c\ld be eras$ be=e ! li5 ( ! bonds lea/ well secur$ w\ld be impair$4 ,( c\rse1 :]e ! entire bond$ debt is protect$ by su* a m>g91 x is evid5t t ! und]ly+ bonds 7! prior li5s & fir/ mortgages7 are protect$ by sev]al times z great a m>g9 & _! position is correspond+ly /r5g!n$4 ,! =ego+ analysis1 9 ! judgm5t ( ! writ]1 af=ds conv9c+ pro( n only t ! prevail+ want ( confid5ce 9 railroad obligations is )\t f\ndation1 b t railroad bonds comp>e favorably 9 po9t ( safety ) any o!r =m ( inve/m5t4 ,x rema9s to po9t out ! am\nt ( income & degree ( conv]tibility :i* !y af=d & ! ext5t ( appreciation 9 value :i* !y promise4 ,x is impossible to d m ?an indicate ! g5]al *>act]i/ics ( railroad bonds 9 ^! p>ticul>s4 ,railroad bonds cov] a wide range ( income return4 ,!y yield all ! way f #c-c_/d p] c5t to #i p] c5t1 ! g5]al av]age be+ f #d p] c5t to #f p] c5t4 ,z a class !y yield m ?an gov]nm5t or municipal bonds1 & less ?an public-utility or indu/rial bonds4 ,) equal security !y probably yield less ?an real-e/ate mortgages4 ,comp>$ ) /ocks !y return m ?an bank /ocks1 av]age ab\t ! same z railroad /ocks1 & yield less ?an public-utility1 indu/rial1 or m9+ /ocks4 ,^! comp>isons are int5d$ to apply to ! classes z a :ole1 & rema9 g5]ally true 9 spite ( specific cases to ! contr>y4 ,conv]tibility is ! di/+ui%+ m>k ( railroad bonds4 ,g5]ally speak+ !y may be m easily m>ket$ ?an any o!r class ( bonds4 ,comp>$ ) /ocks !y exce$ public-utility1 m9+1 & bank /ocks 9 po9t ( conv]tibility1 & yield only to railroad /ocks4 ,x is h>d to say :e!r or n !y possess great] conv]tibility ?an indu/rial /ocks1 b x is probable t !y d1 all[+ = ! fact t an undue impression is creat$ by ! activity ( c]ta9 prom95t %>es4 ,railroad bonds z a class possess great promise ( appreciation 9 value4 ,am]ican railroads1 g5]ally speak+1 h adopt$ ! cons]vative policy ( putt+ a consid]able "p ( _! annual e>n+s back into ! prop]ty 9 ! =m ( improvem5ts4 ,to ! ext5t to :i* ?is policy is foll[$1 an equity is creat$ back ( ! bonds :i* raises _! intr9sic value4 ,?is policy contra/s favorably ) ! g5]al practise ( ,engli% roads to pay out all _! e>n+s 9 divid5ds1 & to capitalize _! improvem5ts4 ,9 addition1 new capital = ,am]ican railroads is l>gely rais$ by /ock issues1 :i* fur!r increases ! m>g9 ( security = ! bondhold]s4 ,tak5 toge!r ^! facts insure a /eady enhancem5t 9 ! intr9sic value ( railroad bonds1 :i* is b\nd to be reflect$1 o!r ?+s be+ equal1 9 high] prices4 ,we %all n attempt to discuss at ?is "t ! degree ( /ability ( m>ket price :i* railroad bonds enjoy4 ,z expla9$ 9 ! fir/ *apt]1 /ability ( m>ket price is dep5d5t ^u g5]al f9ancial & bus9ess conditions4 ,x is suffici5t to po9t out "h t ! ma9t5ance intact ( ! pr9cipal sum inve/$ c only be r5d]$ c]ta9 by ! pur*ase ( %ort-"t securities ^: ne> approa* to maturity w keep _! price close to p>4 ,9 a lat] *apt] ! g5]al pr9ciples :i* det]m9e ?is "q w be elucidat$4 ,! ideal inve/m5t may be def9$ z "o comb9+ ample security ( pr9cipal & int]e/1 a good rate ( income1 ready conv]tibility into ca%1 & reasonable promise ( appreciation 9 value4 ,measur$ by ! requirem5ts ( ?is def9ition1 ! conclusion seems ju/ifi$ t well-select$ railroad bonds1 if pur*as$ "u favorable money-m>ket conditions1 af=d a highly desirable =m ( inve/m5t4 ,,iii ,,railroad ,,equipm5t ,,bonds ,z its "n implies1 an equipm5t bond is "o issu$ by a railroad to provide funds ) :i* to pay = new roll+ /ock--c>s & locomotives4 ,! issues are v>i\sly describ$ z c> tru/ c]tificates1 equipm5t bonds1 or equipm5t notes4 ,!y con=m 9 g5]al to "o ( two /&>d =ms3 7#a7 ,! conditional sale plan3 ,9 accordance ) specifications furni%$ by ! railroad1 ! tru/ee select$ 7usually a tru/ company7 contracts ) ! build]s = ! pur*ase ( ! equipm5t4 ,f #aj to #bj p] c5t ( ! co/ ( ! equipm5t is paid 9 ca% by ! railroad & ! re/ is repres5t$ by ! equipm5t bonds4 ,! bonds are ! direct obligation ( ! railroad company4 ,!y are secur$ by a fir/ li5 ^u ! entire equipm5t pur*as$4 ,! title to ! equipm5t rema9s 9 ! tru/ee = ! b5efit ( ! bondhold]s until ! la/ bond has be5 paid1 s t "u no circum/ances c ! g5]al mortgages ( ! railroad atta* z a fir/ li5 on ! equipm5t ahead ( ! c> tru/ obligations4 ,aft] ! f9al paym5t1 ! tru/ee assigns title to ! railroad company1 :i* !reupon becomes ! own] 9 fee ( ! equipm5t4 ,"u ! t]ms ( ! de$ ( tru/ ! railroad is always oblig$ to keep ! equipm5t fully insur$1 9 good ord] & complete repair1 & to replace any equipm5t :i* may become worn out1 lo/1 or de/roy$4 ,! bonds are usually issu$ 9 c\pon =m1 #a1jjj ea*1 be>+ semiannual int]e/1 ) provision = regi/ration4 ,!y are g5]ally paid (f 9 semiannual or annual in/alm5ts ( sub/antially equal am\nts1 ! la/ in/alm5t usually fall+ due 9 t5 ye>s1 a p]iod well )9 ! life ( ! equipm5t z e/imat$ "u ! ma/] c> build]'s rules4 ,occasionally ?is me?od ( paym5t is alt]$ by ! sub/itution ( a s9k+ fund1 ! bonds hav+ a uni=m fixt maturity1 b subject to ! op]ation ( a s9k+ fund :i* is suffici5t to retire ! entire issue well )9 ! life ( ! equipm5t4 ,9 ei!r case ! security1 ample at ! outset1 increases proportionally ) ! r$uction 9 obligations out/&+ aga9/ x4 7#b7 ,! s-call$ ,philadelphia plan4 ,"u ?is plan ! equipm5t is pur*as$ by an individual1 association1 or corporation :i* leases ! equipm5t to ! railroad = a t]m ( ye>s at a r5tal equival5t to ! int]e/ & matur+ in/alm5ts ( ! bonds4 ,! contract ( lease is !n assign$ to a tru/ company z tru/ee1 :i* !reupon issues its c]tificates 9 sub/antially ! =m describ$ 9 ! plan above1 ^! repres5t+ a b5eficial int]e/ 9 ! equipm5t1 :i* are usually gu>ante$ bo? pr9cipal & int]e/ by ! railroad4 ,! lease runs until ! la/ bond has be5 paid1 aft] :i* ! tru/ee assigns title to ! railroad z above4 ,! *ief advantage ( ?is plan ov] ! o!r is t 9 "s ,/ates1 notably ,p5nsylvania1 c]tificates issu$ 9 accordance ) its t]ms are exempt f taxation1 :]eas "u ! conditional sale plan1 z ! direct obligation ( ! railroad1 ! bonds w\ld be taxable4 ,x is evid5t f ! =ego+ description t equipm5t bonds diff] 9 two important respects f all o!r classes ( railroad issues4 ,fir/1 ! title to ! prop]ty :i* secures ! bonds does n ve/ 9 ! railroad2 &1 secondly1 ! prop]ty is movable & n fixt 9 any "o locality4 ,by virtue ( ^! two po9ts1 ! hold]s ( equipm5t bonds possess a great advantage ov] ! hold]s ( mortgage bonds 9 ! ev5t ( a railroad's becom+ bankrupt4 ,if a railroad is unable to meet its int]e/ *>ges1 ! mortgage bondhold]s c r>ely d bett] ?an h a receiv] appo9t$ :o w op]ate ! railroad 9 _! int]e/2 b if1 ) hone/ & effici5t managem5t1 ! railroad c n be made to e>n its int]e/ *>ges1 ! mortgage bondhold]s usually h to cons5t to ! scal+ ( _! bonds to a po9t :]e ! railroad c op]ate ^u a pay+ basis4 ,) ! hold]s ( equipm5t bonds ! case is q diff]5t4 ,if ! receiv] defaults ^u _! bonds !y h only to direct ! tru/ee to ent] ^u possession ( ! equipm5t & sell x or lease x to "s o!r railroad4 ,! k t !y possess ?is p[] r5d]s its ex]cise g5]ally unnecess>y4 ,! equipm5t ( a railroad is ess5tial to its op]ation4 ,x is ! tool ) :i* ! railroad h&les its bus9ess4 ,if ! receiv] 7 depriv$ ( ! equipm5t x w\ld be impossible = him to op]ate ! road1 & s he c\ld nev] satisfy its cr$itors4 ,consequ5tly ! c\rts1 bo? ,/ate & ,f$]al1 h rul$ t ! necess>y equipm5t ( a bankrupt railroad mu/ be pres]v$1 & h plac$ ! *>ges = pr9cipal & int]e/ ( equipm5t obligations ^u an equality ) *>ges = wages1 mat]ials1 & o!r op]at+ exp5ses1 & 9 priority to int]e/ ( ev5 fir/-mortgage bonds4 ,^! po9ts suffici5tly expla9 ! rem>kable record :i* equipm5t bonds h made dur+ reorganizations4 ,c>eful inve/igation has be5 made ( ! v>i\s railroads :i* 7 reorganiz$1 ei!r ) or )\t =eclosure1 betwe5 ! ye>s #ahhh & #aije4 ,?is cov]s ! *ief p]iod ( railroad receiv]%ip4 ,x 0 discov]$ t sixte5 diff]5t railroads1 aggregat+ ne>ly "o hundr$ ?\s& miles & locat$ 9 widely diff]5t p>ts ( ! c\ntry1 _h out/&+ equipm5t bonds at ! "t ( default4 ,9 e case ! pr9cipal & int]e/ ( equipm5t bonds 7 paid 9 full1 :ile all o!r securities1 ) a few exceptions1 7 r$uc$ 9 rate or am\nt or bo?4 ,two ( ^! railroads (f]$ to ! hold]s ( equipm5t bonds ! option ( an advantage\s ex*ange ( securities1 :i* am\nt$ to m ?an paym5t 9 full4 ,! =ego+ facts ju/ify ! conclusion t equipm5t bonds possess security equal or sup]ior to t ( any o!r =m ( railroad bonds4 ,let u n[ consid] _! rema9+ *>act]i/ics--_! rate ( income1 conv]tibility1 prospect ( appreciation 9 value1 & /ability ( m>ket price4 ,"o ( ! /ronge/ features ( equipm5t bonds is ! relatively high rate ( income :i* !y yield4 ,! am\nt realiz$ v>ies 9 accordance ) ! f9ancial /r5g? & cr$it ( ! issu+ railroad1 & ! m>g9 ( security 9 ! equipm5t itself4 ,z a g5]al rule1 ! net return on ! equipm5t bonds ( a giv5 railroad is usually f #a_/b p] c5t to #c_/d p] c5t great] ?an on ! fir/-mortgage bonds ( ! same railroad4 ,?is is ow+ to ! fact t :ile banks & sci5tific inve/ors h b\ght equipm5t bonds = _m ye>s1 ! g5]al public is n suffici5tly famili> ) ! inh]5t /r5g? ( ^! issues to create mu* ( a dem& = !m4 ,?is insures a good return4 ,equipm5t bonds v>y 9 po9t ( conv]tibility4 ,! read] w rememb] f ! description above t equipm5t bonds are usually issu$ 9 s]ial =m1 ) in/alm5ts matur+ semiannually f six mon?s to t5 ye>s4 ,by conf9+ pur*ases to ! %ort] maturities1 say )9 two or ?ree ye>s1 a high degree ( conv]tibility may usually be obta9$ because ! %ort maturities are greatly s\ght by banks & o!r f9ancial in/itutions :i* reg>d equipm5t bonds 9 mu* ! same light z m]*ant's pap] or "t loans secur$ by collat]al4 ,at a price equival5t to ! rate :i* ! be/ comm]cial pap] comm&s1 !re is always a good dem& f ! banks4 ,_m banks pref] equipm5t bonds to loans or pap] on acc\nt ( _! great] conv]tibility4 ,z ! l5g? ( maturity increases1 ! degree ( conv]tibility g5]ally decreases1 because ! *ief dem& = ! long] dates comes f insurance companies1 :i* d n1 9 ! aggregate1 con/itute z great a dem& z ! banks4 ,:5 ! dem& f private inve/ors increases1 z x und\bt$ly