4910 CORNELL UNIVERSITY LIBRARY BEQUEST WILLIAM P. CHAPMAN, Jr. Class of 1895 1947 Cornell University Library HG4910 .H17 olin 3 1924 030 207 538 Date Due uttt^ -^H ppl nTr> pf m^ km^. ^iy/6.m PRINTED IN U. ». A. cwf NO. 23233 David A. Boody Henry T. Boody Charles W. McLellan Memitr New York Stock Exchange BOODY, MCLELLAN €r CO. Bankers and Brokers Members of the New York Stock Exchange 57 Broadway, New York BRANCH OFFICES: 1 Id Montague St., Brooklyn. 3 1 Centre St., New Haven. 1 025 Main St., Bridgeport. 36 Pearl St., Hartford. Jones and Morgan Building, Waterbury. Transact a general banking and stock exchange business. Interest allowed on deposits, subject to check. If desired, a market letter is mailed to customers, every Saturday, reviewing the financial situation aind general outlook. Private wires connect the main office with the branches ; and prompt execution and careful attention are given to all orders. MACKAY & CO. Members, New York and Boston Stock Exchanges. Dealers in Government Bonds and other Investment Securities. Interest allowed on deposits : : : : : NASSAU AND PINE STREETS, NEW YORK 13 Congress St. 42) Chestnut St. Boston Philadelphia Rookery Building, Chicago HOW MONEY IS MADE IN SECURITY INVESTMENTS OR A FORTUNE AT FIFTY-FITE BY HENRY HALL HECOITD JEDinON I 52 BROADWAY NEW YORK 1907 1 I .; I; AUY WGc D,^0\o^fc Copyright, 1907, by Henry Hall THE DE VINNE PRESS CONTENTS PASE A Nation or Investors 3 How AN Investor Makes Money 11 Eate op Interest on Investments 21 Bonds 28 Stocks 44 Cycles of Prosperity and Depression 55 Normal Yearly Movements op Prices 105 Course op the Stock Market since 1860 114 Points to be Watched 119 Turning Points in the Market 139 Dull Days in Stocks 154 When to Buy Securities 160 When to Sell Securities 169 Maxims op Wall Street 177 Financial Teems and Phrases 182 Ean&e op Leading Stocks since 1890 193 Interest Eates and Surplus Deposits since 1890 . . 210 Index 231 The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030207538 PREFATORY EXPLANATION A NUMBER of text books have been written to explain the character of the securities, which are sold through the banking and brokerage houses of the United States. They treat of stocks, bonds, notes and mortgages and describe the peculiarities of each. Other books have been published to define the meaning of the technical terms in vogue in the financial world. They all serve a useful purpose. It seems to the writer, however, that there is imperative need of another work, which shall go beyond elementary facts, and, in the matter of advice, shall do more than dwell upon the simple truism that an investor, before all other things, should pay attention to the safety of his capital and the regularity of his income. An investor needs to know how he can actually accomplish those ob- jects, and farther, not only how he can avoid the loss of part or all of his money, but also how to make money in securities. This book is devoted to the broad principle, that, unless there is a fair assurance that money can be made on stocks and bonds, it is almost certain that money will be lost on them or so locked up as not to be available for other uses for a period of years. If securities are going no higher, if the times do not promise greater profits and larger dividends, then all classes of securities are go- ing lower, at a date not far distant. A vast amount of money is either badly employed or wasted, every year, by investors, and great opportunities viii PREFATORY EXPLANATION are lost, in consequence of inattention to cautionary sig- nals, which are easily recognized by men experienced in finance but are entirely overlooked by others. Coming danger and coming prosperity are always fore- shadowed in various ways. An investor sometimes buys stocks or bonds, when it is of dominating importance that he should sell everything he has, both with a view to harvest the profit he has on them and to reinvest later — selling in times of bullish enthusiasm being the step the average investor is usually the most reluctant to take. Conversely, an investor only too often sells, when every financial consideration demands that he should buy. To guide him in buying and selling, and to urge him to take his profits on investments at certain critical periods, are the objects of this book. History repeats itself in Wall Street with unfailing regularity, as in all other fields of human activity. A diligent study of Wall Street methods and the financial history of the past fifty years will reveal to any intelligent man considerations of great importance; and the fruits of such a study are here laid before the public in the belief that they will conserve the interests of actual investors. Attention will be called especially to the remarkable changes in prices of all securities, brought about by alter- nating periods of prosperity and depression, and to the smaller but also noteworthy fluctuations at certain sea- sons in each year, all of which will be utilized by a care- ful investor. It may be well to say that this book is not written for the information of men of large fortunes. The man of millions needs no guidance from a work of this sort. He has private information not at all at the service of the PREFATOKT EXPLANATION ix generality, and he can proceed with the purchase and sale of securities, with a confidence which is denied to men less well informed. The subject of security investments, and how to make money in them, is here discussed to meet the requirements of many thousand Americans, who have moderate amounts of money, say from $500 to $5,000, which they desire to add to their permanent capital, and from which they wish to derive as large a revenue as is consistent with safety, and from the investment of which they can also gain an actual increment to their principal. This work will not encourage the belief that a man can make himself rapidly rich by trading in Wall Street with a few thousand dollars of capital. The achievement is possible to men who have been trained to the business, but it is foreign to the purpose in view. The object will be to show that security investments can be handled in such a shrewd and conservative manner, that the princi- pal will be safe and the income sure, and that when this is accomplished, a desirable increment can be added to prin- cipal in a perfectly legitimate way— a policy which wiU ensure a fortune possibly in a series of years and certainly in a life-time. HOW MONEY 18 MADE HOW MONEY IS MADE A NATION OP INVESTOES OLD TIMES IN AMERICA, COMPARED WITH THE PRESENT. — AMERICAN SECURITIES ONCE OWNED MAINLY ABROAD. — THE CHANGE SINCE 1825 PEOPLE were strong, healthy and happy in the "good old times" of the forefathers of the republic, but they were not rich. The skies were as blue as now, the grass as green, the streams were full of fish and the forests of game, the soil was fertile, and it was not difficult to make a living; but scarcely any one owned securities and the commonalty knew little about them. Several millions of people occupied the thirteen colo- nies. They were courageous, industrious and thrifty. But in the simple occupations of the pioneer settlers of a new continent, no great amount of surplus wealth could be accumulated. Lands and plantations, stage coaches, toll roads, sailing vessels, petty manufactures for local sale, retail and auction stores and inns all existed and were the forerunners of lines of business, in which for- tunes have since been made. At the time, they merely afforded a subsistence to the energetic men, who devoted their lives to them. Millionaires were almost unknown, while men worth several hundred thousand were extremely rare. General Washington was probably the only man on this continent in his day, who could have been rated as a millionaire. 8 4 HOW MONEY IS MADE Securities were not unknown of course ; but there were only a few joint stock companies and almost no corpora- tions; and from the very nature of the case, stocks and bonds had little more than an academic interest to per- sons who had no money with which to buy them. Owners of securities were found only among a limited number of merchants and bankers in the larger cities and the pro- prietors of landed estates, North and South. Stocks and bonds came into vogue, gradually, after the War for Independence, as wealth increased and the trade and natural resources of the country were developed. Before many years had passed, the necessity had arisen for enterprises, which could be set on foot only through the aid of the united funds of many different persons or the resources of the State. Bonds were issued by the public authorities for the payment of debts to the soldiers and others and for the construction of roads. New ven- tures outside of the province of Government were carried out by organizing joint stock companies and corporations ; and as foreign trade had brought a great deal of money into the country, it was possible to secure the capital for the early modest enterprises mainly through leading men of the different localities, who took the stocks and bonds of new companies, largely from motives of public spirit and not because they were seeking desirable forms of in- vestment for surplus funds. The first great stock com- pany came into being in 1791, when Congress chartered the original United States Bank. Local banks were formed in the leading cities, followed later by fire and marine insurance companies. During the twenty years next after Independence, Americans had become familiar with the idea of devoting a part of their surplus capital to the purchase of securities. A NATION OF INVESTORS 5 For many years, however, it was practically impossible to float large issues of securities in the United States. The projectors of every important enterprise looked to Europe for a considerable part of the funds required. One of the interesting items of news in "Niles's Register" and other public prints, a century ago, was the quotations of American bank shares and State bonds in London, printed here about a month late as a rule. An illustration of the inability of rich Americans, a century ago, to absorb a large issue of even the most gilt edged security is afforded by the experience of the first United States Bank, an institution of which the country was extremely proud. Measured by the times, the bank was a gigantic concern. It had a capital of $10,000,000, of which the Government took $2,000,000, the public $8,000,000. In modem times, it is on record that one man has supplied $8,000,000 for a single enterprise. In 1791, the sum was too large for the whole of the infant republic. While it is true, as reported by President Washington, that the entire capital stock of the Bank was subscribed for in one day, the fact remains that those who thus be- came partners in the Bank took the stock in most cases as a speculation, not as an investment; and, as was ex- pected, the bulk of it speedily found its way abroad. In 1809, after the Government had sold its interest in the Bank, an official report stated the rather surprising fact that only 7,000 shares (of $400 each) were owned by Amer- icans. The remaining 18,000 shares were held in Europe, mostly in London. How little the ownership of securities interested our people in the early days is farther shown by the entire absence of special