w :5 !y become m famili> ) ! desirable po9ts ( ^! issues1 all maturities w probably possess ready conv]tibility4 ,9 ! same way1 equipm5t bonds v>y z to /ability ( m>ket price4 ,comp>$ ) o!r classes ( railroad issues1 equipm5t bonds are all relatively /able1 b ! /ability is especially m>k$ 9 ! %ort] maturities4 ,equipm5t bonds possess little prospect ( appreciation 9 value4 ,! att5tive read] :o has c>efully foll[$ ! =ego+ description ( equipm5t bonds1 may h notic$ a special adaptability on _! "p to ! requirem5ts ( a bus9ess surplus4 ,broadly speak+1 = su* inve/m5t1 a security is requir$ :i* w comb9e p]fect safety ( pr9cipal & int]e/1 a good rate ( income1 ready conv]tibility into ca%1 & unyield+ /ability ( m>ket price4 ,! necessity = insi/5ce ^u ^! requirem5ts 9 ! inve/m5t ( a bus9ess surplus w appe> ^u a mom5t's reflection4 ,safety is requir$ 9 all =ms ( inve/m5t1 b is p>ticul>ly important 9 ! h&l+ ( bus9ess funds2 a good rate ( income is always desirable2 conv]tibility is necess>y = a bus9ess surplus s t ! res]ve funds may be conv]t$ into ca% at any "t2 & x is ( ! utmo/ importance t ! security %\ld n %r9k mat]ially 9 quot$ price1 no matt] :at *anges may take place 9 f9ancial & bus9ess conditions1 s t if ! ne$ %\ld arise = realiz+ on ! res]ve fund1 x w\ld be f\nd unimpair$ 9 am\nt4 ,z expla9$ 9 a =m] *apt]1 ?is po9t c n be cov]$ by ! selection ( securities p]fectly safe z to pr9cipal & int]e/1 b only by ! pur*ase ( %ort-t]m obligations4 ,! po9t may be illu/rat$ z foll[s3 ,let x be suppos$ t a firm or company has decid$ to inve/ #ajj1jjj 9 ! #e-p]-c5t equipm5t bonds ( a good railroad matur+ 9 ?ree ye>s1 :i* c be obta9$ at p>1 m]*ant's pap] !n comm&+ ab\t #e-a_/b p] c5t4 ,aft] two ye>s x becomes necess>y = ! firm to realize on its inve/m5t at a "t :5 comm]cial pap] is float$ ) difficulty on a #f-a_/b-p]-c5t or #g-p]-c5t basis4 ,"u su* money conditions ! equipm5t bonds c\ld be sold on ab\t a #f-p]-c5t basis1 :i* w\ld mean a price ( #ii = a #e-p]-c5t bond ) "o ye> to run4 ,! firm1 9 liquidat+ its inve/m5t1 w\ld !re=e lose #a p] c5t 9 pr9cipal1 b w\ld h receiv$ #e p] c5t int]e/ = two ye>s1 mak+ ! net return #d-a_/b p] c5t4 ,comp>e ?is %[+ ) ! result if ! bonds :5 orig9ally b\ght _h _h t5 ye>s to run in/ead ( ?ree4 ,aft] two ye>s1 :5 ! firm wi%$ to dispose ( its bonds x might exp]i5ce "s difficulty 9 do+ s 9 ! /r+5t money m>ket :i* has be5 suppos$1 b ev5 if x succe$$ 9 sell+ !m ^u a #f-p]-c5t basis1 t w\ld mean a price ( only #ic-c_/d & w\ld repres5t #f-a_/d-p]-c5t loss 9 pr9cipal4 ,if x 7 necess>y to sell ! bonds ^u a high] basis or if ! firm _h pur*as$ a bond ) m ?an t5 ye>s to run1 ! relative disadvantage ( ! long] bond w\ld be /ill m app>5t4 ,^! po9ts suffici5tly demon/rate ! importance ( buy+ only %ort-t]m securities = ! inve/m5t ( a bus9ess surplus4 ,( c\rse1 if money conditions improve in/ead ( becom+ worse betwe5 ! dates ( pur*ase & sale1 !n a great] pr(it w\ld be made ) ! long]-t]m bond4 ,?is1 h[ev]1 %\ld n be all[$ to influ5ce ! *oice1 fir/ because x is n ! object ( a res]ve fund to make a speculative pr(it1 & secondly because a firm or corporation is only likely to want to realize ^u its res]ve fund :5 money is h>d to obta9 o!rwise1 & t is precisely ! "t :5 any long-t]m bond w\ld be apt to %[ consid]able depreciation4 ,! =ego+ consid]ations indicate a special adaptability on ! "p ( equipm5t bonds to ! usual requirem5ts ( a bus9ess surplus4 ,! po9ts h be5 br\ght out at "s l5g? because ( ! importance ( ! subject to ! av]age bus9ess man4 ,! purpose 9 conc5trat+ att5tion ^u a s+le in/ance has be5 to illu/rate m cle>ly ! pr9ciples involv$ & at ! same "t to acqua9t ! bus9ess man ) details ( a highly desirable & some:at unfamili> =m ( security4 ,,iv ,,real-,,e/ate ,,mortgages ,9 ! prec$+ *apt] ! discussion ( railroad bonds 0 br\ght to a close4 ,be=e pass+ to ! consid]ation ( real-e/ate mortgages1 :i* is ! next =m ( inve/m5t to be tak5 up1 x may be well to review briefly ! g5]al pr9ciples advanc$ 9 ! fir/ *apt] ( ?is book1 9 ord] t ! read] may h cle>ly 9 m9d ! ma9 po9ts ^u :i* judgm5t ( ! value ( inve/m5ts %\ld be bas$4 ,!re are five *ief po9ts to be consid]$ 9 ! selection ( all =ms ( inve/m5t4 ,^! are3 7#a7 safety ( pr9cipal & int]e/2 7#b7 rate ( income2 7#c7 conv]tibility into ca%2 7#d7 prospect ( appreciation 9 intr9sic value2 7#e7 /ability ( m>ket price4 ,keep+ ^! five g5]al factors 9 m9d1 ! pres5t *apt] w discuss real-e/ate mortgages z a =m ( inve/m5t1 bo? z adapt$ to ! requirem5ts ( private funds & ( a bus9ess surplus4 ,! av]age ,am]ican bus9ess man is s famili> ) real-e/ate mortgages t ! details may be pass$ ov] briefly4 ,a real-e/ate mortgage1 or a bond & mortgage1 z x is sometimes call$1 consi/s ess5tially ( two p>ts1 a bond or promise to pay a c]ta9 sum ( money at a future date ) int]e/ at a c]ta9 rate p] annum1 & a mortgage or tru/ de$ transf]r+ title & own]%ip 9 a piece ( real e/ate1 ) ! provision t ! transf] %all be void if ! int]e/ is regul>ly paid & ! bond r$eem$ at maturity4 ,be=e advanc+ money on ! security ( a mortgage x is necess>y to det]m9e :e!r ! title to ! prop]ty legally ve/s 9 ! mak] ( ! mortgage2 & dur+ ! cont9uance ( ! mortgage x is necess>y to h pro( t ! taxes & assessm5ts are be+ regul>ly paid1 &1 9 ! case ( improv$ prop]ty1 ! fire-insurance z well4 ,! safety ( real-e/ate mortgages1 9 common ) ! safety ( all obligations1 dep5ds ^u ! m>g9 ( security 9 excess ( ! am\nt ( ! loan4 ,9 ! case ( real-e/ate mortgages ! am\nt ( ?is m>g9 may be det]m9$ )\t great difficulty4 ,x is only necess>y to h ! prop]ty c>efully apprais$ by an exp]t 9 real-e/ate values4 ,x does n foll[1 h[ev]1 because a mortgage has be5 %[n to possess sub/antial equity1 t x is p]fectly safe z an inve/m5t1 unless x satisfies also ano!r condition ( great importance4 ,a mortgage may n exce$ #ej p] c5t ( ! sell+ value ( ! real e/ate pl$g$1 & yet be a poor inve/m5t4 ,?is po9t involves a s]i\s objection to real-e/ate mortgages :i* sometimes escapes notice4 ,! hold] ( a mortgage is at a great disadvantage 9 reg>d to ! *ang+ value ( real e/ate4 ,if ! value ( ! prop]ty ^u :i* he holds a mortgage increases1 ! additional value enhances ! security ( ! loan1 b does n add to ! pr9cipal :i* he has inve/$1 :ile if ! value ( ! prop]ty dim9i%es1 n only is ! security proportionately less5$1 b if ! impairm5t be great1 ! hold] is frequ5tly compell$ to take ov] ! prop]ty & may suff] loss ( pr9cipal4 ,9 o!r words1 he receives no direct b5efit f an increase 9 ! value ( ! prop]ty1 b has to /& ! l>g] "p ( ! risk ( a decl9e 9 its value4 ,?is is n ! case ) inve/m5ts repres5t$ by negotiable securities subject to *ang+ m>ket quotations4 ,all su* securities1 railroad bonds = example1 are act$ on equally by *anges 9 ! value ( ! prop]ty :i* secures !m4 ,except = ! influ5ces ( money-m>ket conditions1 railroad bonds advance ) an increase 9 ! value ( ! prop]ty & decl9e ) a decrease 9 its value4 ,well-select$ bonds usually increase 9 value ) "t1 & all su* increase goes directly to ! b5efit ( ! hold]4 ,! failure ( real-e/ate mortgages to respond simil>ly to *anges 9 ! value ( prop]ty places ! hold] ( a mortgage at a great disadvantage4 ,ow+ to ?is *>act]i/ic1 real-e/ate mortgages %\ld be pur*as$ only :5 g5]al conditions 9 ! real-e/ate m>ket are di/9ctly favorable4 ,n only %\ld ! pur*as] ( a mortgage h suffici5t m>g9 ( security 9 ! p>ticul> piece ( prop]ty ^u :i* he is loan+ money1 b he %\ld also be satisfi$ t g5]al real-e/ate values are relatively l[1 t !re has be5 no undue speculation1 & t conditions favor an advance r ?an a decl9e 9 real-e/ate prices4 ,no class ( prop]ty is subject to m rapid *anges 9 value ?an real e/ate4 ,aft] an ext5sive advance ! hold] ( a mortgage may be insuffici5tly protect$ by ! equity 9 ! prop]ty1 ev5 if 8 mortgage repres5ts only #fj p] c5t ( ! curr5t apprais$ value ( ! real e/ate pl$g$4 ,x may be t ! #fj p] c5t :i* he has loan$ repres5ts ! total value or m ?an ! total value a few ye>s be=e4 ,:5 a rapid advance 9 values occurs1 ?o x may be l>gely ju/ifi$ by ! gr[? & developm5t ( ! t]ritory1 !re is sure to be pres5t an elem5t ( speculation :i* is likely to c>ry prices beyond ! po9t ( reason4 ,:5 ! turn comes & a sev]e collapse takes place1 its effects are extremely disa/r\s1 because1 unlike speculation 9 /ocks or commodities1 no %ort sell+ exi/s 9 real e/ate to temp] ! fall1 & ! immobile =m ( capital makes liquidation impossible4 ,^! consid]ations s]ve to %[ ! ne$ = great prud5ce 9 ! pur*ase ( real-e/ate mortgages4 ,if ! inve/or ex]cises due c>e 9 ^! p>ticul>s1 he is reasonably sure ( obta9+ a v high-grade security2 if he neglects ^! precautions1 he may suff] sev]e loss ( pr9cipal4 ,no g5]al figures are available :i* w\ld indicate ! degree ( c]ta9ty atta*+ to ! paym5t ( int]e/ ^u real-e/ate mortgages4 ,c]ta9 classes ( mortgages1 su* z ^? secur$ by unimprov$ real e/ate or dwell+s1 af=d no direct security ( int]e/ paym5t o!r ?an ! ?reat ( =eclosure4 ,o!r classes1 su* z mortgages ^u /ores1 hotels1 or (fice-build+s1 are (t5 protect$ by a l>ge income f ! direct op]ation ( ! mortgag$ premises1 ?us furni%+ a security = ! annual int]e/ paym5t4 ,! m>g9 ( protection 9 ^! cases v>ies greatly1 s t no g5]al conclusion c be drawn4 ,! o!r *>act]i/ics ( real-e/ate mortgages may be pass$ ov] m briefly4 ,x is g5]ally conc$$ t mortgages return a high] rate ( income ?an c be obta9$ ^u any o!r =m ( inve/m5t :i* af=ds equal security4 ,?is con/itutes _! *ief advantage4 ,_! *ief disadvantage1 on ! o!r h&1 lies 9 _! entire want ( conv]tibility4 ,!re is no m>ket = real-e/ate mortgages1 & except 9 special in/ances !y c n be readily sold4 ,! fact t !y are n subject to quotation prev5ts !m also f hold+ out any prospect ( appreciation 9 value4 ,_! v defici5cy 9 ?is respect1 h[ev]1 con/itutes an important advantage f ano!r po9t ( view4 ,s9ce !y are n quot$ !y c n %r9k 9 m>ket price 9 ob$i5ce to *anges 9 f9ancial & bus9ess conditions4 ,! buy] ( a mortgage is assur$ t he c c>ry 8 mortgage at p> ?r\gh