facilities for dealing in them. Bonds and stocks were bought and sold principally at the stores 6 HOW MONET IS MADE of leading merchants and auctioneers. Not until 1792, a year after the organization of the United States Bank, were steps taken which tended toward the creation of a specific market-place for securities. In that year, a start was made in New York, by an agreement between a few jobbers of stocks and bonds as to rates of commission. This was the germ of the New York Stock Exchange. In later years, dealers in securities in other cities started stock exchanges of their own. After the dawn of railroad construction in 1826, invest- ment in stocks and bonds began to play a distinct part in financial affairs. Wealth had continued to accumulate; and many persons were found in the cities, who had man- aged to save, through frugality and their talents as busi- ness men, dollar by dollar, sums of money not required in the prosecution of private business. This class of persons became considerable buyers of the securities of the pioneer railroad lines and public utility corporations, which sprang up in the '30s and '40s. Some of these in- vestments were profitable, with the consequence that men of means turned more and more in the direction of cor- porate securities as a proper and safe employment of sur- plus capital. Each decade of progress added to the vol- ume of stocks and bonds afloat and the number of buyers of them. The process was a gradual one, however, and more than one generation of active business men had crossed the stage of affairs and disappeared, before there was any striking increase in the transactions in securities or the roll of stockholders in corporations. From Edmund C. Stedman's "History of the New York Stock Exchange" it appears that in 1827, trading at New York was confined to forty -two descriptions of secur- ity issues, as follows: A NATION OF INVESTORS 7 Twelve bank stocks. Bight public bonds. Nineteen fire and marine insurance companies. Delaware & Hudson Canal stock. New York Gas Light stock. Merchants' Exchange stock. In 1837, a day's trading sometimes amounted only to about 4,000 shares. Even as late as the outbreak of the Civil War, in 1861, in spite of the enormous advance in wealth and enterprise, only twenty-two stocks were dealt in on the New York Stock Exchange, in more than frac- tional lots, sixteen of them being railroad shares. How remarkable is the change which has since taken place will appear from the fact, that in 1906, sales of stocks on that Exchange amounted to 289,425,000 shares, having a par value of $28,942,500,000, while bonds were sold in 1905 to the value of over $1,000,000,000. More than 250 descriptions of stocks were dealt in, and more than four hundred and fifty varieties of bonds. In the eighty years or so since the whistle of a locomo- tive was first heard in the States, a change has been wrought in the wealth of the people, the volume and value of securities afloat and the number of investors, which is one of the marvels of the world's history. It is good to be an American and to have played some part in the betterment of conditions, which has brought about this transformation. No figures are at hand, at all important, as to the actual wealth of the population in Washington's day. It is known, however, that by 1850, wealth had grown to about $7,000,000,000 and has since expanded to $95,000,000,- 000. In 1907, the country is rich and comfort is general, at least among the native bom. Americans earn more, 8 HOW MONEY IS MADE live better and save more than their forefathers did. Thousands are now capable of owning a few shares of stock or a few bonds, compared with a mere handful in the year of adoption of the Constitution, and there are more than 5,000 millionaires. So far as the people at large are concerned, one needs only to refer to the sav- ings bank to gain a clue to the general diffusion of wealth —8,635 depositors in 1820, with total deposits of only $1,139,000, and more than 7,400,000 depositors now, while the average of accounts is thrice as large. In every rank of life, one now finds investors in secur- ities, and the number of them grows, year by year, as the natural product of the thrift of a busy people, laws which give equal opportunities to all, an inspiring climate, boun- tiful harvests from our rich soils, the energy shown in every branch of trade and manufacture, the discoveries of coal, oil and metals, the division of estates, and the oppor- tunities for profitable speculation. Here, as in older countries, in which there is entire freedom of thought and action, and which have risen from primitive conditions to wealth and prosperity, thou- sands of workmen have passed the stage where they often lacked bread to eat, and have saved a few thousand dollars and bought a few bonds or shares of stock. Many a village blacksmith and smart carpenter and grimy toiler in an iron mill is thus a capitalist on a smaU scale. More than 40,000 employes of the United States Steel Corporation alone are owners of stock in that concern. In New Eng- land, operatives are taking shares in the cotton mills. Farmers, who, as a class, formerly struggled under the most trying conditions for a bare maintenance, are now recruiting the ranks of buyers of securities. A notable A NATION OF INVESTORS 9 circumstance is the fact that in the West hundreds of small banks have been organized in the last ten years, an appreciable part of whose stock has been subscribed for by farmers. Among the millions who are under salary as managers, teachers, journalists, officials and clerks, or who conduct small retail stores, there is now an army of frugal people who seek a larger return on their modest accumulations than a savings bank affords and who are receiving from 5 to 7 per cent, from stocks and bonds which they have bought. A curious instance is known, in which the chambermaids and serving men of a Southern city became stockholders in a local shipyard, started for repair of the swarm of fishing and truck boats owned on Chesapeake Bay. In the cities, a vast number of people, men and women, are owners of from five to twenty shares of bank, gas, or street railroad stock. There is little need to multiply instances, since it is within the knowledge of every one, that investors are now to be found on every side among the ranks of people of moderate means, as well as among the men of wealth. Without dwelling further on the point, suffice it to say that Americans have fully learned the desirability of in- vestment in securities and the United States has become a nation of investors. There are no statistics as to the exact or even approxi- mate number of investors in America. It is doubtful if any useful object would be served, if the number could be known. As long as the assessor and tax collector flour- ish in the land, insurmountable difficulties will stand in the way of an accurate census of security owners, although 10 HOW MONET IS MADE the facts would be interesting enough. A few of the fore- most corporations, like the Pennsylvania Railroad and the United States Steel concern, have taken pride in publish- ing the number of their stockholders; but they are exceptions, and a policy of secrecy prevails among the majority of other stock companies. A few years ago, one of the New York mercantile agencies made a strong effort to compile the total number of stockholders in leading railroads but was obliged to abandon a task made impos- sible by official indifference. II HOW AN INVESTOR MAKES MONEY GREAT EICHES POSSIBLE IN STOCKS. — MOST POETUNES IN AMEEICA ENHANCED BT SECURITY INVESTMENTS. — HOW THE THIN0 IS DONE TO the young man and the uninitiated, one of the most mysterious of phenomena in the business world is the accumulation of magnificent fortunes by men who began life without a dollar. With rare and conspicuous exceptions, the men of to-day who live in splendid houses and own estates in the country, and who have steam yachts, motor cars, art collections and practically un- limited means, have come up from poverty. How can such fortunes be made in one life-time ? Machiavelli took the ground, that no man could ever rise to great wealth or power, without the use of either force or fraud. This might have been true in his times and country. It may be true, in these times and this country, of more than one man who has obtained opulence by trampling others un- der foot or by taking unfair advantage of his countrymen. But the assertion is not true of every rich man ; it is not even true of many ; and the life story of such men as Mar- shall Field, J. P. Morgan, George Peabody, John "W. Mac- kay and thousands of other well-known Americans is a sufficient refutation of Machiavelli 's heartless and im- moral doctrine. 12 HOW MONEY IS MADE But how do rich men make their money ? What is the process ? Is the way yet open to men of moderate means ? Can a young man, who starts in life with a clear head, an honest heart, a strong physique, and a willing spirit, but without a cent to his name, ever expect under present circumstances to gain such opulence as other men enjoy? The answer is, certainly; and John D. Rockefeller and Andrew Carnegie are authority for the statement and they ought to know. While there is more than one way to make money, it is an interesting fact, that most of the conspicuous fortunes in America have been enhanced by, and thousands of them have been chiefly due to, investments in stocks; and it may also be stated that the majority of men make their big money after they are fifty years of age. Every young man who has saved a thousand dollars can take his place among the capitalists of the future, if he will depend upon some regular occupation for his means of support, and will spend a reasonable amount of his leisure time in the study of finance, the tariff and banking, and will foUow sound and sane methods in his security investments and cultivate his own judgment and powers of intuition. Such a man ought readily to be worth a million at middle age. Does this seem a chimerical idea 1 Let us see, as we go on. Before passing on, however, let the writer disavow any intention to encourage active speculation in stocks. His purpose is a different one. So far as that is concerned, however, nothing that any man can say will ever put an end to speculation, which is the principle of barter car- ried to the point of taking risks. Bold spirits have always speculated in something, from the days of primitive man HOW AN INVESTOR MAKES MONEY 13 — in lands, cattle, mines, mulberry trees, tulips, potatoes, iron, gold, grain, beans and whatever else has been in great demand at different periods in the world's history. No power on earth has ever been able to prevent this. The instinct to make money by buying something or creat- ing something, which stands a chance of being sold at an advance, is deeply implanted in the human breast; and the necessity of making money by some such process is so imperative to the majority of men, and there are so few "sure things" in life, that it would seem to be as useless to try and stop the taking of risks, as to seek to level a brick wall by throwing dandelions against it. With reference to taking risks in stocks, the great ob- jection is that many persons incur them without the slightest knowledge of Wall Street history or methods. Their Wall Street ventures are unequivocal gambles. A deep student, be he a plodder or a man of genius, will suc- ceed, where others fail. With legitimate Business as a means of livelihood, with close study of underlying fac- tors, infinite patience and conservative methods, an in- vestment in stocks should be profitable in nine cases out of ten. An investor would then be following the line of action, by which the captains of finance have been able to amass riches in Wall Street. Long ago, it was observed that the market prices of all securities were subject to serious variations. In the early part of the last century, bank stocks sometimes sold for 50 per cent premium. Bonds often sold below par. The stocks of various of the pioneer railroads underwent fluc- tuations of great violence. Some of the first railroad lines, especially in the West, and more particu- larly those which were fostered by Government 14 HOW MONET IS MADE land grants, were built while population was scanty and before the routes traversed could supply business enough to ensure dividends or even the expense of opera- tion. Bach railroad proved a powerful stimulus to local trade and to the value of lands ; but the companies them- selves often languished for years and many of them be- came insolvent for lack of money. The decline in value of the stocks of some of those roads will never be forgotten by men yet living. On the other hand, the bankers who financed, the men who managed, and the larger stock- holders who clung to those corporations, during their years of trial and until settlement had wrought its mir- acles of development, discovered one secret of great wealth in the rise in value of their stocks when dividends had become assured. Even among stocks on which dividends had always been paid, extreme fluctuations in price were witnessed from year to year, and season to season, in response to trade conditions, the abundance of money and the public de- mand for securities. It certainly took no observing man long to grasp the fact, that the varying price of securities supplied an op- portunity for profits much beyond the income to be de- rived from them as investments. Cool and far sighted men have materially added to, and made, fortunes in stocks, carefully bought in years of panic and depression and sold in later periods of prosperity. The primary object of every man who buys a share of stock or a bond is, and should be, to invest his surplus money safely and derive a suitable income therefrom. But it is a maxim of "Wall Street, that "a good investment is a good speculation." It is so indeed. If properly HOW AN INVESTOR MAKES MONET 15 bouglit, stocks will in time show an increment on the pur- chase price. A few examples of fortunes, which have been made in stock investments, will not be out of place. They are taken from the history of the last generation. Commodore Vanderbilt began life as the owner of a canoe, which he sailed as a ferry boat from New York to Staten Island. He borrowed money to go into a steam ferry line and extended his operations to steamboats in general. Late in life, he went into railroads and made the name of his family famous by buying good stocks whea they were cheap and selling some of them afterward at an advance, often at almost fabulous prices. Moses Taylor, who had grown up in the mercantile busi- ness in New York, surprised even some of his business associates by dying worth $40,000,000, made by backing Delaware, Lackawanna & Western at a critical period in its affairs and after a thorough investigation. The Asters owe their immense holdings by no means entirely to real estate. They have always been careful and shrewd buyers of stocks in violent declines. They are often in the stock market. Crocker, Huntington, Stanford and others of that group of remarkable men were merchants in a small way in the neighborhood of the California gold mines. Their for- tunes were due in part to railroad contracts but maiuly to the rise in value of the stocks owned by them. Jay Gould, one of the most daring and intellectual men Wall Street has ever known, left more than $70,000,000 to his family, the bulk of which arose from the purchase of stocks in times of depression and their appreciation in price after he had buUt up the properties they repre- sented. 16 HOW MONEY IS MADE George Peabody derived his great wealth from stocks, bought and sold wisely. Thousands of other men, some of them not known out- side of their immediate circles, until the Probate Court or their gifts to public objects revealed the extent of their possessions, acquired entire financial ease through stocks, bought when they were low and sold advantageously when they were high. What took place in that respect during the last gener- ation is being also done, to-day, by a throng of men, on every side, who have risen from modest beginnings in trade, mines, manufactures, etc., and are now among the captains of finance and industry in these States. Among the men who have added to their wealth by stock investments, there are, of course, a few persons of excep- tional qualities, who have themselves called into play the forces, which made stocks in general or those in which they were particularly interested, high or low. All the others, and that means all except one out of every thou- sand, have simply taken advantage of the situation as they found it. They bought stocks, when they could do so, safely and cheaply; and they sold, when the good times or the manipulation of prices by insiders had forced stocks to high figures. It is this policy only which can be followed by the small investor. He can do little or no- thing whatever to affect the price of stocks, one way or the other ; but he can buy them, when they are extremely low, all things considered, and he can sell them in boom times, at or near the top of a long rise. Now, what results can be produced in a series of years by the ordinary investor? Suppose that a young man, starting in 1870 with a thou- sand dollars which he had earned and saved, had put it HOW AN INVESTOE MAKES MONET 17 into New York Central stock. That was an approved and good stock, with a great future, and a dividend payer. Ten shares could have been bought for $900. New York Central has always been an investment stock, very steady in price, and very safe. If the investor, starting with his ten shares, had sold the stock within four or five points of the top of every considerable rise, and had reinvested all the money in New York Central somewhere near the bot- tom of every marked decline, from 1870 to 1905, he would have been worth at middle age the sum of at least $150,000 ; and this would have taken care of him, all the rest of his life. No panic could have touched him, because his shares would have been fully paid for. He would not have been obliged to go into the market and give an order (to buy or seU) more than once or twice a year, as a rule. He would have learned by experience, when New York Cen- tral stock was too high to keep, and conversely when it was so low that he ought to buy it. He would have had to be a diligent student of financial conditions in general and of the earnings and prospects of New York Central in particular. He would have received a number of dividends while the stock was in his name between times; and at the moments of reinvestment, he would always have had a little surplus cash left over after making his purchases. If, in 1870, he had put his money into Illinois Central, another sedate investment stock, with a great record as a dividend payer, he would have had to pay about $1,300 for ten shares of it. If he had sold, and bought again, as above outlined, dealing in Illinois Central alone, his hold- ings would have grown to about 900 shares by 1905, worth about $170,000, all the outgrowth of the original $1,300. Ten shares of Delaware, Lackawanna & "Western, 18 HOW MONEY IS MADE bought in 1870, for $1,020, would have grown to 1,000 shares in 1905, worth about half a million. There were fewer stocks to choose from in 1870, than now — only about seventy actively traded in at the New York Stock Exchange, then, compared with over 250 now. It is therefore quite possible, that a neophyte in invest- ment in 1870 would have put his first thousand dollars into some stock, which afterward ceased to pay a divi- dend for a time, or into a stock which did not pay a divi- dend even then, but which like Union Pacific had a great and certain future. Suppose that he had gone into St. Paul, a stock with a checkered career, but now a gilt edged investment. He could have bought fifteen shares in 1870 for $900, paying about $60 a share. In 1877, St. Paul was worth as low as $11 a share. The price rebounded from that low figure and in 1881 St. Paul sold as high as $129^. In 1888, dividends were suspended for a time. Hundreds of men have followed the fortunes of St. Paul through good and evil days until the present time. They saw the stock' rise to $198% in 1902. If an investor in fifteen shares of St. Paul (bought in 1870 for $900) had sold anywhere near the top of the next considerable rise, and had reinvested all the money in the same stock anywhere near the bottom of the next heavy decline, and had pursued this policy con- sistently, he would have made about $2,000,000 by 1905. If our investor had chosen Union Pacific for his studies and investment, from 1870 to the present day, he could have started with fifty shares costing about $1,000 and sold out his interests in 1905 for something like $3,000,- 000, and this, too, without having had to pay the assess- ment when the company was reorganized in 1897. HOW AN INVESTOR MAKES MONEY 19 Central of New Jersey would have yielded about $6,000,000 in thirty-five years from an original invest- ment of $950. Does it not begin to be clear how magnificent fortunes have been made in stocks, by many actual investors ? Now, it must be admitted, at once, that no private in- vestor can ever be in such close accord with the ruling spirits in the stock market, or have such an intimate ac- quaintance with underlying conditions, as to be able to know when the exact top of a boom has been reached, or when prices are actually scraping on the bottom of a long decliae. An outsider can never sell at the highest or buy at the lowest, except by the merest accident; and he will probably go in, or out, several dollars a share away from those extremes. He will often experience the chagrin of seeing his favorite stock go higher after he has sold and lower after he has bought. Allowance has been made for that in the foregoing calculations. No man can expect to do better than the real insiders. It is perfectly understood that they begin to sell, a little at a time, on the way up, as the top is approached, and they begin to buy "on a scale down" as the market is near- ing its bottom. The real point for an investor is to be able to tell, approximately, when the major swings of the market, extending over a series of months or years, are coming near their turning points. That is near enough for him. But this is the very gist of the whole matter. How shall a man know when to go in and when to go out of stocks ? In order to accomplish anything like the results referred to above, a man must know this and know it for himself. An investor has a thousand dollars to