p]iods :5 x may be necess>y to m>k d[n all negotiable securities subject to *ang+ m>ket quotations4 ,?is is frequ5tly a matt] ( great importance4 ,! g5]al *>act]i/ics ( real-e/ate mortgages may be summ>iz$ z foll[s3 7#a7 ,:5 c>efully select$ & pur*as$ "u favorable conditions1 great safety ( pr9cipal & int]e/2 7#b7 a relatively high return2 7#c7 a l[ degree ( conv]tibility2 7#d7 no prospect ( appreciation 9 value2 & 7#e7 ! practical c]ta9ty ( ma9ta9+ ! integrity ( ! pr9cipal inve/$4 ,is a security possess+ ^! *>act]i/ics a suitable inve/m5t = a bus9ess surplus8 ,only to a limit$ ext5t4 ,! safety1 high return1 & assurance aga9/ loss 9 quot$ value ( pr9cipal are all highly desirable qualities = ?is purpose1 b ! lack ( conv]tibility is a fatal defect4 ,no consid]ation is ( great] importance 9 ! inve/m5t ( a bus9ess surplus ?an a high degree ( conv]tibility1 s t if ! ne$ %\ld arise ! inve/m5t may be in/antly liquidat$4 ,! fact t real-e/ate mortgages c n be readily dispos$ ( makes x practically impossible to employ !m = ! inve/m5t ( a bus9ess surplus4 ,:]e conv]tibility is n an ess5tial requirem5t1 & :]e ! want ( promise ( appreciation 9 value is n a s]i\s matt]1 mortgages af=d a v desirable =m ( inve/m5t4 ,! *>act]i/ics :i* !y possess 9 an em95t degree--safety1 high return1 & assurance aga9/ loss 9 quot$ value ( pr9cipal--are exactly suit$ to ! ord9>y requirem5ts ( sav+s-banks4 ,g5]ally speak+1 only a small proportion ( a sav+s-bank's assets ne$ be kept 9 liquid =m or readily conv]tible1 & accord+ly !y f9d mortgages highly desirable4 ,= ! purpose ( private inve/m5t ! attractiv5ess ( mortgages is n s easy to det]m9e4 ,ord9>ily1 fluctations 9 quot$ values are ( no great importance to ! private inve/or1 s t ! abs5ce ( quotation :i* mortgages enjoy is n especially valuable4 ,_! safety & high return are attractive qualities1 b _! want ( conv]tibility & ( prospect ( appreciation 9 value are drawbacks4 ,on ! :ole1 ! private inve/or may probably employ ) advantage a c]ta9 "p1 b n too mu* ( 8 e/ate 9 mortgage inve/m5ts4 ,z "p ( a sci5tific & compreh5sive s*eme ( inve/m5t1 ! special advantages ( real-e/ate mortgages appe> mo/ prom95tly 9 ! ye>s foll[+ a bus9ess depression4 ,dur+ su* a p]iod real-e/ate values are usually relatively l[1 b beg9n+ to advance1 s t mortgages pres5t _! maximum m>g9 ( security4 ,at su* a "t !y comp>e mo/ favorably ) bonds & o!r inve/m5t securities :i* are subject to *ang+ quotations1 because su* securities are !n apt to be at _! highe/ po9t "u ! comb9$ influ5ce ( re/or$ confid5ce & ! l[ money rates :i* usually prevail4 ,aft] sev]al ye>s ( cont9u$ & increas+ bus9ess prosp]ity ! positions are j rev]s$4 ,no discussion ( real-e/ate mortgages w\ld be complete )\t allusion to ! gu>ante$ mortgages :i* h be5 plac$ ^u ! m>ket 9 great quantities )9 ! pa/ few ye>s4 ,gu>ante$ mortgages are real-e/ate mortgages gu>ante$ z to pr9cipal & int]e/ by sub/antial companies hav+ l>ge capital & surplus4 ,9 addition to ! gu>anty1 ! companies usually se>* & gu>antee ! title1 see to x t ! taxes1 assessm5ts1 & insurance are paid1 & p]=m ! o!r s]vices ( a real-e/ate brok]4 ,_! comp5sation v>ies some:at1 b probably av]ages #a_/b p] c5t--t is1 = example1 !y loan at #e p] c5t & sell gu>ante$ mortgages to ! inve/or at #d-a_/b4 ,! value ( ! gu>anty may be consid]$ f two po9ts ( view--fir/1 9 ! ev5t ( a g5]al decl9e 9 real-e/ate values1 &1 secondly1 :5 a fall occurs 9 a p>ticul> piece ( prop]ty or 9 a p>ticul> locality4 ,if a sev]e decl9e 9 real-e/ate values takes place1 affect+ all localities1 x might become necess>y = ! hold]s ( gu>ante$ mortgages to te/ ! value ( _! gu>anties4 ,9 su* a case ! "q w\ld arise h[ f> ! capital & surplus ( ! gu>antee+ companies w\ld ext5d 9 liquidat+ ! mortgages :i* !y _h gu>ante$4 ,?is w\ld dep5d entirely ^u ! proportion betwe5 ! capital & surplus ( ! companies & ! total am\nt ( out/&+ mortgages gu>ante$4 ,ord9>ily ! capital & surplus d n exce$ #e p] c5t ( ! mortgages1 s t ! av]age gu>anty is good = ab\t #e p] c5t additional equity4 ,on a piece ( prop]ty wor? #ajj1jjj1 ^u :i* a gu>ante$ mortgage ( #fj1jjj exi/s1 ! gu>anty w\ld be wor? #c1jjj1 & w\ld m>g9 ! prop]ty d[n to #eg1jjj4 ,?is additional equity is ( little value4 ,x is probably unlikely t a #dj-p]-c5t depreciation 9 value w take place1 b ! gu>anty is n ne$$ unless x does1 & if x %\ld occur1 ! depreciation is q z likely to g to #ej p] c5t or m z to /op at #dc4 ,f ! second po9t ( view ! value ( ! gu>anty is mu* great]4 ,! di/ribution ( risk1 z 9 ! case ( fire-insurance1 protects ! hold] aga9/ loss 9 ! ev5t ( a fall 9 ! p>ticul> piece ( prop]ty ^u :i* he holds a mortgage1 or ev5 9 a p>ticul> locality4 ,x c n be said1 h[ev]1 t ! records are yet suffici5tly complete to =m a conclusion z to :at is a safe proportion betwe5 capital & surplus & out/&+ mortgages4 ,fur!r ?an t ! gu>antee+ companies1 g5]ally speak+1 h be5 op]at+ s9ce _! inception ^u a ris+ m>ket1 s t _! success hi!rto has n be5 rem>kable4 ,all[+ = ^! drawbacks1 h[ev]1 ! private inve/or1 unless s situat$ z to give p]sonal att5tion to ! details ( 8 inve/m5ts1 w probably d well to pur*ase 8 mortgages 9 gu>ante$ =m4 ,v ,,indu/rial ,,bonds ,indu/rial bonds include ! obligations ( all manufactur+ & m]cantile companies1 & miscellane\s companies ( a private "*4 ,!y =m a class q di/9ct f railroad bonds or public-utility bonds4 ,i4 ,safety ( ,pr9cipal & ,int]e/4 ,! safety ( indu/rial bonds1 9 common ) ! safety ( all =ms ( inve/m5t1 dep5ds ^u ! m>g9 ( security 9 excess ( ! am\nt ( ! obligation4 ,9 ! case ( indu/rial bonds ! am\nt ( ?is m>g9 is n always easy to det]m9e4 ,ev5 :5 det]m9$1 ! rule is difficult ( application because a m>g9 :i* may seem insuffici5t f ! po9t ( view ( physical valuation may be satisfactory :5 consid]$ z ! equity ( a work+ conc]n4 ,! indications mo/ to be reli$ ^u 9 e/imat+ ! safety ( indu/rial bonds are z foll[s3 7a7 ,value ( real e/ate4 ,! fir/ po9t to be det]m9$ 9 consid]+ ! pur*ase ( an indu/rial bond is ! value ( ! real e/ate ^u :i* x is a fir/ mortgage4 ,if ! apprais$ value ( ! gr\nd1 irrespective ( ! build+s & ma*9]y ^u x1 is great] by a sub/antial sum ?an ! am\nt ( ! bond issue1 ! obligation is practically a real-e/ate mortgage4 ,9 su* a case1 :ile possibly sl[1 i4e41 secur$ by an assets difficult to realize ^u--! safety ( ! bond c h>dly be que/ion$4 ,9 judg+ a bond ^u its real-e/ate value1 x is n always safe to take ! co/ price ( ! l& z %[n by ! company's books1 because frequ5tly ! co/ ^u ! books is artificially rais$ by paym5t hav+ be5 made 9 securities ^: m>ket value is less ?an p>1 or 9 o!r ways4 ,z /at$ above1 judgm5t %\ld be bas$ ^u ! apprais$ value ( ! l&4 ,if ! bond meets ?is te/ satisfactorily1 ! prospective inve/or may feel reasonably sure t ! safety ( 8 pr9cipal is n 9 "q1 & may buy ! bond )\t anxiety if x satisfies 8 o!r requirem5ts4 ,on ! o!r h&1 if ! bond only p>tially meets ?is te/1 & x appe>s t "s "p ( its value comes f plant & equipm5t & f ! /r5g? ( ! company z a work+ conc]n1 !n x is necess>y = ! inve/or to consid] c>efully sev]al o!r factors4 7b7 ,net quick assets4 ,! balance-%eet ( e indu/rial company c be divid$ horizontally into two p>ts4 ,its assets are ( two k9ds--prop]ty assets1 :i* are fixt1 & curr5t assets1 :i* are fluid4 ,simil>ly1 its liabilities are ( two k9ds--capital liabilities & curr5t liabilities4 ,x requires no v ext5d$ bus9ess exp]i5ce to pick out ! items :i* make up ^! totals4 ,plant & prop]ty assets are usually lump$ toge!r "u ! head1 ,co/ ( ,prop]ty4 ,curr5t assets include inv5tories1 bills & acc\nts receivable1 ag5ts' balances1 m>ketable securities1 & ca% on h& & 9 banks--ev]y?+1 9 %ort1 :i* c be quickly conv]t$ into ca%4 ,on ! o!r side ( ! balance-%eet1 capital liabilities are easily det]m9$4 ,!y consi/ ( ! p> am\nts ( bonds & /ocks out/&+4 ,curr5t liabilities comprise bills & acc\nts payable1 includ+ borr[$ money1 pay-rolls1 & int]e/ & taxes accru$ b n due4 ,! real /r5g? ( e indu/rial conc]n is to be le>n$ f ! figures relat+ to its curr5t acc\nts4 ,prop]ty assets & capital liabilities are n ( ! same significance4 ,if ! co/ ( plant & equipm5t z %[n by ! books exce$s its real value1 ! m>ket usually makes ! necess>y adju/m5t by putt+ a price less ?an p> ^u ! bonds & /ocks4 ,no su* process is possible 9 ! case ( ! curr5t acc\nts4 ,if ! curr5t liabilities exce$ ! curr5t assets ! company %[s a deficit1 :atev] its surplus may %[ on ! books4 ,on ! o!r h&1 if ! curr5t assets are great] ?an ! curr5t liabilities1 ! company possesses a work+ capital1 repres5t$ by ! diff]5ce betwe5 ! two1 & kn[n z net quick assets4 ,!re are ?ree ?