invest. He reads 20 HOW MONEY IS MADE the daily newspaper for a week and he notes that stocks go up to-day. Tomorrow, they mysteriously go down, for no reason at all that he can see. The end-of-the-week financial columns discuss the general situation; and the writers are blue or cheerful, as the case may be, and what they have to say is most interesting and informing. A very few of them are bold enough to say now and then, in their own phraseology, "Investors, the time has come; buy stocks as quickly as you can." Has any one ever known a good newspaper to advise everybody to sell their stocks and retire from the market? The newspapers can- not do this. They can and do call attention to the fact, when distribution is in progress. But this is as far as they have any right to go, considering what the province of a newspaper is. The reader has the facts and must judge for himself. An effort will be made in following chapters to supply an investor with the means of forming his own judgment in this matter. An investor may follow one of two courses. He may put all his eggs into one basket, and watch the basket. That is not a bad policy, and it is the only one which may be pursued at the outset of the future capitalist's career. A little later, he can diversify his investments ; and there are advantages in having three or four stocks, moderate amounts of each, one or two of them industrials. This latter class of stocks are apt to swing more violently and farther than the railroad securities. In case industrials are added to a man's investments, those stocks are prefer- able which make public reports and which supply the ac- tual data from which the fortunes of the company can be followed. No need to specify. Ill RATE OP INTEREST ON INVESTMENTS 2 PER CENT A MONTH COMMON A CENTUET AGO. — LEGAL RATES OF THE PRESENT DAT.— THE EETTJBN NOW TO BE LOOKED FOE ON MONEY AND SECURITIES BEFORE passing on to consider the more important matters, to which these pages are devoted, a few elementary facts should be set forth. First, what rate of return on investments in bonds or stocks may an investor look for? When a man has saved his first thousand dollars, or when later he has derived some other and perhaps larger sum from his private busi- ness or from previous investments, what shall he do with, and what can he get for the use of his money ? If he is in a business capable of extension, the natural use of surplus earnings would be an increase of facilities for carrying on his regular vocation. Goods, tools, machinery, buildings, ships, or working capital would be added to. In a solvent private business, it is held that yearly profits must be around 25 per cent, more or less, in good years, in order that the business may be carried on properly in the lean years, when profits are small, or when, to maintain an organization and keep one's list of customers, the owner is obliged to operate without profit or possibly at some loss for the time being. Among manufacturing corporations, yearly net profits 21 22 HOW MONEY IS MADE range from 4 to 15 per cent, this moderate return being due to the fact that the percentage of profit is figured on the total capital, as represented by the stock and bonds, the capital being inflated in most cases by a very large and perhaps undue issue of securities. Standard Oil has divided between 31 and 48 per cent annually during the last ten years, but this is an exceptional case. If the capital stock of the concern were as heavily watered as that of most industrial corporations, the percentage of profit would be much smaller. In a manufacturing busi- ness owned by a private firm or an individual, the annual profits would need to run from 20 to 25 per cent in order to provide against the strain of bad times, which occur regularly and cannot be avoided. But while such a return on the money invested seems tempting, on the face of the matter, there are many persons who do not care to undertake the responsibilities of private business, with its labors and anxieties, and others have sufficient equipment to hold their own against such competition as they are exposed to. "With them, the propriety of other investments presents itself, when a sum of money has been saved beyond the cost of living. An abundance of investments can be found besides standard stocks and bonds. The scope of this work does not admit of consideration of them. It may be said of stocks and bonds, that they make smaller demands upon the time and personal attention of the investor than do promissory notes, rentable real estate, shares in shipping, special partnerships, and analagous forms of investment. The risk is no greater, provided that an investor is as cau- tious in one case as in the other, especially with reference EATE OF INTEREST ON INVESTMENTS 23 to the time when he buys and the price he pays. The chances of selling out at a profit are larger. Farther, if one wishes to withdraw his capital from an investment in standard securities, he can do so at any time at a moment's notice, by sale through a brokerage office or a bank, whereas investments of the nature of some of those mentioned above are of a more permanent character and cannot usually be disposed of quickly or to advantage. The iacome to be expected from stocks or bonds corres- ponds rather closely to the average rate of interest on long time loans of money (four months or more) in New York city, the financial center of the country. In early times, the scarcity of money made interest rates high. It was not at all uncommon to obtain 15 or 25 per cent upon loans or ready money. Wealth was limited and surplus capital extremely small. Supply and demand always regulate rates of interest with an iron hand. The law is effective all over the world. In Eng- land, a few centuries ago, and indeed in Europe generally, until the Spaniards began to pour the gold and silver of Mexico and Peru into the old world, ten per cent was the ruling rate of interest. Higher rates were paid by those who needed money badly to those who loaned it. In Eng- land, the growing wealth of the country gradually brought the ruling rate down to between 2 and 4 per cent where it stands to-day. If the rate for time loans goes much above 4 per cent in England, now, it is only because money strin- gency, or possibly a panic, threatens the commercial world. In France, a high rate of interest was current, until the development of industry, the enterprise and the riches of the people caused it to fall to 5 per cent and finally to 2 and 3 per cent. In Germany and Holland, low rates 24 HOW MONEY IS MADOE have reigned for centuries on account of the thrift and prosperity of the people. In various of the newer sections of the United States, where conditions have been similar to those in early times in the East, high rates were common down to the middle of the last century. Two per cent a month, equal to 24 per cent a year, and even more, was once paid in California and other sparsely settled sections of the Western coun- try. The great profits of the pioneer bankers in the ter- ritories and on the Pacific coast were obviously due, in part, to the high price which merchants and others were willing to pay for the use of loanable funds. A trifling incident, which affords an insight into the conditions of forty years ago in the West, is told by an lUinoisan, now resident in New York, who was a small merchant in one of the towns of his State, when he was married. He was then worth $6,000 ; and it was agreed between his wife .and himself, that when they were worth $10,000, he would re- tire from business. He could get 2 per cent a month for the use of his money, and this would yield an income of $2,400 a year. In those days, it was fashionable to be economical ; and the couple did not know what they could do with $2,400 a year. But Illinois settled rapidly, the people grew prosperous, great crops of grain brought mil- lions of money into the West, and interest rates declined. The time when $2,400 a year could be realized on $10,000 of capital passed. Our Illinois merchant is yet in busi- ness. The legal rate of interest, to-day, is 6 per cent in New England and the Middle States; from 5 to 8 per cent in the West and South. Each State has its own laws; but nowhere is the legal rate over 8 per cent. RATE OF INTEREST ON INVESTMENTS 25 It is true that a higher rate of interest is allowed in many of the States, when the parties to the loan agree upon the same by private contract. In the West and South, 10 and 12 per cent is the limit. Money never brings such rates, however, except during periods of great stringency and for a short time. In Maine, Massa- chusetts, Rhode Island, California, Colorado, Arizona, Montana and Nevada, "any rate" is legal when agreed upon by private contract; and in New York, any rate is permitted on call loans of $5,000 or more on collateral security. It is under this provision of the law, that such extravagant rates for temporary accommodation were seen in New York city, as 125 per cent in December, 1905, 127 per cent in October, 1896, and 186 per cent in 1899 and 1890. But while the rates allowed by law on long time loans are as stated, the great borrowers of money in this country can usually obtain ample supplies of capital at modest figures. The cities and States are able to borrow all the funds they require at an average of Syi to 4 per cent; and millions have been loaned to the United States govern- ment at 2 per cent. Railroads, manufacturers and mer- chants can, in ordinary times, borrow at 3^ to 5 per cent, according to their solvency and the amount of security given. In years of considerable stringency, the commer- cial community which generally has to pay the highest rate of interest, is sometimes charged 7 or 8 per cent on time loans for a short period. In 1873, 24 per cent was charged in New York on commercial paper, and in 1893, 15 per cent was asked, but exceptional eases like these are not to be considered. Rates of that character were simply due to spasms in the money market and were of short dur- 26 HOW MONEY IS MADE ation. In ordinary times, and for a period of years, the ruling rate of interest on long time loans seldom goes far from 3^ to 5 per cent for the bulk of the business, with an average of about 4 to perhaps 4^. This is the amount of return an investor can expect from safe, sound, ap- proved security investments. Conservative men are even of the opinion, that securities which pay a larger yield on the money invested are dangerous, although this idea is open to discussion. The range of interest rates on time loans for four months or more in New York city, since 1890, have been as follows : 1890 4y2@ 9 1891 4 Va @ 6V2 1892 2 % @ 6 *1893 2 Va @ 10 1894 2 @4 1895 2 @6 1896 3 @ 12 1897 2%@ 5 1898 3 @6 1899 2 @6 1900 3 @6 1901 3 @ 51/2 1902 4 @ 6% 1903 4 @6 1904 2 @5 1905 2 1/2 @ 6 Va 1906 4 Va @ 8 Average, 5 % 5V2 4% 3 5% 3% 3% 4% 4% 4% 5 5% SVa 4 5% *Some loans were raade in July and August at 6 per cent, with 4 per cent commission added. An investor wiU therefore look for a return of 4 per cent or a trifle more from money, which he puts into rail- road stocks or bonds. If those securities sell at prices which would make the yield 5 or 6 per cent, as they RATE OP INTEREST ON INVESTMENTS 27 usually do in panic years, they are a purchase, assuming that in the ease of any particular company, the corpora- tion is solvent and its finances in good shape. A larger return can be expected on industrial investments, which ought to yield from 6 to 7 per cent, ordinarily, to compen- sate the investor for the larger risk. Bonds are more stable in price than stocks; and those whose soundness is beyond question seldom fall below an investment yield of 4 or 4j^ per cent. If the companies which have issued them are strong, and, if for any reason, such as the preva- lence of panic or high money, they can be bought to re- turn anything like 5 per cent, they are a purchase. A discussion is now in progess among financiers and students, as to the probable effect of the increasing gold supply upon prices and rates of interest. It is the opin- ion of many, that such enormous additions as are now being made to the gold money of the world must tend, in time, to lower the rate of interest and raise the sell- ing price of bonds. This position is strongly opposed by others, of whom Prof. Joseph P. Johnson of New York is one, who maintain that gold inflation must stimulate enterprise and increase the demand for the use of money and thus maintain interest rates. John Moody's theory is, that the rate of interest will rise and that bonds and other fixed income securities will decline, while stocks and those securities whose incomes increase as the production of wealth increases will appreciate in value. While the con- troversy is interesting, the influence of the flood of gold now being poured into circulation will obviously not be immediate and can only be made clear by the lapse of time. IV BONDS THIS CLASS^P SBOUEITIES DEFINED. — HOW TO JUDGE OP THE SAFETY OP A BOND. — MARKET PKICES OP VARIOUS ISSUES T) ONDS may be bought through any bank or brokerage -'-' house in any part of the United States. They are issued in denominations of $1,000 each, ordi- narily, although bonds for $500 can sometimes be bought. They are put forth by railroad companies, public service and industrial corporations, and by municipal, State and the national governments. A bond is evidence of a loan of money. Every issue by a corporation is secured by a mortgage of some kind, on a portion, or all, of the property of the company; and this document is deposited with a trust company, which acts as trustee. Bonds issued under a first mortgage have priority over all others; and the interest on the whole of the funded debt of a corporation must always be paid ahead of any distribution for dividends on the stock. In case of default in payment of the interest, holders of the bonds may foreclose the mortgage and then, being in full possession of the property, they may reorganize the con- cern, the first mortgage bondholders having the first claim to consideration. The growth of the country and the necessity for addi- tional capital have compelled most railroad companies to BONDS 29 issue several different classes of Bonds. The value of second mortgage and other junior issues depends on the total value of the property. Junior issues are often prac- tically as safe and sound as first mortgage bonds, because the original issues were not large, and because the prop- erty against which they are all a charge is of equal value to, or greater than, the total funded debt, and the com- pany is perfectly solvent. Debentures are generally considered a junior issue of bonds, because they are printed in the form of a bond, with coupons attached; but they are in fact merely the promissory notes of the company, and they rank as such. If the corporation which issues them is solvent, they are good investments and often bring a premium. Railroad equipment notes have taken their place as funded debt and are a popular investment. They are floated for the purchase of cars, locomotives and similar equipment. There was formerly some laxity in the mat- ter of this form of railroad obligation but their issue is now based on sound principles. It is conceivable that a railroad, whose equipment notes are offered for sale, might be heavily cumbered with debt and its stock sell below par, without the safety of the equipment notes being affected. The cars and engines are pledged for the pay- ment of the notes ; and the company is required to main- tain them in good condition. The equipment really be- longs to the banking house, which has financed the trans- action (or, more accurately, to the holders of the notes) and they constitute the security, which is ample; they cannot become the property of the company until the notes are paid. These notes yield about 5 per cent in- terest. About $175,000,000 of them are now afloat. 30 HOW MONET IS MADE Convertible bonds are a popular feature of railroad finance. The convertible feature is usually intended to give the bonds a speculative value. They can be exchanged for the stock of the company under certain conditions. The high price brought by Union Pacific convertible 4s in 1905 is eloquent testimony to the popularity of that class of obligations. An investor in bonds should concern himself, first and foremost, with the question of safety of the investment and assurance of regular payment of interest. Other mat- ters may also be taken into consideration, but they are subordinate to the point above referred to. Until the safety of principal is evident, an investor should never buy a bond of any kind. Safety is the corner-stone of suc- cess in all security transactions ; and if a man will begin his financial career with this idea firmly fixed in his mind and will always adhere to it, he will have learned the first grand lesson in the building of a fortune and will never have cause to regret his action. If he lacks the facilities, or the education, which would enable him to investigate personally, then he should buy only under the guidance of a bond broker, or a banking house, whose reputation is a guarantee that the securities recommended are of the highest class. In the final analysis, safety of a bond depends upon the amount of property in good condition, owned by the company; total capitalization; earnings; and priority of other liens. It follows that a prudent man will make an effort to keep himself fully informed with regard to the financial status of the corporations, with whose fortunes he has allied himself. Indeed, he will do well to post him- self before he buys. He ought to do this, some time ; and BONDS 31 there is no better opportunity than before he has com- mitted himself. One must look before he leaps in Wall Street. The average capitalization of the railroads in the United States is $64,265 a mile, of which $30,837 per mile represents the stock and $33,428 the bonded debt. To judge whether a road's capitalization is moderate or ex- cessive, it is necessary to consider the nature of the route traversed, whether the line was easy to build or the re- verse, whether it is a single track or a four track line, the volume of traffic and the value and cost of terminals in great cities. Capitalizations vary from about $35,000 to more than $200,000 a mile. As the bonded debt is a \ mortgage on the property, its total volume should not ex- \ ceed about 50 to 60 per cent of the value of the property. 1 Earnings of the different railroads of the country, for a series of years, and a great mass of other important data, can be found in the Manuals, which are printed by several authorities, annually, revised to date. Current ■earnings appear in the annual and other re- ports of all railroads, which are printed in the financial newspapers as rapidly as they appear. If an investor is not a subscriber to a sound and conservative financial publication, he cannot become one too soon. He will thus obtain all important statements of earnings in detail and as quickly as every other reader. In default of any other method of getting them, an investor can write to the secre- taries of the corporations themselves, who will cheerfully supply them. If a corporation publishes no reports, if it locks up in the secrecy of its ledgers and vaults the facts upon which it would be justified in asking for loans of money, the public can protect its interests only by letting 32 HOW MONEY IS MADE the bonds alone. There are enough good things in the market to make it unnecessary for an investor to plunge blindly into the dangerous business of buying securities about whose value he can learn nothing. With reference to the safety of any particular railroad bond, one or two general rules apply. It is seldom that any two railroads operate under precisely the same condi- tions or are in exactly the same position as to the total volume of capitalization or the relative amounts of bonds and stock. If, however, net earnings for a few years past have paid all expenses, all cost of maintenance, the taxes, interest on the funded debt and good dividends on the stock, and especially if, in addition to all that, they yield some surplus besides, the bonds must be deemed a safe investment. It is held by railroad mien that, after cost of maintenance has been deducted from net earnings, then from 60 to 65 per cent of the profits should pay all fixed charges, that is to say, taxes and incerest on the funded debt. If 80 per cent is required, an investor should take advice as to the propriety of selling his bonds and going into some other security. The market value of the stock of a railroad is some- times an excellent guide to the value of the bonds. Large earnings and valuable assests ensure a high price for the stock; and the same factors ensure the safety of the bonds. Junior issues of bonds are often tempting, because they can usually be bought for less money than those of a higher class. The net return in interest would then be larger. But, if they are cheaper, they may be so, be- cause the risk is greater. The risk is a matter which must be considered. So far as safety of principal is concerned, the nearest BONDS 33 approximation to the ideal is afforded by bonds of the United States, a country which pays its debts and has a phenomenal record in this respect. Bonds of well gov- erned cities and States belong in this class also. They are always in demand, fluctuate little in value, and can always be sold at a moment's notice. Bonds are sold by banking houses engaged in the busi- ness, on the basis of net yield in income. This basis is calculated on the selling price of the issue, the rate of interest paid, and the length of time it has to run. Tables have been prepared, which show at a glance the net return upon any bond at a particular price. When a bond is said to sell on a 4.1 per cent basis (or any other which may be named) the figure indicates the net re- turn to be derived by an investor, at the selling price named. The rate of interest paid by good city or rail- road bonds is from 3>^ to 4:>4 per cent. If a bond is thoroughly sound and pays from 5 to 6 per cent interest, it is certain to sell at a price which will make the net re- turn on the investment as above. In former times, when capital was scarce and rates of interest high, railroads . were obliged to bid strongly for money; and millions of dollars worth of bonds were sold by them, bearing from 6 to 10 per cent interest. There are yet afloat about $520,- 000,000 of such bonds; but they are being retired as rapidly as circumstances will permit, to be exchanged for