+s to consid] 9 connection ) net quick assets3 ,fir/1 ! proportion betwe5 curr5t assets & curr5t liabilities4 ,to put a company 9 good %ape its curr5t assets %\ld be at lea/ twice z great z its curr5t liabilities4 ,two = "o is a fair proportion1 ?o "s companies %[ z mu* z six to "o4 ,! /rong] a company is 9 ?is proportion ! bett]4 ,secondly1 ! proportion betwe5 net quick assets & bond$ debt4 ,! bond$ debt %\ld nev] exce$ net quick assets1 except :5 ! company possesses real e/ate1 9 :i* case two-?irds ( ! real-e/ate value plus ! net quick assets %\ld cov] ! bonds4 ,"s companies d mu* bett] ?an t4 ,"o prom95t company 9 ?is c\ntry1 al?o x possesses real e/ate ( consid]able value1 has agre$ 9 ! ind5ture secur+ its bonds to keep net quick assets at all times great] by a sub/antial m>g9 ?an ! am\nt ( bonds out/&+4 ,?irdly1 ! proportion betwe5 net quick assets & ! surplus z %[n 9 ! balance-%eet4 ,if ! capital liabilities exactly balance ! prop]ty assets1 x is pla9 t ! surplus w exactly balance ! net quick assets4 ,if ! surplus is small] ?an net quick assets1 x is usually a sign t capital liabilities h be5 creat$ to provide work+ capital4 ,op9ions diff] z to ! wisdom ( ?is c\rse4 ,g5]ally speak+1 x is bett] to provide work+ capital by means ( a /ock issue ?an to dep5d ^u ! banks = accommodation4 ,! exception to ?is rule occurs 9 ! case ( companies t require a great deal ( work+ capital = "p ( ! ye> & only a little at o!r times4 ,if !y h ! be/ bank+ connections1 su* companies may be safe 9 dep5d+ ^u _! banks to c>ry !m1 b if !y d s1 !y %\ld h no bond$ or o!r fixt indebt$ness :i* w\ld prev5t _! pap] f be+ a fir/ li5 ^u _! entire assets4 ,if work+ capital is to be creat$ by ! issue ( capital liabilities1 x is mu* bett] t x %\ld be done by /ocks ?an by bonds4 ,! ideal me?od1 h[ev]1 is to provide only su* an am\nt ( work+ capital at ! organization ( a company z is necess>y = ! conduct ( its bus9ess1 & !n1 z ! volume ( its bus9ess gr[s1 to accumulate ! additional am\nt necess>y out ( e>n+s1 refra9+ f ! paym5t ( divid5ds until ! fund is complete4 ,be=e leav+ ! subject ( net quick assets1 x is well to note ! importance ( ! figure %[+ ! actual am\nt ( curr5t liabilities4 ,if a company has out/&+ l>ge am\nts ( bills & notes payable1 x occupies a vuln]able position4 ,inability to r5ew matur+ notes 0 ! cause ( mo/ ( ! indu/rial failures ( la/ ye>4 7c7 ,net ,e>n+s4 ,! am\nt ( net e>n+s is ( great importance 9 e/imat+ ! /r5g? ( an indu/rial company4 ,! figures = a numb] ( ye>s %\ld be exam9$ to det]m9e :e!r ! e>n+s are increas+ or decreas+1 & to discov] :e!r or n ! e>n+ p[] ( ! company is /able4 ,?is w dep5d l>gely ^u ! nature ( ! article :i* ! company produces or trades 94 ,if its product enjoys a /eady dem& at a fairly uni=m price1 x is ju/ifiable t "s ( its capital %\ld be 9 ! =m ( bonds2 b if its e>n+s are subject to viol5t fluctations due to rapid *anges 9 ! price ( its product1 !re is little ju/ification = conduct+ ! bus9ess on borr[$ money4 ,9 ?is connection x %\ld always be consid]$ h[ greatly a fall+ (f 9 gross e>n+s w affect net e>n+s2 & ! proportion betwe5 net e>n+s & fixt *>ges %\ld be c>efully not$4 ,9 ord] = an indu/rial bond to receive favorable consid]ation1 ! av]age ye>ly net e>n+s ( ! company %\ld am\nt to ab\t ?ree times ! annual bond int]e/1 taxes1 & s9k+ funds4 ,! great] ! protection is 9 ?is respect ! bett]4 7d7 ,=m ( ,issue4 ,! =m 9 :i* an indu/rial bond is issu$ is a matt] ( "s importance4 ,if ! pr9cipal ( ! bond does n become due = a numb] ( ye>s1 !re is dang] t ! prop]ty w depreciate s f> 9 value z to leave ! bond )\t suffici5t m>g9 ( protection4 ,!re are two ways to ov]come ?is difficulty4 ,"o way is to e/abli% a s9k+-fund :i* w retire a c]ta9 proportion ( ! bonds by lot ea* ye>4 ,ano!r way is to issue ! bonds 9 s]ial =m1 ) a def9ite in/alm5t matur+ e ye>4 ,9 ei!r case ! annual s9k+-fund or annual in/alm5t %\ld be great] ?an ! probable depreciation s t ! m>g9 ( security w be con/antly increas+4 7e7 ,managem5t & ,control4 ,no "q is ( great] importance 9 e/imat+ ! /r5g? ( an indu/rial company ?an ! reputation ( ! m5 9 *>ge4 ,! ability & integrity ( ! m5 :o control ! policy ( ! company & ! effici5cy ( ! op]at+ (ficials are ! pr9cipal factors 9 ! success ( an indu/rial und]tak+4 ,vacillat+ policies1 weakly execut$1 w ru9 ! mo/ promis+ ent]prise4 ,?is is p>ticul>ly true 9 ! case ( small companies4 ,e man ( bus9ess exp]i5ce w und]/& ! importance ( ?is factor & be guid$ by x 9 ! selection ( indu/rial securities4 ,bas$ ^u ! =ego+ consid]ations x is ( int]e/ to inquire :at degree ( safety really atta*es to ! av]age indu/rial bond8 ,h[ f> does x meet ! =ego+ requirem5ts8 ,! "q is difficult to answ]4 ,indu/rial bonds v>y greatly 9 po9t ( safety1 "s issues possess+ great /r5g? & o!rs be+ highly speculative4 ,no g5]al conclusions c be dep5d$ ^u1 & ! inve/or is =c$ to consid] ea* issue ^u its own m]its4 ,,ii4 ,rate ( ,income4 ,! av]age net return ^u indu/rial bonds is probably high] ?an ^u any o!r =m ( fund$ corporate obligation4 ,?is con/itutes "o ( ! *ief advantages ( indu/rial bonds4 ,,iii4 ,conv]tibility4 ,x is impossible to make any g5]al /atem5t 9 reg>d to ! conv]tibility ( indu/rial bonds4 ,"s indu/rial bonds1 notably ! l>g] issues ( well-kn[n tru/s1 comm& a broad & active m>ket4 ,su* bonds c be sold 9 l>ge am\nts at almo/ any "t )\t s]i\sly affect+ ! price4 ,on ! o!r h&1 small und]ly+ issues ( su* companies1 usually high-grade 9 po9t ( security1 or ! obligations ( small] companies1 are almo/ z unm>ketable z real-e/ate mortgages4 ,betwe5 ^! two extremes all v>ieties ( indu/rial bonds are to be f\nd4 ,! degree ( conv]tibility :i* a security possesses is usually a matt] ( "s importance1 & ! inve/or %\ld make a c>eful exam9ation ( ea* bond 9 ?is respect4 ,,iv4 ,prospect ( ,appreciation 9 ,value4 ,to :at ext5t a bond may improve 9 security dur+ ! "t t an inve/or holds x is ( little importance unless ! improvem5t be reflect$ 9 ! m>ket price ( ! bond4 ,only s c ! inve/or take advantage ( its appreciation 9 value4 ,9 ord] = ! improvem5t 9 security to be reflect$ 9 m>ket price & ?us add to ! pr9cipal inve/$1 x is necess>y t a bond %\ld possess a fairly active m>ket4 ,= ?is reason ! indu/rial bonds :i* hold out ! greate/ promise ( appreciation 9 value are ! l>g]1 m speculative issues1 :i* possess ! greate/ conv]tibility4 ,! pur*ase ( su* bonds frequ5tly results 9 sub/antial pr(its4 ,v4 ,/ability ( ,m>ket ,price4 ,! f\r po9ts above t\*$ ^u--safety1 rate ( income1 conv]tibility1 & likelihood ( improvem5t 9 intr9sic value--are all inh]5t *>act]i/ics ( e bond4 ,! likelihood ( favorable or unfavorable fluctation 9 m>ket price is l>gely ext]nal 9 its nature & dep5ds ^u g5]al f9ancial & bus9ess conditions4 ,z a class1 indu/rial bonds c n be said to possess mu* /ability ( m>ket price4 ,"s ( ! small] issues enjoy a fictiti\s /ability because ( _! inactivity1 b g5]ally speak+ indu/rial bonds are subject to wide fluctations 9 accordance ) *anges 9 ! bus9ess outlook4 ,! =ego+ is a summ>y1 necess>ily brief & imp]fect1 ( ! ma9 po9ts to be consid]$ 9 judg+ ! value ( indu/rial bonds4 ,! "q rema9s :e!r su* securities are desirable = ! inve/m5t ( a bus9ess surplus & ( private funds4 ,except 9 special cases indu/rial bonds are n suitable = a bus9ess surplus4 ,x is impossible to f9d an indu/rial bond :i* comb9es all ! *>act]i/ics necess>y = t purpose4 ,! requirem5ts are great safety ( pr9cipal & int]e/1 a relatively high return1 ready conv]tibility1 & /ability ( m>ket price4 ,_m indu/rial bonds c be f\nd :i* comb9e two ( ^! requirem5ts1 "s ev5 :i* comb9e ?ree1 b ! full comb9ation1 if x exi/s at all1 is unkn[n to ! writ]4 ,9 addition1 ! pr9ciple ( di/ribution ( risk %\ld prev5t "o indu/rial company f inve/+ its res]ve funds 9 ! securities ( ano!r indu/rial company4 ,= private inve/m5t ! case is some:at diff]5t4 ,a man ( good bus9ess judgm5t1 :o desires to obta9 a high yield = :i* he is prep>$ to sacrifice some?+ 9 ! way ( conv]tibility & prospect ( appreciation 9 value1 may buy ! und]ly+ issues ( /rong companies ) e confid5ce 9 ! safety ( 8 pr9cipal4 ,aga91 ! inve/or :o wants a high yield & quick conv]tibility1 :o is prep>$ to take a bus9ess man's risk & to sacrifice /ability ( m>ket price1 may make a l>ge pr(it by buy+ second-grade indu/rial bonds4 ,no inve/or1 h[ev]1 %\ld deceive himself ) ! idea t any indu/rial bond w satisfy all ! requirem5ts ( ! ideal inve/m5t4 ,,vi ,,public-,,utility ,,bonds ,x 0 a common say+ among bond-deal]s a few ye>s ago t ! day ( ! municipal bond _h pass$1 ! day ( ! railroad bond 0 pass+1 & ! day ( ! public-utility bond 0 to be4 ,municipal bonds 7 sell+ at fancy prices 9 consequ5ce ( ! l[ rates = money :i* !n prevail$1 & railroad bonds appe>$ to be foll[+ 9 _! wake4 ,public-utility bonds alone af=d$ a satisfactory yield1 & x 0 felt t ! inve/+ public w\ld be =c$ to turn to !m4 ,?is pr$iction1 l _m o!rs :i* 7 bas$ ^u ! assumption ( cont9u$ ease 9 money1 0 de/9$ to be unfulfill$4 ,almo/ imm$iately !re appe>$ an add$ dem& = capital1 & 9 ! face ( ?is dem&1 supplies ( capital :i* _h be=e seem$ ample became sudd5ly sc>ce4 ,money rates rose rapidly & z a necess>y consequ5ce municipal & railroad bonds fell 9 price to a po9t :]e _! net return 0 comm5surate ) t obta9$ f ! loan+ ( free capital4 ,! inve/m5t situation 0 ?us completely rev]s$4 ,x 0 no long] a "q z to :at =m ( security inve/ors mu/ seek 9 ord] to obta9 a satisfactory yield1 b r c\ld ! highe/ grade ( municipal & railroad bonds be float$ at any price4 ,"u ^! circum/ances ! contemplat$ necessity ( turn+ to public-utility bonds nev] arose1 & ! g5]al inve/+ public rema9s = ! mo/ "p unfamili> ) _! elem5ts ( /r5g? & ( weakness4 ,! t]m public-utility company d5otes a private corporation supply+ public ne$s "u au?ority ( a public fran*ise4 ,! fran*ise may be ( def9ite date or p]petual1 & may be p>tial or exclusive4 ,public-utility companies include /reet-railway1 gas1 electric-light & p[]1 & wat] companies4 ,prop]ly speak+1 telephone companies %\ld also be includ$1 b !y are n usually reg>d$ z belong+ to ! class ( public-s]vice corporations4 ,x is impossible1 )9 ! limits ( a s+le *apt]1 to discuss ea* k9d ( company sep>ately4 ,! inve/m5t value ( /reet-railway bonds w be "h consid]$1 & x is felt t ! g5]al pr9ciples advanc$1 ) slight modifications ( detail1 w be f\nd equally applicable to a judgm5t ( o!r =ms ( public-s]vice securities4 ,i4 ,safety ( ,pr9cipal & ,int]e/4 ,9 ord] to det]m9e ! safety ( a /reet-railway company's bonds1 ! company mu/ be subject$ to a ?reefold exam9ation1 physical1 f9ancial1 & political4 ,an exam9ation mu/ be made into ! ext5t & condition ( ! physical prop]ty 9 ord] to asc]ta9 :e!r ! bond$ debt is secur$ by prop]ty hav+ a real m>ket value 9 excess ( ! face am\nt ( bonds issu$4 ,! fir/ po9t to be det]m9$ is ! ext5t & valuation ( ! company's real e/ate4 ,if ! apprais$ value ( ! l& ^u :i* p[]-h\ses & c>-b>ns h be5 erect$ is alone great] ?an ! am\nt ( bonds out/&+1 ! inve/igation ne$ g no fur!r1 = ! bonds1 9 su* a case1 w\ld be practically a real-e/ate mortgage4 ,9 mo/ in/ances1 h[ev]1 ?is is v f> f be+ ! case2 & aft] c>eful appraisal ( ! real e/ate x is !n necess>y to make a c>eful valuation ( ! o!r physical prop]ty2 namely1 p[]-plants1 depots1 c>-%$s1 roadway1 & equipm5t4 ,x is usually impossible = ! av]age inve/or to make