securities bearing a lower rate. Industrial and street railroad bonds pay from 4 to 6 per cent, but, if they are safe investments (which all of them are not) , they are apt to sell at a premium, and the net return is in the vicinity of 4 per cent. That a railroad bond may be dangerous is evident 34 HOW MONEY IS MADE from the fact, that out of about $6,873,000,000 of funded debt of these corporations, fully $275,000,000 of the total pay no interest at all at present. If a bond sells at a premium, that should not neces- sarily deter an investor from buying it. If a bond is listed on the New York stock exchange, or if it has a broad and quick market, or if it belongs to the class of savings bank investments, it is apt to bring a premium. Such bonds can be quickly disposed of, at any time, when the investor wishes to realize on them. The speculative in- vestor is apt to give much attention to bonds which do not sell at a premium. And it may be well to say that, at the present time, a number of bond houses are advising the sale of high class, well seasoned and thoroughly sound investment issues, paying 6 per cent or more, which have weathered the gales of adversity and are selling at a good premium, especially if they have only a few years to run. By so doing the investor will capitalize his premium before there is any reduction in price as the bonds approach maturity. If the money were then put into bonds selling below par and having a longer term to .run, it is held that income will remain unimpaired, while the investor will put himself in line for another addition to his principal through the future increase in value of the new investment. Men who care most for safety of principal fill their safe deposit boxes with gilt-edged bonds. Most of them have stocks, especially of the companies with whose management they are identified. But sound bonds, which yield about 4 per cent, constitute the bulk of their permanent holdings. They avoid wildcat securities of every kind and are never found in the category of a resi- BONDS 35 dent of the East, who died ostensibly worth a million and whose estate could show securities for that amount, which were worth absolutely nothing. A few extremely conservative men exist, like the wealthy manufacturer who sold so many millions of oil cloth to the late A. T. Stewart, who never buy anything except bonds and who never sell a good one, even if it has advanced $100 or $200 in value. The estates which are left to women and the surplus funds of savings banks and insurance com- panies are largely invested in this class of gilt-edged securities. These examples embody the best judgment of the most competent men in the field of finance, on the point of safety of capital and certainty of income. The highest class of investment securities are beyond doubt those which the laws of the State of New York allow savings banks to purchase. They are divided into three classes. In substance, they are as follows : Bonds of cities of not less than 45,000 inhabitants, which have been incorporated for twenty-five years, and have never de- faulted in the interest or on the principal of their debts for more than 90 days at any time, said cities to be located in States^ which were admitted to the Union prior to 1896 and have never defaulted on the interest or principal of their State debts since 1860. Bonds and mortgages on real estate, unincumbered, to the amount of not more than 60 per cent of the value of the property. First mortgage bonds of railroads lying mainly within the State or connected with and controlled by such railroads, pro- vided that there has been no default on principal or interest of their bonded debts within five years of the investment, and pro- vided also that at least 4 per cent in dividends has been paid on all the outstanding stock within the same five years. New York also allows savings banks to buy the first mortgage bonds of cer- tain other railroads, under certain conditions, viz: Boston & 36 HOW MONEY IS MADE Maine; Chicago & Northwestern; Chicago, Burlington & Quincy; Chicago, Milwaukee & St. Paul; Chicago & Alton; Delaware & Hudson; Delaware, Lackawanna & Western; Michigan Central; Maine Central; Illinois Central; Pennsylvania; Morris & Essex; New York, New Haven & Hartford; United Bailroads of New Jersey. This is, in main, the law; but there are a number of minor provisions and an investor who wishes to be fully- informed as to all details should obtain a copy of it for examination. A good 3y2 per cent bond sells in the market for from 95 to par— that is to say, from $950 to $1,000. A sound 4 per cent bond sells for $1,000 to $1,050 normally; and 5 per cents, from $1,050 to $1,200. Prices go above or below these figures in extreme bull or bear markets, and in accordance with monetary conditions. For instance, Union Pacific, 1st lien convertible 4s, sold as high as 160J4 in. 1906, owing to the rise in value of the stock, for which they could be exchanged. Any bond, having a long time to run, selling much under the prices above quoted, is of doubtful security. As they approach maturity, all bonds tend to decline to par. An example of a first class bond is afforded by Central of New Jersey, general mortgage 5s. In the crash of 1903, they never sold below $1,260 and they have since gone to $1,360. During the last five years, 65 per cent of the earnings has paid all expenses and fixed charges and left from 8 to 10 per cent or more for the stock. On the other hand, Colorado Midland, 1st gold 4s, sold in 1905 between 73 and 79. The earnings of the com- pany did not even fully meet the interest on the funded debt. BONDS 37 As an illustration of another class of bonds, may be cited Central of Georgia, 3rd preference income 5s, a junior security. They ranged in 1905 between $525 and $835. Other issues take precedence of them. Earnings do not pay the interest on the funded debt. The bonds in question rise and fall, hand in hand with the chang- ing chances of something being paid upon them in the way of interest. Changes in the market prices of the highest class of purely investment bonds afford small opportunity for speculative profits. They all do fluctuate in price, how- ever, with the times and underlyiag conditions. No securities are proof against monetary stringency, panics, and long depression; and all are subject to the inspiring and lifting influence of prosperity • and a lively demand for investments. Abnormally high rates of interest on money depress the value of bonds for the time being and a prolonged bear campaign in stocks has the same effect. Excellent bargains in bonds can be found in such periods. An investor needs to be alert at such times, if he has money standing idle. He must reason that, in order to make his principal perfectly safe, the bonds he buys must have a good chance of appreciation in value at some later period. Certainly, he would not buy when the signs point to lower prices. Men who have only a little money to invest and who are absorbed in the management of a private business can give little attention to the monthly changes in the prices of bonds and ought not to try to speculate in them. A class of well-to-do mten exists, however, who have the time and a liking for such matters, and who have considerable experience and a knowledge of finan- 38 HOW MONET IS MADE cial matters ; and they make a specialty of buying broad trading bonds, even if not of the highest grade, whenever there is a smash in the stock market or when extremely high rates of interest prevail. They reason that if the bonds go lower, they can be retained as investments, whereas when the bond market rallies, as it is certain to do in time, the securities can be sold at an advance larger than the percentage of interest which has mean- while accrued. In this way, while dealing in the class of securities which best safeguards' their principal, they add something to their capital. Prom 1893 to 1905, Missouri, Kansas & Texas, 1st gold 4s, rose from $690 to about $1,040 ; and Texas & Pacific, 1st gold 5s, advanced from $590 to $1,250 or more. United States Steel, 5s, sold as low as 65 in 1903 and have since risen to par. In the terrible financial reaction of 1903, many bonds fell from eleven to twenty-eight and one half points (be- tween $110 and $285) and supplied excellent chances for profitable investment. Among them were: High, 1902 Low, 1903 Decline Atchison, adj. 4s, 1995 97 86 11 Bait. & Ohio, conv. deb. 4s, 1911 118 94 24 Cent. Ga., 1st pref . inc. 5s, 1945 89 % 61 28 % Ch. & East Ills, gen. con. 1st 5s, 1937 126 % 113 13 % Ch., Mil. & St. Paul, gen. mge A, 4s, 1989 117 103 14 Ch., E. I. & Pac, gen. 4s, 1988 113 % 99 U% Mex. Central, 1st con. inc. 3s, 1939 36 % 12 % 24 Minn. & St. Louis, 1st eon. 5s, 1934 124 % 109 15 % N. Y. Central gold 31/28, 1997 109 % 95 14 % Lake Shore, coll. 3%s, 1997 98 87 11 Peuna. conv. gold 3%s, 1912 112 % 93 % 18 s^ Southern Ewy, 1st consol. 5s, 1994 124 111 % 12 % Texas & Pac, 2d gold inc. 5s, 2000 102 % 81 21 % Union Pac, 1st lien conv. 4s, 1911 113 % 90 % 23 % BONDS 39 In 1905, nearly all of these bonds returned to the high values of 1902 and several of them went higher. Union Pacific 4s sold as high as 150J^ and the Central of Geor- gia bonds above noted went to 101. There is another class of bonds, which present great attractions to men who are able to assume a business risk and possess the patience to wait a series of years. These are the prior lien bonds of small railroad systems, which range at a low level during periods of depression. Some of the new and yet undistributed bond issues belong in this class of speculative bond investments. As for the bonds of small railroads, there is always the chance that they may be taken into some one of the larger systems, and the bonds will receive favorable consideration in the succeeding readjustment of the finances. KememberiQg always that the small investor will, if prudent, have nothing to do with bonds whose safety is doubtful, even then it remains true that he will not buy in the height of a booming market. Indeed, if he then has any securities which are quoted well above the high prices of recent years, he will do well to sell them, bank the money, and bide his time, until the bonds have once more fallen below the average of the last two or three years. He will then reinvest. Four per cent bonds selling somewhat under par, are now the most popular form of permanent investment. As an illustration of the changes in price of bonds dur- ing any given year or series of years, a few of them are shown in the table below with their highest and lowest quotations since 1890 inclusive: 40 HOW MONEY IS MADE ■6861 'Bf 'V 'aStn '™* 1 CO OS -i rH iH rH rH X O CO CO CD O CO 00 rH rH Hw cq 00 1-i CO 1-i Ol 00 CO t- 1~^ 1-i ■8I6I 'S9 -lap s o Hoi H« § rH H« HN C^I Ift rH 1-^ o o o o rH rH rH rH i-i CO rH r-l CI (M rH rH rH rH o rH rH 00 o rH H-« Hm 00 CO l'- o o o 1-i r-( r-i 1 § ml* lO O 03 O CO 00 § § g g tHco rH rH OO 00 O O 1-i 1-^ H. Oi OS OS rii CO ^ 00 OS OS OS OS rH OS o o rH rH cq lo 1-i 1-i 1-i 1-t rH CO rH rH HM rei^ rH[« Til t> CD rH 1-H 1-i rH rH rH •89 pio3 -noo :)sx 1 (M H« Hi" cq CO rH W rHloO rH cq cq cq CO rH rH rH rH CO CO 00 o CO tJi 1-^ 1-^ r-ico OS CO 1-i rH H« OS 00 CS cq CO CO r-i rH r-i 1 1^ to 00 OS 1— 1 iH CO 00 rH 00 '■^ rH cq rH cq rH rH rH rH cq rH cq CO 1-i i~i CO lO CO CO r^ 1-i CD CO 1-i I-- C^l 1-i Hn W» OS CO o cq CO CI rH r-i r-l •6S6I 'sg -3 'noo }si oiqo W 'saqO 1 2 iH tHiN CM l— o o Hn «!