su* an exam9ation himself1 nor is x likely t he w\ld possess suffici5t te*nical k to r5d] 8 inve/igation ( mu* value4 ,= an accurate e/imate ( ! value ( a /reet-railway's physical prop]ty1 x is usually necess>y to dep5d ^u ! exp]t op9ion ( a tra9$ eng9e]4 ,x is a matt] ( regret t ! av]age /reet-railway report c n be reli$ ^u to furni% an accurate valuation ( ! physical prop]ty2 & x is accord+ly cu/om>y = c>eful bond-deal]s1 :5 !y contemplate tak+ an issue ( /reet-railway bonds = di/ribution among _! cli5ts1 to h ! prop]ty exam9$ by a compet5t eng9e]1 ^: report !n det]m9es = !m ! "q ( tak+ ! issue4 ,disreg>d+ ! figures :i* %[ ! co/ ( prop]ty & equipm5t ^u ! company's books1 ! eng9e] proce$s to make a c>eful e/imate ( ! replacem5t value ( ! prop]ty1 includ+ real e/ate4 ,if ! result ( ! exam9ation %[s t ! prop]ty c\ld n be duplicat$ = ! am\nt ( ! bond issue1 ! company occupies an unusually /rong position--al?o ev5 9 su* a case "s "p ( ! value ( ! bonds comes f ! /r5g? ( ! company z a go+ conc]n4 ,9 mo/ cases1 h[ev]1 x is probably f\nd t ! bond issue is 9 excess ( ! value ( real e/ate & ! replacem5t value ( ! physical prop]ty1 ! balance repres5t+ a capitalization ( ! fran*ise4 ,to det]m9e ! real value ( ! fran*ise or fran*ises is a difficult matt] & involves ! :ole "q ( ! company's relations ) ! community :i* x s]ves & ) ! local lawmak+ bodies4 ,! fir/ "q :i* arises is :e!r ! fran*ise is p]petual or = a def9ite "t1 & ! second :e!r x is p>tial or exclusive4 ,fran*ises v>y greatly 9 ^! respects4 ,sometimes a fran*ise1 app>5tly p>tial1 is practically exclusive1 ow+ to ! fact t all ! available space 9 ! /reets is already occupi$ by ! company's own tracks4 ,if ! fran*ises ( a company are limit$ z to "t1 x is exp$i5t1 if n imp]ative1 t ! bonds %\ld mature be=e ! expiration ( ! fran*ises4 ,if ! company ^: bonds are "u exam9ation satisfactorily passes ?is physical te/--if x possesses real e/ate ( consid]able value1 if ! replacem5t value ( ! prop]ty is z great or ne>ly z great z ! am\nt ( ! bonds1 & if ! fran*ises1 :ile p]haps n p]petual or exclusive1 are yet ( long] duration ?an ! bonds & r5d] successful competition unlikely--! next /ep may !n be tak52 t is to say1 an exam9ation ( ! company's f9ancial condition & e>n+ capacity may be made4 ,! am\nt ( its gross e>n+s %\ld be exam9$ & ! figures scrut9iz$ = a numb] ( ye>s back to discov] :e!r its e>n+s are increas+ or decreas+4 ,! position 9 :i* ! company /&s = obta9+ new traffic mu/ be not$1 & "s e/imate mu/ be made ( ! /ability ( its e>n+ p[]4 ,9 ?is connection ! relations ( ! company to ! public are ( great importance4 ,x mu/ be le>n$ :e!r ! company foll[s ! policy ( conciliat+ or ignor+ public s5tim5t4 ,! net e>n+s ( ! company mu/ !n be exam9$4 ,?is involves a criticism ( op]at+ exp5ses4 ,! paym5ts ( ! road mu/ be analyz$ to det]m9e :e!r ! prop] am\nts h be5 exp5d$ = r5ewal ( track1 repl5i%m5t ( roll+ /ock1 & o!r improvem5t suffici5t to keep ! prop]ty 9 good physical condition4 ,?is is ! mo/ intricate subject 9 ! inve/igation ( a /reet-railway prop]ty4 ,unless prop] all[ance be made = depreciation1 9 addition to ! exp5ses ( direct op]ation1 x is only a "q ( "t be=e ! /ronge/ company w become bankrupt4 ,det]ioration ( plant & equipm5t1 :i* goes on con/antly1 c only be (fset 9 two ways3 "o is out ( e>n+s & ! o!r is out ( ! security-hold]s--t is1 by decreases 9 ! m>ket value ( ! securities4 ,! fir/ takes prosp]ity or c\rage2 ! second leads to bankruptcy4 ,x is difficult to measure depreciation accurately1 b a safe rule is to write (f t5 p] c5t ( gross e>n+s ea* mon? = depreciation4 ,9 ?is way ! *>ge = depreciation w be proportionate to ! traffic1 :i* provides automatic adju/m5t4 ,if ! net e>n+s1 aft] mak+ ?is all[ance = depreciation1 & aft] provid+ all exp5ses ( op]ation includ+ ord9>y repairs1 am\nt to z mu* z twice ! int]e/ *>ges ^u ! bonds out/&+1 x is probable t ! bonds may be tak5 ) safety4 ,be=e f9ally det]m9+ ! "q1 h[ev]1 c]ta9 political factors mu/ be tak5 into consid]ation4 ,! relations ( ! company to ! lead]s ( ! dom9ant political p>ty mu/ be inve/igat$4 ,! likelihood ( agitation look+ t[>d a r$uction ( f>es mu/ be consid]$ & ! possibility ( increase 9 taxes 7if bel[ ! legal limit7 mu/ be weigh$4 ,! probable attitude ( ! legislature on ! "q ( r5ew+ ! fran*ises :5 !y expire mu/ be consid]$4 ,9 g5]al1 x mu/ be le>n$ :e!r any real gr\nd ( cont5tion exi/s betwe5 ! company on ! "o h& & ! public & its repres5tatives on ! o!r1 because x is inevitable t ! company w weak5 its indep5d5ce ( position by too close a connection ) politics1 & t ! physical prop]ty w suff] if !re is any lack ( un9t]rupt$ att5tion to x4 ,f9ally "o o!r ?+ %\ld be inve/igat$--! am\nt ( ! accid5t acc\nt & its proportion to ! net e>n+s ( ! company4 ,on small l9es a s+le case ( heavy damages w sometimes make s]i\s inroads ^u ! e>n+s4 ,! =ego+ is a summ>y1 necess>ily brief & imp]fect1 b true 9 its ess5tial outl9es1 ( ! ma9 po9ts :i* %\ld be consid]$ 9 judg+ ! safety ( /reet-railway bonds4 ,! "q rema9s1 h[ f> does ! av]age /reet-railway company satisfy ^! requirem5ts8 ,broadly speak+1 /reet-railway bonds are n yet to be class$ 9 ! fir/ rank ( inve/m5t securities4 ,! tr\bles :i* h come to a head 9 ! f9ancial op]ations ( ! traction sy/ems 9 ,new ,york & ,*icago are typical ( tr\bles :i* are likely to occur else:]e f ! same g5]al causes--ov]capitalization 9 ! fir/ place & insuffici5t all[ance = depreciation 9 ! second place4 ,9 bo? ,new ,york & ,*icago ! crisis 0 ha/5$ by op5 & obvi\s ov]capitalization1 :i* is almo/ inevitable :5 _m indep5d5t l9es are m]g$ into "o sy/em4 ,! same tr\ble1 h[ev]1 is apt to occur 9 o!r traction sy/ems :]e ?is evil appe>$ less flagrant at ! outset4 ,! advantages ( electricity ov] horsep[] naturally l$ to ! multiplication ( electric /reet l9es1 z ! sy/em t5 or fifte5 ye>s ago pass$ beyond ! exp]im5tal /age4 ,z 9 all new ent]prises1 speculation ran ahead ( ! reality & f9anc+ built ^u ov]sangu9e calculations has too (t5 _h difficulty 9 squ>+ acc\nts :5 br\ght face to face ) facts4 ,9 mo/ ( ! calculations insuffici5t all[ance 0 made = ! we> & te> ( s]vice2 9 o!r words1 = r5ewal ( road & equipm5t4 ,aft] a few ye>s' te/ ( e>n+s aga9/ exp5ses1 x became evid5t t a prop] all[ance = depreciation ( plant w\ld %[ a heavy deficit 9 ! income acc\nt4 ,9 mo/ cases !re=e no all[ance or only a meag] "o 0 made4 ,= a "t ?is me?od ( bookkeep+ prov$ less disa/r\s ?an might h be5 expect$ ow+ to ! rapid gr[? ( population & bus9ess 9 ,am]ican cities4 ,x 0 possible 9 _m cases to consid] ! enhanc$ value giv5 to ! fran*ise by gr[? ( bus9ess z an (fset to ! depreciation ( tracks & equipm5t4 ,9 s f> also z ! plant 0 kept up to a high degree ( effici5cy by *>g+ ! exp5se ( repairs to op]at+ exp5ses1 ! abs5ce ( a depreciation acc\nt 0 p>tially (fset4 ,) ! progress ( rec5t ye>s1 h[ev]1 a new factor has be5 ent]+ into ! problem :i* promises to make ! situation /ill m s]i\s = ! traction sy/ems4 ,?is new factor is ! rise 9 prices & wages4 ,tempor>ily ! influ5ce ( ?is factor may be *eck$ by dim9i%$ bus9ess activity1 b :5 normal conditions are re/or$1 x w comm5ce to act aga9 ^u ! railways ) accumulat$ effect4 ,9 mo/ cases a proposition to increase ! /&>d /reet-railway f>e above five c5ts z an (fset to ! increas$ op]at+ exp5ses w\ld be s revolution>y a proposal t x c\ld h>dly be c>ri$ ?r\gh4 ,) ! l9e ( co/ conv]g+ ^u ! l9e ( receipts & ) no prop] all[ance made = depreciation1 ! traction sy/ems ( ! c\ntry seem to be fac+ a difficult problem4 ,9 ! long run x c n be d\bt$ t ! problem w be met & solv$ 9 a way to af=d ju/ice alike to ! public :o use ! c>s & to ! capitali/s :o h made /reet traction on a l>ge scale possible1 b 9 ! meantime ! inve/or :o desires p]fect safety %\ld ex]cise great c>e & discrim9ation 9 8 pur*ases ( /reet-railway obligations4 ,,ii4 ,rate ( ,income4 ,z a g5]al rule1 /reet-railway bonds 9 common ) ! obligations ( all public-s]vice corporations sell ^u ab\t ! same income basis z high-grade indu/rial bonds--t is to say1 "u normal conditions !y return consid]ably m ?an railroad or municipal bonds4 ,,iii4 ,conv]tibility4 ,x is difficult to speak ( ! conv]tibility ( public-utility bonds z a class = ! reason t !y diff] widely f "o ano!r 9 ?is respect4 ,9 g5]al1 x is c]ta9ly m difficult to dispose ( public-utility bonds ?an railroad bonds4 ,!y d n possess suffici5t conv]tibility to ju/ify _! pur*ase by any "o :o may ne$ to realize quickly on 8 hold+s4 ,,iv4 ,prospect ( ,appreciation 9 ,value4 ,public-utility bonds1 except su* issues z are conv]tible into /ock1 possess little prospect ( appreciation 9 value4 ,x 0 po9t$ out above t depreciation is n prop]ly all[$ =1 & x is v difficult = ! securities to advance 9 ! face ( ?is ob/acle4 ,v4 ,/ability ( ,m>ket ,price4 ,! bonds ( public-s]vice corporations are relatively m /able ?an railroad bonds because _! e>n+s are n subject to ! fluctations :i* occur 9 railroad prop]ties betwe5 ye>s ( prosp]ity & ye>s ( depression4 ,at ! same "t1 x %\ld be po9t$ out t _! /ability ( price is l>gely fictiti\s1 ow+ to ! comp>ative inactivity ( ! issues4 ,9 o!r words1 :ile ! quotation may be ma9ta9$1 x is usually difficult to sell any l>ge quantity ( a public-s]vice corporation's bonds 9 a p]iod ( f9ancial di/urbance1 :ile railroad bonds are m easily liquidat$ ev5 if at a sacrifice4 ,! "q rema9s1 d public-utility bonds af=d a desirable security = ! inve/m5t ( a bus9ess surplus & ( private funds8 ,9 reg>d to ! =m]1 x may be said at once t public-utility bonds d n meet ! necess>y conditions4 ,! security is too d\btful1 ! conv]tibility is too small1 & ! /ability ( price too unc]ta94 ,= private inve/m5t ! case is some:at diff]5t4 ,keep+ 9 m9d ! desirability ( div]sify+ inve/m5ts & admitt+ ! attractiv5ess ( inve/+ 9 a class ( prop]ty ^: e>n+s are comp>atively /able1 x seems cle> t public-utility bonds c n be dismiss$ )\t consid]ation4 ,:5 a company is f\nd ^: prop]ty is sub/antially equal 9 real value to its bond$ debt1 ^: all[ance = depreciation is ample1 ^: fran*ises are satisfactory1 ^: e>n+ capacity is l>ge1 & ^: managem5t is capable & upright1 ! inve/or is ju/ifi$ 9 giv+ c>eful consid]ation to its issues4 ,unless all ^! po9ts are f\nd to be satisfactory1 h[ev]1 ! inve/or %\ld cont5t himself ) "s o!r =m ( security4 ,= "s ye>s to come x is to be fe>$ t _m ( our public-s]vice corporations w suff] f ! w> ( discordant elem5ts--disreg>d ( ! rights ( ! public on ! "p ( ! managem5t & sociali/ic agitation = control on ! "p ( ! community4 ,until ^! w>r+ factions are reconcil$ & ! que/ions at issue adju/$ ) fairness to ! security-hold]s & ! public1 ! inve/or %\ld be mo/ prud5t 9 8 pur*ases ( public-utility obligations4 ,,vii ,,municipal ,,bonds ,! previ\s *apt]s h consid]$1 9 turn1 ! inve/m5t value ( railroad bonds1 real-e/ate mortgages1 indu/rial bonds1 & public-utility bonds4 ,! desirability ( ea* ( ^! diff]5t classes ( security has be5 judg$ 9 accordance ) ! g5]al pr9ciples laid d[n 9 ! introductory *apt]2 t is to say1 ea* class has be5 analyz$ 9 relation to safety1 rate ( income1 conv]tibility1 prospect ( appreciation 9 value & /ability ( m>ket price4 ,! same det]m9+ factors mu/ n[ be appli$ to a judgm5t ( gov]nm5t1 ,/ate1 & municipal bonds4 ,bonds issu$ by a national gov]nm5t1 by a ,/ate1 or by a municipality are bas$ prim>ily on "s =m ( ! p[] ( taxation1 ?o ! bonds are usually tax exempt )9 ! political unit :i* creates !m4 ,:5 ! p[] ( taxation is unlimit$1 z 9 ! case ( ! national gov]nm5t & ! sov]eign ,/ates1 !re c be no "q z to ! ability ( ! political unit to meet its obligation1 & ! "q becomes entirely "o ( good fai?4 ,x is probable t ! obligations ( ! ,unit$ ,/ates ,gov]nm5t1 by reason ( ! fact t ! p]-capita debt ( ! c\ntry is s small1 ! weal? ( ! c\ntry s great1 & ! good fai? ( ! ,am]ican p s cle>ly e/abli%$1 repres5t ! highe/ type ( security to be f\nd 9 ! _w4 ,x is q possible1 !re=e1 t ! #b-p]-c5t ,unit$ ,/ates ,consols w\ld sell 9 any case at a relatively high] price ?an ! obligations ( any o!r c\ntry1 b x c n be d5i$ t ! *ief reason :i* causes !m to sell at ! rem>kably high price :i* !y h atta9$ is ! fact t !y are requir$ by national banks z security = circulation4 ,?is fact is d\btless ! controll+ elem5t 9 _! m>ket position1 & at once acc\nts = _! special /r5g? & removes !m f ! field ( private inve/m5t4 ,only less secure ?an ,unit$ ,/ates bonds are ! obligations ( ! sov]eign ,/ates ( ! ,union4 ,/ate bonds usually sell ^u a basis :i* may be tak5 z ! equival5t ( pure int]e/1 ) no elem5t ( risk or speculation involv$4 ,! obligations ( diff]5t ,/ates sell at diff]5t prices1 9 accordance ) m>ket conditions & ! relations ( supply & dem&1 b !re c be no "q ( ! equal ability ( all ,/ates to pay _! obligations4 ,repudiation ( ,/ate debts has occurr$ 9 our hi/ory1 b only 9 cases :]e an ov]:elm+ majority ( ! citiz5s 7 oppos$ to ! creation ( ! debt at ! "t ( its issue1 b lack$ ! means to control ! situation4 ,su* in/ances are *iefly to be f\nd 9 ! case ( ! s-call$ c>pet-bag gov]nm5ts ( ! ,s\!rn ,/ates aft] ! ,civil ,w>4 ,municipal bonds--i4e41 ! bonds ( cities1 c\nties1 & t[n%ips--are indirectly a fir/ li5 ^u all taxable prop]ty 9 ! municipality1 & take prec$5ce ( e =m ( mortgage or judgm5t li54 ,?is li5 is en=c$ ?r\gh a tax levy to meet int]e/ & pr9cipal1 & ?is tax levy ! c\rts w compel 9 ! r>e cases 9 :i* a municipality attempts to repudiate a valid bond4 ,?is priority ( ! tax li5 is ! f\ndation ( ! prime position ( municipal bonds4 ,! case r>ely occurs :]e a bond held valid by ! c\rts proves uncollectable if suffici5t tax+ p[] exi/$ :5 ! bond 0 issu$ to provide = its r$emption4 ,x is only :5 ! municipality itself dim9i%es 9 population & taxable prop]ty to ! vani%+-po9t t su* a default c occur4 ,an inve/or c judge = himself z to ! likelihood ( su* a cata/rophe 9 any p>ticul> community1 & c feel sure t 8 bond1 if valid & protect$ by a suffici5t tax+ p[]1 is z secure 9 its pr9cipal & int]e/ z ! municipality :i* issues x is secure 9 its cont9u$ exi/5ce4 ,! foll[+ are ! *ief po9ts :i* %\ld be consid]$ 9 ! inve/igation ( a municipal bond3 7#a7 ,! proportion :i* ! total debt ( ! municipality be>s to ! assess$ valuation ( ! prop]ty subject to taxation4 ,usually a maximum rate is fixt by con/itutional provision :i* r>ely exce$s #aj p] c5t4 7#b7 ,! purpose ( issue4 ,?is mu/ be a prop] & suitable "o4 7#c7 ,! proce$+s "u :i* ! bonds 7 issu$4 ,^! proce$+s1 ! =m ( bonds1 _! execution1 & _! legal details mu/ be 9 full compliance ) ! law4 ,if ^! po9ts are f\nd to be satisfactory1 ! inve/or may re/ cont5t t no o!r =m ( security is s greatly safegu>d$ & t 8 bond ranks ^u a sub/antial equality ) gov]nm5t & ,/ate obligations4 ,! rate ( income to be d]iv$ f inve/m5t 9 municipal bonds v>ies 9 accordance ) ! obligations select$4 ,l o!r =ms ( security1 municipal bonds are controll$ by m>ket conditions1 & _! price is det]m9$ by ! relations ( supply & dem&1 & by adju/m5t to prevail+ money rates4 ,:ile diff]+ only mod]ately f "o ano!r 9 po9t ( safety & income return1 municipal bonds may be divid$ into two di/9ct classes 9 accordance ) ! degree ( conv]tibility :i* !y possess4 ,"s municipal bonds possess great conv]tibility2 o!rs almo/ none4 ,! feature :i* *iefly det]m9es ! activity or inactivity ( a municipal issue is ! size & importance ( ! municipality1 toge!r ) ! am\nt ( bonds :i* x has out/&+4 ,! bonds ( l>ge & important cities1 ^: out/&+ debt rea*es consid]able proportions1 usually possess great activity4 ,!y are con/antly trad$ 9 & comm& a broad m>ket because deal]s are will+ to buy or sell !m 9 blocks at prices )9 a fraction ( #a p] c5t ap>t4 ,on ! o!r h&1 ! bonds ( c\nties1 t[n%ips1 & small cities are usually q inactive4 ,transactions r>ely occur 9 !m1 deal]s d n make a m>ket 9 !m1 & !y c be sold only to g5u9e inve/ors4 ,x is (t5 impossible to h !m ev5 quot$4 ,at fir/ sight1 x w\ld appe> t active municipal bonds w\ld be mu* m desirable1 b inactive municipals possess a special advantage :i* ! active ones d n enjoy4 ,!y possess m /ability ( m>ket price4 ,x is true t _! /ability ( value is due to ! fact t !y are n trad$ 9 or quot$ & is1 !re=e1 l>gely fictiti\s1 b nev]!less x accompli%$ a useful purpose4 ,x enables ! inve/or to c>ry inactive municipals at co/ price ^u 8 books ?r\gh p]iods 9 :i* active m>ket bonds w\ld require to be m>k$ d[n 9 con=mity ) prevail+ m>ket prices4 ,no o!r class ( inve/m5t except real-e/ate mortgages possesses to ! same degree ?is quality ( price /ability4 ,= _m classes ( buy]s--sav+s-banks1 = example--/ability ( price is a consid]ation ( prime importance4 ,! pres]vation ( ! sav+s-bank's surplus &1 inde$1 ! cont9u$ solv5cy ( ! in/itution dep5d ^u ma9ta9+ ! integrity ( ! pr9cipal :i* x has inve/$4 ,a sav+s-bank requires1 also1 great safety ( pr9cipal & int]e/2 i4e41 ! c]ta9ty t pr9cipal & int]e/ in/alm5ts w be paid at maturity4 ,x ne$s only a fair b n high yield1 & x does n ne$ to place emphasis ^u conv]tibility or prospect ( appreciation 9 value4 ,comp>ison ( ^! requirem5ts ) ! *>act]i/ics ( inactive municipal bonds discloses a /rik+ adaptability on _! "p to ! real ne$s ( ! case4 ,z a consequ5ce1 x is n surpriz+ to discov] t inactive municipals are greatly s\ght by sav+s-banks4 ,! desirability ( inactive municipals = sav+s-bank inve/m5t 0 nev] m =cibly illu/rat$ ?an on ! fir/ ( la/ ,janu>y1 :5 ! sav+s-banks came to make up _! annual /atem5ts4 ,broadly speak+1 !re c be no d\bt t !y 7 sav$ by ! l>ge quantity ( inactive municipals & real-e/ate mortgages :i* !y c>ri$4 ,_h any consid]able portion ( _! assets consi/$ ( railroad bonds & active municipals1 ^u :i* !y %\ld h _h to write (f a loss ( t5 to fifte5 po9ts1 _! solv5cy w\ld almo/ c]ta9ly h be5 impair$4 ,b we are *iefly conc]n$ 9 ^! pages ) ! advantages & disadvantages ( diff]5t =ms ( inve/m5t f ! po9t ( view ( a bus9ess man1 bo? = ! inve/m5t ( 8 bus9ess surplus & ( 8 private funds4 ,d municipal bonds1 ei!r active or inactive1 con=m to ! requirem5ts ( ! bus9ess surplus8 ,x c n be said t !y d4 ,municipal bonds possess ei!r conv]tibility )\t /ability ( price or /ability ( price )\t conv]tibility4 ,bo? qualities are necess>y = a bus9ess surplus4 ,! only =m ( municipal security :i* is at all adapt$ = ! inve/m5t ( a bus9ess surplus is a %ort-t]m issue ( an active municipal bond4 ,if x has only a v few ye>s to run1 its con/ant approa* to maturity w inve/ x ) ! necess>y /ability ( price4 ,b ev5 9 ?is case equal safety & equal /ability ( price comb9$ ) a high] yield c probably be f\nd 9 "s high-grade railroad issue--ei!r a %ort-t]m mortgage or equipm5t bond4 ,= private inve/m5t ! case is some:at diff]5t4 ,en\gh has be5 said 9 ! prec$+ *apt]s to impress ^u ! read] ! importance ( buy+ securities only 9 accordance ) 8 real requirem5ts4 ,if any inve/or1 aft] c>eful comp>ison ( ! *>act]i/ics ( municipal bonds1 ei!r active or inactive1 ) 8 necessities1 decides t he c m closely satisfy 8 requirem5ts ) municipals ?an ) any o!r =m ( security1 he %\ld n hesitate to pur*ase !m4 ,x is ! op9ion ( ! writ]1 h[ev]1 t a ?or\gh survey ( ! field ( inve/m5t w g5]ally disclose to ! inve/or "s security 9 ei!r ! railroad or corporation field :i* w suit 8 requirem5ts z well z ! municipal bond & at ! same "t provide him ) a great] income4 ,,viii ,,/ocks ,pass+ to ! consid]ation ( /ocks z inve/m5ts1 x is necess>y at ! outset t ! read] %\ld h cle>ly 9 m9d ! fundam5tal diff]5ce betwe5 /ocks & bonds4 ,?is di/9ction 0 drawn 9 ! introductory *apt]1 b x w be well to amplify x "h1 ev5 at ! risk ( c>ry+ ! read] ov] famili> gr\nd4 ,! di/9ction betwe5 bonds & /ocks is t betwe5 promises to pay & equities4 ,bonds1 loans on collat]al1 & real-e/ate mortgages repres5t "s "o's promise to pay a sum ( money at a future date2 & if ! promise be valid & ! security ample1 ! hold] ( ! promise w be paid ! money on ! date due4 ,/ocks1 on ! o!r h&1 repres5t only a b5eficial int]e/ or residu>y %>e 9 ! assets & pr(its ( a work+ conc]n aft] paym5t ( its obligations & fixt *>ges4 ,! value ( ! residu>y %>e may be l>ge or small1 may increase or dim9i%1 b 9 no case c ! hold] ( su* a %>e require any "o1 lea/ ( all ! company itself1 to take 8 %>e (f 8 h&s at ! price he paid = x1 or1 inde$1 at any price4 ,if a man buys a #a1jjj railroad bond1 he kn[s t ! railroad1 if solv5t1 w pay him #a1jjj 9 ca% :5 ! bond matures1 b if he buys a %>e ( railroad /ock 8 only *ance ( gett+ 8 money back1 if he %\ld wi% x1 is t "s "o else w want to buy 8 %>e f him at ! price he paid = x or m4 ,if he buys a bond he becomes a cr$itor ( ! company1 )\t voice 9 its managem5t1 b entitl$ to receive 8 pr9cipal & int]e/ :5 due "u pa9 ( =feiture ( ! security :i* ! company made ov] to ! tru/ee to insure paym5t4 ,if he buys /ock1 he becomes a p>tn] 9 a bus9ess ent]prise1 ex]cis+ 8 proportionate %>e 9 ! direction ( ! company's affairs1 & %>+ ratably 9 its pr(its & losses4 ,9 ! "o case he buys a promise to pay & 9 ! o!r an equity4 ,?is di/9ction1 :i* appe>s pla9ly m>k$ 9 !ory1 has be5 mu* obscur$ 9 rec5t ye>s by ! influ5ce ( two factors4 ,z ! c\ntry grew 9 size1 ! l>ge corporations--! railroads1 = example--requir$ great] capital 9 ord] to provide facilities = ! h&l+ ( _! gr[+ bus9ess4 ,x 0 impossible to provide ?is capital :olly by means ( bond issues )\t de/roy+ ! proportion betwe5 bonds & /ocks1 :i* alone c\ld give to ! bondhold]s ! protection ( a sub/antial equity4 ,x 0 !re=e necess>y to obta9 a l>ge "p ( ! capital requir$ 9 ! =m ( /ock4 ,! railway-manag]s 7 ?us confront$ ) a difficult problem4 ,x 0 imp]ative t !y %\ld obta9 m capital1 & x 0 impossible to dispose ( suffici5t /ock on ! basis ( a speculative risk 9 a bus9ess v5ture4 ,x 0 !re=e necess>y = ! railway-manag]s to emphasize1 z f> z possible1 ! inve/m5t "* ( _! /ock1 & v>i\s exp$i5ts 7 adopt$ to accompli% ?is purpose4 ,9 "s cases pref]r$ /ocks 7 creat$ or result$ f reorganizations1 :i* posse/ a fir/ li5 ^u ! assets aft] paym5t ( ! obligations1 & :i* 7 entitl$ to a c]ta9 /ipulat$ divid5d be=e ! common /ock obta9$ any di/ribution f ! e>n+s4 ,9 ?is way ! railway-manag]s creat$ a compromise security :i* c\ld be reg>d$ z a /ock1 & w\ld ?us provide equity f ! bondhold]s' po9t ( view1 &1 at ! same "t1 "o :i* c\ld be dispos$ ( to inve/ors4 ,9 o!r cases1 :i* 7 probably m num]\s1 railway-manag]s attempt$ to give _! /ock an inve/m5t value ?r\gh /ability ( income return4 ,9 good ye>s :5 ! company e>n$ #aj or #ae p] c5t on its /ock1 _! policy 0 to pay only #e or #f p] c5t 9 divid5ds1 & hold ! re/ 9 _! surplus fund 9 ord] to h ! means ( pay+ ! same divid5ds ! next ye> if only #b or #c p] c5t %\ld be e>n$4 ,by giv+ _! /ock /ability ( income return !y hop$ & expect$ to give x "s /ability ( m>ket price1 & ?us make x attractive to g5u9e inve/ors4 ,! effect ( ?is policy 0 unque/ionably successful1 & "o aft] ano!r ! /ocks ( our m important transportation sy/ems & o!r l>ge und]tak+s pass$ into ! h&s ( inve/ors4 ,! successful adoption ( ?is policy on ! "p ( ! railway-manag]s & o!r capta9s ( indu/ry has _h "o curi\s effect :i* 0 n contemplat$ by ! orig9ators ( ! movem5t1 & :i* br+s u to ! second influ5ce m5tion$ above z hav+ t5d$ to obscure ! di/9ction betwe5 bonds & /ocks4 ,:5 a case has be5 br\ght be=e ! c\rts 9 :i* ! cont5tion 0 advanc$ t ! *>ges ( ! railway or public-s]vice corporation 7 too high1 ! c\rts appe> to h tak5 ! gr\nd t /ocks & bonds %\ld be class$ toge!r 9 ord] to det]m9e ! aggregate capitalization ( ! company1 & t ! ju/ice or inju/ice ( ! cont5tion t ! *>ges are too high %\ld be det]m9$ by asc]ta9+ :e!r if ! *>ges 7 made l[] ! net e>n+s w\ld /ill be suffici5t to pay a fair return on ! total capital inve/$4 ,?is is ! g5]al l9e ( reason+ pursu$ by ! c\rts1 bo? 9 ! case ( ! ,consolidat$ ,gas ,company 9 ,new ,york & ! ,p5nsylvania ,railroad 9 ,p5nsylvania4 ,! effect ( ?is attitude on ! "p ( ! c\rts has be5 to obscure /ill m greatly ! real di/9ction betwe5 bonds & /ocks4 ,x is too e>ly z yet to judge :at w be ! f9al outcome ( ! *ang$ attitude t[>d /ocks1 b x c n be d\bt$ t ! pres5t t5d5cy ( op9ion on ! subject1 s f> z l>ge corporations are conc]n$1 is to limit ! return on /ocks to a /rictly inve/m5t basis1 in/ead ( leav+ ! /ockhold]s free to reap all possible pr(it f _! bus9ess v5ture subject to ! re/ra9ts ( competition4 ,! adoption ( ?is attitude by ! c\rts %\ld be a matt] = s]i\s consid]ation on ! "p ( pres5t & prospective /ockhold]s4 ,if ! maximum return on /ock is to be limit$ to #f p] c5t1 or any fair inve/m5t basis1 & *>ges r$uc$ to consum]s s t !y obta9 ! b5efit ( any great] e>n+ p[]1 x w\ld appe> t ! /ockhold]s occupy an undesirable position4 ,) _! possible pr(its limit$1 b ) no fixt return insur$ to !m & no gu>anty aga9/ possible loss1 x c n be held t ! pur*ase ( /ock seems attractive4 ,^! que/ions1 h[ev]1 w d\btless be settl$ 9 ! long run 9 ju/ice bo? to ! public & to ! /ockhold]s1 & 9 ! meantime ! /ocks ( our l>ge & successful railway & indu/rial corporations1 :i* h atta9$ a c]ta9 /ability & p]man5ce ( value1 are entitl$ to consid]ation :5 inve/m5ts are contemplat$4 ,x is n wor? :ile to lay d[n rules = judg+ ! inve/m5t value ( su* /ocks1 because ! g5]al pr9ciples advanc$ 9 ! prec$+ *apt]s w be f\nd suffici5t = a judgm5t ( _! values4 ,"o class ( /ocks1 h[ev]1 des]ves special m5tion4 ,bank & tru/-company /ocks possess "o *>act]i/ic 9 high] degree ?an o!r classes ( /ock4 ,ow+ to ! g5]al practise ( self-regulat$ bank+ in/itutions to di/ribute only ab\t "o-half _! e>n+s 9 divid5ds & to cr$it ! re/ to surplus acc\nt1 a /eady rise is assur$ 9 ! book value ( ! /ock4 ,no o!r class ( /ock possesses q ! same promise ( appreciation 9 value4 ,bank & tru/-company /ocks are especially s\ght by weal?y m51 :o c =ego some?+ 9 ! way ( income return = ! sake ( increas+ ! am\nt ( _! pr9cipal4 ,! g5]al *>act]i/ics ( bank /ocks are great safety1 a l[ rate ( income1 limit$ conv]tibility1 & practical c]ta9ty ( appreciation 9 value4 ,) ! pres5t *apt] ! discussion ( specific =ms ( inve/m5ts has come to an end4 ,! next & conclud+ *apt] w expla9 ! g5]al pr9ciples :i* control ! m>ket movem5ts ( all negotiable securities1 & w endeavor to po9t out ! indications :i* may be reli$ ^u 9 det]m9+ :e!r or n giv5 conditions are favorable = ! pur*ase ( securities4 ,,ix ,,m>ket ,,movem5ts ,,( ,,securities ,!re is no "q connect$ ) ! inve/m5t ( money m important ?an ! ability to judge :e!r g5]al m>ket conditions are favorable = ! pur*ase ( securities4 ,aft] le>n+ h[ to judge ! value ( e =m ( inve/m5t1 a man may /ill be unsuccessful 9 ! inve/m5t ( money unless he acquires also a firm grasp ^u ! g5]al pr9ciples :i* control ! price movem5ts ( securities4 ,by ?is x is n meant t a man ne$s to h an intimate k ( te*nical m>ket conditions :]eby to e/imate tempor>y fluctations ( m9or importance1 b r t he %\ld h cle>ly 9 m9d ! causes :i* op]ate to produce ! l>g] sw+s ( prices4 ,if an inve/or acquires su* a k1 he is enabl$ to take advantage ( l>ge price movem5ts 9 su* a way z mat]ially to increase 8 income1 &1 at ! same "t1 avoid c>ry+ ^u 8 books securities :i* may h co/ mu* m ?an _! curr5t m>ket quotations4 ,if he c recognize ! indications :i* po9t to ! beg9n+ ( a pron\nc$ upw>d sw+ 9 securities1 & if he c equally recognize ! signs :i* indicate t ! movem5t has culm9at$1 he c liquidate ! securities :i* he b\ght at ! inception ( ! rise or transf] !m to "s %ort-t]m issues ^: ne> approa* to maturity w r5d] !m /able 9 price1 all[+ ! d[nw>d sw+ to proce$ )\t di/urb+ him4 ,x is n expect$1 ( c\rse1 t ! av]age bus9ess man w be able to realize completely ?is ideal ( inve/m5t1 b x is hop$ t ! foll[+ analysis w give him a cle>] conception ( ! pr9ciples involv$4 ,broadly speak+1 ! m>ket movem5ts ( all negotiable securities are controll$ by two influ5ces1 sometimes act+ 9 opposition to ea* o!r & sometimes 9 conc]t4 ,"o ( ^! influ5ces is ! loan+ rate ( free capital2 ! o!r is ! g5]al condition ( bus9ess4 ,a l[ rate ( int]e/ or ! likelihood ( l[ rates has ! effect ( /imulat+ security prices1 because banks & o!r money-l5d+ in/itutions are =c$ into ! inve/m5t m>ket :5 !y c n loan money to advantage4 ,conv]sely1 a high rate ( int]e/ or ! prospect ( high rates has ! effect ( depress+ prices1 because bank+ in/itutions sell _! securities 9 ord] to l5d ! money s releas$4 ,! automatic work+ ( ?is process t5ds to produce a con/ant adju/m5t betwe5 ! yields ^u free & inve/$ capital4 ,:5 money rates are l[1 securities t5d to advance to ! po9t :]e ! return ^u !m is no great] ?an t d]iv$ f ! loan+ ( free capital4 ,:5 rates are high1 securities t5d to decl9e to a po9t :]e ! return is z great4 ,?is expla9s ! influ5ce ( ! fir/ factor4 ,! o!r factor is ! g5]al condition ( bus9ess4 ,good bus9ess conditions1 or ! promise ( good conditions1 t5d to advance security prices1 because !y indicate l>g] e>n+s & a /rong] f9ancial condition4 ,poor bus9ess conditions1 or an unpromis+ outlook1 h ! rev]se effect4 ,! l>g] movem5ts ( security prices are always ! resultant ( ! int]action ( ^! two =ces4 ,:5 !y "w toge!r ! effect is irresi/ible1 z :5 l[ int]e/ rates & ! prospect ( good bus9ess conditions occur toge!r1 or :5 high money rates occur 9 ! face ( an indicat$ fall+ (f 9 bus9ess activity4 ,at su* times all classes ( securities sw+ toge!r4 ,= ! mo/ "p1 h[ev]1 money rates & bus9ess conditions are oppos$ 9 _! influ5ce1 rates be+ l[ :5 bus9ess is bad & high :5 bus9ess is good4 ,usually ! worse bus9ess conditions become1 ! easi] money gr[s2 :ile ! m active bus9ess becomes1 ! high] money rates rise4 ,! effect ( ?is antagonism betwe5 ! controll+ causes is to produce movem5ts ( diff]5t proportions & sometimes 9 diff]5t directions 9 diff]5t classes ( securities4 ,high-grade bonds may be decl9+1 middle-grade bonds rema9+ /ation>y1 & poor bonds advanc+1 all at ! same "t4 ,?is s]ves to give a v irregul> appe>ance to ! security m>kets1 & appe>s to ju/ify ! widely held op9ion t security prices are a pure matt] ( guesswork1 & t !y are controll$ only by manipulation & special influ5ces4 ,a cle> conception ( ! nature ( ! influ5ces :i* are always sil5tly at "w reconciles ^! app>5t inconsi/5cies & makes x pla9 t g5]al price movem5ts are det]m9$ by laws z c]ta9 9 _! op]ation z ! laws ( nature4 ,?is may be illu/rat$ by a s+le example4 ,let u assume t int]e/ rates are l[ & bus9ess conditions bad ) prospect ( /ill l[] int]e/ rates & /ill m unpromis+ bus9ess conditions4 ,:at w be ! effect ^u diff]5t classes ( securities8 ,high-grade bonds1 su* z *oice municipals1 ^: safety c n be impair$ by any ext5t ( depression 9 bus9ess1 w advance because _! m>ket price is influ5c$ almo/ :olly by money rates4 ,if _! int]e/ is c]ta9 to be paid1 no matt] :at bus9ess conditions may become1 !y c n be greatly affect$ by a r$uction ( e>n+s1 & consequ5tly ! influ5ce ( l[ money rates is left to act practically alone4 ,middle-grade bonds1 su* z second-class railroad issues1 w rema9 almo/ /ation>y1 l[ money rates t5d+ to advance _! price & ! fe> ( decreas$ e>n+s t5d+ to depress !m4 ,! l[e/ grade ( bonds & /ocks1 ^: m>g9 ( security ev5 9 good times is n v great1 w probably suff] 9 price because ! fe> ( default 9 int]e/ & ( r$uction 9 divid5ds w op]ate mu* m /rongly ?an ! m]e /imulus ( l[ int]e/ rates4 ,( c\rse1 securities c n be cle>ly sep>at$ into ^! ?ree classes1 b %ade imp]ceptibly into "o ano!r4 ,! classification is adopt$ only = purposes ( illu/ration4 ,up to ?is po9t we h be5 conc]n$ m]ely 9 %[+ t ! m>ket movem5ts ( negotiable securities are controll$ by ! influ5ce ( c]ta9 factors4 ,a m important "q n[ rema9s to be consid]$1 viz43 :e!r ! effect ( ^! two influ5ces is to produce g5]al sw+s 9 prices :i* may be dep5d$ ^u ) comp>ative c]ta9ty1 &1 if s1 :at indications are af=d$ to ! inve/or ( ! comm5cem5t or culm9ation ( su* a movem5t4 ,! answ] mu/ be t ! comb9$ effect ( ! two influ5ces describ$ is to produce def9ite & regul> sw+s 9 prices1 & t ! indications :i* def9e ! movem5ts are n difficult to foll[4 ,a g5]al survey ( ! hi/ory ( e indu/rial nation reveals ! fact t bus9ess conditions und]go alt]nate p]iods ( prosp]ity & depression ext5d+ 9 cle>ly def9$ cycles ( sub/antially uni=m l5g?4 ,by trac+ ! usual c\rse ( int]e/ rates & ( bus9ess conditions ?r\gh\t "o ( ^! cycles1 a g5]al idea c be =m$ ( ! way 9 :i* ! jo9t influ5ces op]ate to produce price movem5ts4 ,to :at ext5t ! c\rse ( int]e/ rates is a cause z well z a result ( *ang+ bus9ess conditions1 we %all n attempt "h to e/imate1 b w be cont5t to note c>efully ! g5]al c\rse :i* rates = money pursue ?r\gh\t ! cycles4 ,imm$iately aft] a f9ancial crisis1 :i* usually closes an era ( great bus9ess prosp]ity1 money rates become abnormally easy4 ,)9 a few mon?s f ! climax ( ! crisis1 money accumulates 9 enorm\s volume 9 f9ancial c5t]s4 ,?is is caus$ by ! great dim9ution ( bus9ess activity :i* r5d]s unnecess>y a l>ge "p ( ! circulat+ m$ium t 0 =m]ly requir$ to transact ! great] volume ( bus9ess4 ,to ! ext5t to :i* ?is accumulation ( money m]ely reflects a r$undancy ( curr5cy z di/+ui%$ f real liquid capital1 x c h little effect 9 enc\rag+ ! resumption ( bus9ess activity4 ,z "t passes1 h[ev]1 & economies 9 op]ation comm5ce to make !mselves manife/1 & especially z wa/e & extravagance are curtail$1 ! c\ntry z a :ole comm5ces to accumulate real liquid capital2 t is to say1 its total production leaves a surplus ov] ! am\nt ( consumption4 ,9 ! /ate ( bus9ess feel+ :i* has be5 pictur$1 ! und]tak+ ( new bus9ess v5tures or additions to exi/+ prop]ties w\ld n be approv$1 s t ! surplus weal? creat$ f9ds its way into bank deposits z liquid capital4 ,! competitive attempt to loan ?is capital at a "t :5 borr[]s are few produces m]ely nom9al int]e/ rates4 ,?is cont9ues = "s "t4 ,x is only gradually z confid5ce returns & z ! _s ( initiative beg9s to reass]t itself t "s "p ( ! liquid capital creat$ ea* ye> is div]t$ into fixt =ms4 ,"h & !re "s ent]pris+ gr\p ( m5 w develop a m9e1 lay a new piece ( railway1 or make "s addition to an exi/+ und]tak+4 ,= "s l5g? ( "t1 h[ev]1 ! liquid capital ( ! c\ntry n only rema9s unimpair$1 b is cont9ually increas+4 ,aft] a "t a *ange comes4 ,! annual surplus ( production1 ?o l>g] ?an be=e1 is only suffici5t to provide = ! new und]tak+s :i* ! gr[+ optimism dem&s4 ,int]e/ rates rise mod]ately 9 response to ! add$ dem& = capital4 ,a few ye>s fur!r along1 z bus9ess activity increases & success appe>s pla9ly to wait ^u new v5tures1 ! dem& = new capital ) :i* to develop increas$ facilities & new ent]prises exce$s ! annual supply ( weal? creat$4 ,prosp]ity hav+ increas$1 ano!r factor comm5ces to ass]t itself4 ,! _s ( economy & ?rift :i* _h prevail$ ?r\gh\t ! ye>s ( depression gives place to extravagance1 ! dem& = luxuries1 & o!r unproductive =ms ( exp5diture4 ,:ile ! total production is mu* great] ?an 9 ! lean ye>s1 ! m>g9 ( production is n proportionately z great1 & ?is am\nt is insuffici5t to meet ! dem&s ^u x4 ,! supplies ( liquid capital /or$ up dur+ ! ye>s ( depression are resort$ to1 & !y s]ve to provide ! new capital = a few additional ye>s4 ,int]e/ rates at once reflect ! encroa*m5t ^u /or$-up capital1 & _! rise gives ! fir/ real w>n+ ( ! c\ntry's true position4 ,! optimi/ic bus9ess m5 d n he$ ! w>n+4 ,aft] exhau/+ all ! real capital available 9 ! c\ntry1 !y proce$ to borr[ ext5sively f =eign]s or f gov]nm5t banks--9 ?is c\ntry f ! national gov]nm5t ?r\gh bank deposits4 ,e /ep :i* c be tak5 to induce =eign]s to "p ) _! capital is resort$ to4 ,if =eign]s w n buy long-t]m bonds1 %ort-t]m notes are creat$4 ,if ! =eign]s refuse ^!1 !y are ask$ to make loans secur$ by ! new bonds & notes4 ,! rates ( int]e/ (f]$ are s attractive t consid]able sums are usually obta9$1 & ! pressure ( bus9ess activity cont9ues fur!r4 ,f9ally ! day ( reckon+ arrives :5 "s incid5t1 usually unimportant 9 itself1 fir/ sugge/s to ! l5d]s ( money t _! debtors :om !y "k to be ov]ext5d$ may n be able to pay _! loans4 ,! attempt to collect _! loans produces a f9ancial crisis :i* br+s to an end ! p]iod ( prosp]ity4 ,! =ego+ is a description ( ! m important /ages ?r\gh :i* bus9ess conditions pass f crisis to crisis4 ,diff]5t cycles v>y 9 p>ticul> details1 b all agree 9 ess5tial outl9es4 ,sometimes special influ5ces are at "w :i* op]ate to %ort5 or prolong ! cycle4 ,! approa* ( a crisis w be ret>d$ by inflation ( ! curr5cy1 = ! excess f9ds its way into bank vaults & increases ! volume ( loanable cr$it4 ,! effect ( su* inflation1 h[ev]1 is :olly disa/r\s1 because ! addition to ! supply ( capital is fictiti\s1 n real1 & only def]s ! day ( reckon+ = a great] cata/rophe4 ,on ! o!r h&1 ! approa* ( a crisis c be greatly ha/5$ by w>s1 conflagrations1 & o!r ag5cies :i* de/roy capital1 & by attacks ^u capital & ! conduct ( corporate bus9ess1 = su* attacks t5d to r5d] capital timid & produce ! same effect z a viol5t curtailm5t ( ! supply4 ,^! are only "s ( ! _m influ5ces :i* might become op]ative1 b !y s]ve to %[ ! necessity = c>eful consid]ation ( all ! factors at "w if a true conception ( ! condition & t5d5cies ( bus9ess is to be =m$4 ,f ! g5]al acc\nt giv5 above ( ! successive phases ( a cr$it cycle1 x is possible to summ>ize ! c\rse ( int]e/ rates & ! c\rse ( bus9ess conditions4 ,money rates become sudd5ly easy aft] a crisis1 rema9 l[ or gr[ easi] = a p]iod ( sev]al ye>s1 & !n rise cont9u\sly until ! next crisis1 advanc+ ) great rapidity t[>d ! close ( ! cycle4 ,bus9ess conditions rema9 poor or gr[ worse a few ye>s aft] a crisis4 ,liquidation is tak+ place1 prices are go+ d[n1 & ! unc]ta9ty ( ! outlook causes dim9i%$ activity4 ,!reaft]1 h[ev]1 conditions improve & activity increases ) fair uni=mity until x rea*es ! high t5sion ( ! p]iod imm$iately prec$+ ! crisis4 ,! c\rse ( int]e/ rates & ! c\rse ( bus9ess conditions may bo? be deflect$ by ! op]ation ( special influ5ces1 b ! g5]al t5d5cies are sub/antially z outl9$4 ,! result ( ! op]ation ( ^! jo9t factors may be trac$ 9 ! m>ket movem5ts ( any class ( security desir$4 ,= ! sake ( simplicity1 let u consid] _! effect 9 produc+ ! m>ket sw+s ( ! highe/ grade ( inve/m5t issues & ( ! l[e/ grade1 ^? :i* are affect$ only by money rates & ^? :i* are affect$ almo/ :olly by bus9ess conditions4 ,em]g+ f ! /ra9 ( ! crisis at _! l[e/ po9t1 high-grade bonds1 su* z ! be/ municipal & railroad issues1 advance rapidly z int]e/ rates decl9e1 cont9u+ _! advanc+ t5d5cy ?r\gh\t ! p]iod ( bus9ess depression :i* foll[s ^u ! heels ( ! crisis4 ,z bus9ess conditions improve1 _! position1 :ile p]fectly secure be=e1 is fur!r /r5g!n$ & an add$ /imulus is giv5 to _! rise4 ,ab\t ! middle ( ! cycle :5 ! bus9ess outlook is v promis+1 & be=e int]e/ rates h su/a9$ any mat]ial advance1 ! prices ( high-grade bonds are usually at _! highe/ po9t4 ,f t "t =w>d !y comm5ce to decl9e1 9 spite ( ! increas+ prosp]ity ( ! c\ntry1 "u ! influ5ce ( ris+ money rates4 ,!y make _! l[e/ prices 9 ! mid/ ( ! crisis1 :5 ! /ra9 ^u capital is greate/ & ! outlook = bus9ess mo/ unpromis+4 ,! l[e/ grade ( bonds1 on ! o!r h& 7^: m>g9 ( security is lea/71 d n comm5ce to recov] mat]ially 9 price1 9 spite ( ! influ5ce ( l[ money rates dur+ ! h>d times :i* foll[ ! crisis1 ! influ5ce ( r$uc$ e>n+s & ! fe> ( default ( int]e/ hold+ !m 9 *eck4 ,z ! outlook becomes bright]1 !y advance rapidly & cont9ue to improve 9 price s long z !y yield m ?an curr5t money rates4 ,at "s po9t1 difficult to det]m9e 9 advance b usually well along t[>d ! end ( ! cycle1 !y rea* _! high po9t & !reaft] decl9e "u ! influ5ce ( ! gr[+ /r+5cy 9 money4 ,betwe5 ^! two extremes1 e class ( security is to be f\nd4 ,! bett] ones w t5d to resemble1 9 _! m>ket movem5ts1 ! c\rse pursu$ by ! *oice/ bonds2 ! poor] ones w approximate ! l[e/ class4 ,9 e case1 h[ev]1 unless special influ5ces op]ate to produce v>iations1 ! m>ket sw+ ( a giv5 security %\ld be easily conjectur$ by an inve/or :o gives c>eful att5tion to ! relative weight :i* is likely to atta* to ea* det]m9+ influ5ce4 99 99 99 99 99 ,transcrib]'s ,note3 ,spell+ rema9s z 9 ! orig9al except qualities to be emphasi$2 = inve/ors has be5 *ang$ to emphasiz$4