^ H« O cq rH Tt< rH rH rH rH l-\ l^i T-{ 1-* rH rH eol-* cq c^ 1-i 1-i HO* rH 3r rH rH Hm Hn P S^ "^^ cq M rH rH rH rH 1 Hi rH]5. OS O T— I O r^]-« rH|00 ml-* I-H CO O 1- O O O O rH »H rH rH rH CO rH rH W OS 1-i r-i 1-H rH a' rH 1— ( 3 1-i ^ b- CD rH rH rH _r-i rH rH ■i86I 'SS '93™ 'isS •fNI»J?n90 t CO r-( I-H rH t- O O 00 rH cq cq rH ^ ^ iH r-i HN CD cq r-i cq rH r-i H-* Hoo Ol t^ oq CO 1-^ T-i rH rH CO rH CD CD cq rH 1-H rH 1 CO O l^ OS o o O rH O rH O CO rH rH rH O rH rH rH rH 1-i rH r^ tH cq CO rH H* rH 00 C>I lO cq CO cq pH rH rH •sg -jBtiS ^sx ■a © iH 00 o O iH i-H iH OS o rH wloo Hoo ■-'i 00 O OS c:s OS OS 3f OS Hi" «!■* 00 OS b- OS OS O) 1 H-f w|^ 00 r-i cq -^ S i2 t- 00 § 00 H-* H-* I— CO rH 00 OS OS O Oi 00 rH T-H CO OS 00 Tp lO CD t> OS OS OS OS CO CO 00 00 rH rH rH rH OD OS rH rH Ol OS rH rH OS rH Ol 1-i ■ O) 00 cT o. o o ■^ rH lO o o o 1-H 1-H 1-H M|-* thIn n|N «|a) WfN t-- CD t^ 110 Cq CI CO O oooooooo rHrHrHrHr-irHrHrH 1 i-i|lM rtlm O 05 O G) 00 C^ i'f I-- OS osl-n OS rH cq Oi O O 1-H 1-H Hff> Hl« H]« H|-#| H« Hw CQTtiT^'rH OirHrHOS OOOOC5iOOOi rH rH rH rH rH r-f •6T6T'SSPI03 ■na^xa PZ '9Pa 1 00 00 t- iH i-H I— t iH 1— I i-t H|e« >-i[et lO CD r-i rH CD I-H 1-H CO C-1 Oi rH CI rH 1-H 1-H 1-H Hloo ni-* «]■* r-'<:*|oo Oi cO Oi rH cq d rH ^ i~i OOit^OOrHrHOb^ O CI d CI Cq CI CI rH rH rH rH rHrHl— li-HrH •i86T 'sfS lOTsma nia^SBjii -Oil ^ -oiqo 1 CO o r^ H« t-lcO lOloO rl|-* rH|-* r(lM OOrHCDrHOrHO rHrHrHOOOOO rH rH rH rH rH rA r-i rH 1 Oi Oi H« H-* Hm H'H Hm Hn cqiocscqiocDCsio OOOOOiOiOiOi •eeei 'sg -qap iU9Ha9iv -Oil !y -opK) 1 (M 0> OS iH O O i-l iH W r.l« C'l Cv| rH r-i rH rH C^ rH rH «Jj-JI «l-,)( ^\-^ rH t> O rH rH CI r-i rH 1-i Ktl-a* r■^*^lOCDC0 rHrHCl rHrHrHrHrH O 1-H Oi Oi 00 00 oo fH 1-H 1-H CO -* CO CO rH T~i G) OO CO t- CO Oi Oi Oi 00 CO OO rH rH rH 010>-HClCQ-rtf»OCD OIOOOOOOO QOOl oiOiOiOiOiO) 42 HOW MONEY IS MADE '89 '8 'noo ■a a rH.H.-liH.-l.-l.-lr-lrHr-liHr-li-(rH_r-l>-liH 1 - g f s f s s H S fi S ^1 S 3 3 35 H •i66I 'St tWBuaS 1 Wt0OrrtOrHti-(M0lO«3O^C0C0THCq oow^QoSSoocococnOTOOOiooo 1 HIM HloO ml* H|N r-1-* r-i* W|^ "1;^ ^ :i? rJ? ^ !^ ^ ^ iCi 4^ CO Oi t- I- I- C71 t- =2 " ^ S $5 3 g ^ 1 KHoo Hco «[■* «!■* CM t- CQ W IQ tH o o o o tH I— 1 iH »-( iH o k1 -H[(» Hf» H«» ■H-)' CQ CO ^ rH CO O Oi O O Ol •00 mnuAiisnuoa ■a rH|-# H-V t-lOO r-l« Hi'* H|1« OIK "I" '-'!" H'J' ■-'iM H-* l»l!0 OOOCOOCOCDfQlOeOQOt^OCOrHC-ltHaO i--HTH>HiHtHiHi— Ii-I •i60I 's?S P103 s h|-* h|« oil'* H|ei 0^ iH» r^-« OCOi-HOCiTHrHOOS i-Hi-HrHiHOOOOOl T— (i-HrHi-Hi— (i-HiHrH o h]M "OI* »!■* Kj'ili t-|« lOOiXOOTHiraCOOOiH OOOOO0S05010S 1— ( I— 1 I— < I— 1 I— I •f 861 'SS PIOS !)8l 1 hItp H-* H« Mil- Hw «l«i «|-» HlN •rHCOl*OCOOSi-(-«#OQOl>Tf OOOrHrHi-(Q-*>nOS-* iHi— liHOOiHiHi— (rHi-HiHtHrHrHrHi-HiH iHi— (i— liHi— liHrHi— (tHi— (i-H.— 1.— tiHi— IfHi-H Oi-tCMCO'^iraCDt^COCSiOrHC^CO-rHlCitD OiOlOsOmOiaiOiOiOlOOOOOOO QOaOOOCOOOCOC»QOQOQOOiC3SCiOSOJaiOi BONDS 43 ■sif -piraj a rl|M eSlH" »> O OS o o o rH rH >H U3 CO t- CO o o o o rH iH r-t rH 1 H* HlN W|CD T*i in CO o o o rH rH rH o o o o rH rH rH rH ■sg ^81 S 00 CO s s O t- 00 CO CI o o o o o rH rH rH tH r-i H (M CO lO O O O rH i-l CO rH rH rH rH rH cq OS CO rH O iH rH rH rH •6661 'sg P!03 %n ■a a o o t^ CO t' OS Ol o o o o o rH rH ?H rH rH H'* HO) H« nlw 00 rji 00 00 O iH O rH rH rH (N Cq CO OS CS CD rH rH rH rH rH 'rH rH rH 1 CO CD Hi" Cq rH O O CO O O CI r--\ Oi r-i ■r-\ Oi w|oo Hw rH xH (M CO t- IC O O rH rH rH rH ■H[(M rH|« CO|Tf ihI-* c^ T*i tH cq rH ,H rH rH r-\ iH T-i T-i ■8961 'SS 'sSni PS 'I99JS -g -n a rHJOO lalco t-los osli* ,-t £- »0 C3 O CO oi Ol rH 1 W5 00 C-l lO CD CD Ci cn •IT6l'»»'™0Tt9nw ■a t-loo CI CO Cq r-i Hf Hl« Hl« t> CO o O rH VO T~i r^ i-\ 1 Hi CO CO O O r-i rH «!|(» He cq O -rtl rH OS OS rH •OOOS 'S9 -01! PIOS PS a ^iN r^■* Wl'* t-IcO OT|00 -rH C3:) 00 rH -di CO C3i (M CO cq rH|N rH|« hI&I O (M CO O CD O O O CO in lO GS rH rH O cq C-1 O CO o o rH OS rH rH VO CO t^- t> CO C^ T-i 1-H T-i T^ t>l« 00 00 lO CO O CO rH (M -* lO CS CI rH o CO lO 00 QO OS CO f 661 'ss '100 :(ai t H'* ^I« '-'In r-{ Oi -^ Oi a^ a i-l[« i-l]N fH|N r-l-J" CO Cq -CH -rH ■* lO O rH rH Cq (M Oi -r-i 1-i i-f -i-i i-\ Hoo H]N Hloo 00 rH rH OS rH Cv| C^l rH i-~t T-^ i-i 1-1 1 CO -^ CD 00 00 t- H|N CO CD rH 00 t- t- O O rH rH OO CO rH rH rH rH rH rH t^ lO r-i ^ r-{ T-i r-f i-{ T-\ i-i •6f6T 'ST '*STUfj 1100 'OBPOJ nog 1 rHi'* M|oo H« b- W lO CO 00 00 OS CS H«) Hn H'* H« cq (D b- IlO CS OS CS OS 1 CO 00 CO Ci t- t- 00 00 hInH-* -rH t- cq 00 00 00 OS OO I86T '89 -193 •n»i^ -nBg 5p smoi-!jg t lO o rH rH CD (N ■* rH rH O rH tH rH rH rH rH rH wlco col-j Hn OS IC CO O CO tH rH (M # CO CO lO rH O rH rH rH rH rH rH rH rH n\^ H|N rl|(M m|cO rt|-* Hl« Ir- O) W lO ira CO rH rH CM C-l cq rH T^ r^ ,^ ,-\ ^ T-i t> lO CO rH T-i l-^ 1-i r~i 1^ r^ r-i ^ 1890 1891 (M CO tJ< lO CO 03 O 03 C3 CI 00 00 00 00 00 L* 00 crs o rH cq C35 CS CS O O O OO 00 00 OS CS CS CO -4 to 3J^ for time money. The great abun- dance of available cash led, as always, to the buying of stocks for the bull market of 1905-6. In confirmation of the cycle theory, allusion may be made to the assertion of a financial writer of repute in New York City, a few years ago, that "an operator, to have been supremely right, would have changed his position on the market only eight times in forty years; the turning points have been 1861, 1867, 1872, 1877, 1881, 1885, 1892 and 1896." It is singular that 1864 should have been omitted from this summary ; but the remark agrees in sub- stance with the ten year cycle theory. It will now be useful to summarize, more carefully, the features in which all these crises and periods of start toward recovery agree, even at the risk of some repetition. The recital on the foregoing pages calls attention, first of all, to the ten and twenty year periods. In a less strik- ing way, it points to the four or five year periods. Every crisis is preceded by money stringency, growing out of the very prosperity which prevails. In good times, PKOSPBRITT AND DEPRESSION 101 every active man, whose business is capable of extension, applies to the banks for a loan of money, wherewith to carry on his operations. He expects to repay when the goods he is producing or the lands and articles he has bought are marketed. But, meanwhile, this force acting in all parts of the country gradually brings into action the funds which the banks have accumulated. The vol- ume of surplus deposits begins to decline. The good times have been seen to be favorable to new enterprises, and these are set on foot in every direction. New corpora- tions are organized whose united capital will aggregate millions, and even billions. Their securities are placed upon the market for sale. Pools and syndicates are formed to carry the securities and market them, and, to secure the end in view, the securities are made active at the stock exchanges and a lively speculation is begun in them. Of course, new securities are created in order to be sold; and the "big men" look forward to a time when they can transfer the whole load to the shoulders of the public. Syndicates and pools must have money, and their borrowings add to the burdens of the banks. Finally, in- terest rates rise, owing to the growing scarcity of avail- able supplies of capital. Meanwhile, business is booming and every one is making money. Labor is in demand and wages rise. Strikes are set on foot, here and there, to hasten the rise in wages. The prices of commodities rise along with those of stocks. Carried away by the optimis- tic spirit of the times, it is unconsciously held that pros- perity wiU last forever and great extravagance of per- sonal expenditure is seen on every side. These features have all preceded every crisis in American business affairs. At this point, it requires only a serious shock to public confidence to give a grave set-back to prosperity or actu- 102 HOW MONET IS MADE ally to overturn the whole fabric. Foreign trade may begin to run against the United States, depleting money supplies at the very time when they are most needed. Some rude exposure of recklessness or fraud on the part of trusted institutions, the bankruptcy of a railroad or failure of an influential bank or operator in stocks, the outbreak of war, a drouth in the West, or some one of the numberless other calamities which may overtake the financial world, may bring about the crash. If the bank- ing situation is sound, the country will withstand a good many shocks with equanimity; but if credit is strained, and especially if the big men have sold their surplus stocks, the crisis is inevitable. Conversely, a period of severe liquidation in stocks and business enterprises and a large accumulation of idle funds in the banks, with a fall in interest rates to a mini- mum, has always preceded a turn for the better, both in stocks and the business world. Economy in all expenses, corporate and private, a fall in wages and prices, and a thorough weeding out of all weak features in the financial and speculative situation, attend the end of a period of depression. It is to be noted, as a distinct and logical phenomenon, that the decline in stocks antedates the actual turn in business, and sometimes brings about the crisis. The top of a boom in stocks occurs at least one or two, sometimes three, years before the actual crisis. On the other hand, recovery in stocks sets in before im- provement is at all marked in trade circles. Just as stocks are extremely apt to be bulled far above investment worth in a great rising market, so they tend to go much below it in a prolonged reaction. PROSPERITY AND DEPRESSION 103 Both at the top and at the bottom of the great move- ments in stocks, which accompany the cycles ia trade, the market turns and winds for weeks and even months with- out going materially higher in the one case or lower in the other, before a change of trend becomes noticeable. A circumstance of momentous interest is the fact, that the price of good securities has steadily moved higher, on the average, since 1877, in spite of all the trials to which they have been subjected by panics and reaction. It is true that they decline in every serious crisis ; but, without a single exception in the last thirty years, the average has not fallen as low as in the last preceding period of depres- sion, whereas they have tended so far in the present period of prosperity to go higher than ever before. This is inevitable in a country which is steadily gaining in population and wealth and in the development of natural resources. Stocks seem now to be established on a level, permanently higher, than during the whole period from 1865 to 1901. A table will illustrate the effect of crises on stocks during the last forty years. Ten denominations have been selected, which have been traded in, under one corporate name or another, since 1860. Few other stocks in the whole list have run through the whole period in question, with- out interruption, except Panama and Pacific Mail. They have been omitted for the reason that they have been subjected to special influences. Reading is included, for a special reason, although off the list for several years ; it was traded in in Philadelphia. The ten named serve all practical purposes, because they have moved up and down, substantially in harmony with the general list, during the whole period of forty years or more. 104 HOW MONEY IS MADE VII NOEMAL YEAELT MOVEMENTS OF PEICES AT LEAST TWO SWINGS tTPWAKD, AND TWO DOWNWARD, IN EVEET NORMAL TEAR.— THEIK CAUSES AND EXTENT IN a previous chapter, attention has been directed to the great movements in prices, which extend over a series of years, growing out of the alternation of good and bad times. Another peculiarity of stock market movements is now worthy of attention. When, at the end of a serious depression in business, good times are seen to loom large ahead, there occur years, like 1862, 1879, 1885, and 1904, during which stocks whirl rapidly upward, with only the most trivial reactions, for six months or a year. This is generally due to the popular enthusiasm and exultation over the return of good times, and to the existence of a large short interest in stocks, which the manipulators will not permit to cover except at high prices. The market starts, keeps going and never comes backward. In other times, the progress of a panic, a dangerous position of bank reserves, high interest rates, and frantic liquidation cause prices to drop steadily for twelve months or so, with only the most feeble and uncertain rallies. Such years were 1873, 1876, 1890, 1893, and 1903. 105 106 HOW MONEY IS MADE In the majority of other years, however, when condi- tions are fairly stable, whether good or bad times prevail, and when either accumulation or distribution by promi- nent interests is going on, stocks follow a different course. There are always several turns in prices every year, due to manipulation by speculators; but certain ones are notable and are expected and worked for by traders. In normal markets, there are at least two strong swings upward in stocks, and two downward, every year. Let us consider the upward movements first. Fundamentally, they grow out of the fact, that on or about the first of January and July, the holders of stocks and bonds in this country receive the enormous sum of $150,000,000 or more in dividends and interest on their security investments. Some distribution of this character takes place, indeed, every month, the sum ranging from $30,000,000 to $80,000,000. But at the beginning and in the middle of the year, the disbursement is especially heavy; and it tends to grow larger, year by year, as the country gains in wealth and prosperity. The principal part of the great sums in cash referred to is necessarily devoted to the expenses of living. A part is expended in travel and recreation. Some of the money goes into real estate, life insurance, private busi- ness, and diverse forms of other investments. On the other hand, many millions go toward the purchase of securities. Thousands of people put from $1,000 to $5,000 into stocks or bonds; men of large estates, banks and insurance companies put from $100,000 to $1,000,000 into this class of investments. The demand for good securities is therefore much more active at the time of, or just after, the January and July disbursements than NORMAL YEARLY MOVE]\IEXTS OF PRICES 107 at other seasons. It is a distinct phenomenon in finance. By concerted action, operatoi'S in stocks advance prices during those two periods (if a panic does not prevent such a venture) with a view of selling to the public, at good prices, the goods they have bought during a pre- vious ivaetion. The Spring and Fall booms are cherished traditions of Wall Street. Old hands at the business, who know a thing or two, do not always wait until their di^^dends and interest have actually been paid to tliem. If the g WONWV mi|'l"l,lWH. 'I'lilfiNl' oil' I'llK IMMlllM. ilol.li ruoiM'o rioN. - HOIHU'WH OK INKOKMVriON ANllMlil'lK ol liroiul iulliioiioos iiIVih-I llio valuo of NtoolvN mill unilri'li(> (lio Ikhmum luul porioil-i ol' ili'iu'otl- Nioii wlucli Muooi'otl oiioli o(lu>i- 111 tlio Imisihosm woiU! To tllOMO. till lUVOStol' IIOOiIm Io bo JlllV'O Cviiiiis lioliovo (lint niiiiiii>iiliil\oii in IIio ouIv I'fU'lor ot iiii|ioi'ltiiu-o in llio mIoi'U uuuivol 'I'liov ax-iiMi , (lial, iT llio "luK iiu'u" \\iuil Mioi-kM to riNO, (hoy nso. ovoii \( noiuo nuiMOiiM o\i-.( \\li\ lIu'.N 'Mioiilil no! l\>uvoi-;olv. i C tlio m\w uilhioniiiil iun'.soiiti>;'0N wiiut N(ookn Io ^o down, llit\v I'lill. ovoii if (lio liiiios (uv n'ood. 'riuM Im (ruo wKiiiii oor- lain liiiii(.-i. NovoiiliolosH, it is I'ovoiul iIis|mi1o (lial load- iliy iiiU»i'OHtw iiovor oin't'sii an uiiiiiis(alv(iblo Iroiul ol' (lio tiiiiOM lOvon iC (hoy aro dis). osod (o, (ho stroni;' iimy s;ivo liaido, l>n( (hoy aio doCoalod l>y Iho irrosist il>lo (\mvo oT wuulitioiiN. St> many i>i'ool's oC (his o\is( in Wall S(root hiHtovy, lha( (lio iiiaKor sooius Imt'dlv wocth.v ol' nr^ii- nioid Wind tuv (lio undorlyiiiK' oonditii>ns wliioh slionUl l',i'r |)r ii-siiincil. Amiilf.',tmiiiliHl ('ii|iiM'r wont In $l;iO a sliiiro \ii llHU. nl' wiir.sn llirou^ii iiUlo mamiuiljil inii, bul llio nIoi'I* wiin inly- ing.': S por ciiiil , wlu'ii llio - (liu'linn jiiul |inl liin Ntnciv nn a :' |ior conl lia.sis. Ihc- uinxil nlilc roNuil wa.s llial lu tlio panu' nl' liUM llu< Ninok tlniiipiHi 1(1 ^lU a Nliarn l(. Iia.s nuu'i' iismi In arninul ^llll nn bo ill).' plarnil nn a (i prr rrnl basis Auicnran Siu,'ll uijlV, inuiminn, oiu'i' a wnrllilnss shn-k, j^ivnii away as a bniius, Nnlil UN low as $;!7 m \W.' aiul \W.\ . but, al'tor divulniuis WiM-n boniiii in I;HU. a sloady nsi- rnllnwoii, aiui llial nncn dtvspisoii .s(ni-k snid as liit'.h as $1,1 m Ihn Winl.'i- nl' 1 !>(>:> (i, i'lu- niarknl is lull nl' rnrnnl inslani'i's nl" riso m pnrn ^u^ln^l^;' luni dividond payini< aiul cnniiiuMi slni-ks, wlmli litivn ix'siihuhI divultnuts at'tnr a Unuv snspniisinn nr arn apprnanliuij:: ihn (nui' wlu-n imdal di\ idnnds nuisl bn diH'lnrnd Tlial narnin>;s arn Ihn \ilal lailnr snnnis hardly wnitli Cni'thnr arr.uninnl. Kniln>iidN usually issuo a niniithly ropi>rl, nl'tnn a wnokly Ntatniiinnl. ami always an annual ii-pnvi. m wluili not prntils am sol I'nii h and nninparnd w\lh thnsn nl' nvMTO spniidiu); pnrinds ni ihn ynar bi'l'nro (irnss and not oarn ilia's td' Iho pruioipal linos, by nmnths. aro onnipilod and Nunnuan. od b\ sovoral nf Iho linanoial wookhos and dtulios nf Now Vnik oil\ I'hosn aro wniitiN nl' oand'nl 122 HOW MONEY IS MADE perusal by investors. They show at a glance the trend of the times as to railroad earnings and the prosperity of each of the principal lines. Among industrials, the best example of candor in deal- ing with the public is shown by the United States Steel concern, which issues an elaborate quarterly statement of profits and state of the business. It forms one of the most valuable items of news in the financial papers. Other industrials are not all so candid; but many of the best of them publish annual reports of great clearness and value. POKEIGN COMMERCE A FRUITFUL source of ample money supplies is the foreign trade of the country; and conversely, at times, a serious drain upon the financial resources of the banks arises from an adverse balance in foreign commerce. The Government issues a monthly statement on this subject, which shows not only the balance for or against the country in the merchandise transactions, but also the net export or import of gold and silver. It is printed in all the daily newspapers. Statistics are sometimes dry reading; but those of the foreign commerce of the United States are always elo- quent and should receive the most careful attention. CROPS A LARGE part of the income of all railroad lines is derived from the shipment of grain, produce and cotton. From 6,000,000 to 15,000,000 tons of these articles are shipped by rail to seaboard cities, every year, for exportation to POINTS TO BE WATCHED 123 foreign lands. A far larger tonnage is moved by rail from farm and plantation to the cities and other settle- ments of the country. In the fiscal year of 1903, the con- tribution to railroad traffic from this source was more than 30,000,000 tons of grain, 10,000,000 tons of flour, about 3,000,000 tons of cotton, and a vast additional quantity of potatoes, fruit, tobacco and other products of the harvest. More than once, in our history, in dull times, has a loss in other earnings been made good by the trans- portation of agricultural produce, and, in good times, bumper crops are of enormous and direct value to every railroad in the land. The productions of the soil affect powerfully the pros- perity of the United States in another way. Their money value in a good year is almost bewildering. The staple crops which are reported on by the Government in its monthly statement of acreage and condition approximated a money value of $3,500,000,000 in 1905 ; and a fluctuation of $500,- 000,000 in this immense total, which is not uncommon, is felt at once in the business world. A boom in stocks has, more than once, originated in good crops. Depression has at times begun with a partial crop failure. Bountiful harvests have another and interesting effect, in that the exportable surplus enables the United States to pay off its borrowings of money abroad and to create a credit, which, if large enough, ensures early importa- tions of gold. There is no topic more deserving of interested attention than the state of the crops. Valuable data on this point are supplied from Washington. On the first of each month, an estimate is published as to the outlook in cotton production. On the 10th, a similar report is made as to acre- age and condition of the staple grain crops. While none of 124 HOW MONET IS MADE these estimates is to be taken too literally, and while some of them have been exposed to serious criticism, they are all eagerly looked for by business men; and they reflect at least the general facts as to the promise of the harvest. "Weekly and other reports are also made by the Weather Bureau. These are all printed in the daily and financial newspapers and form an important guide. One of the best of the New York financial dailies also compiles its own estimate on cotton prospects. The profits, and therefore the stocks, of railroad lines which run through the grain and cotton sections, are affected in the most direct and powerful fashion by the promise of generous or stunted crops; and as they go, so goes the general market. Investors need to keep in touch with the crop outlook. Wall Street always dis- counts the future and never waits for earnings to be af- fected actually before adjusting prices to what it sees coming. DOMESTIC TEADE A SLACKENING of trade after a great boom precedes every financial crisis; and an investor must be as alert to detect the signs of a coming change of importance as are the bankers, rich men and stock operators, upon whom the fortunes of the stock market depend. It is axiomatic that all railroads are affected directly and seriously by active or dull times and industrial stocks peculiarly so. The subject of the state of domestic trade is one which requires constant attention, and never more so than when a boom or a reaction has run on for a num- ber of months or years. POINTS TO BE WATCHED 125 Indicatioris of the general course of trade are at the command of all. Nearly every one toils in America ; and whether business is good or bad is a constant theme of dis- cussion among acquaintances. A number of authorities can be consulted, which afford a wide and accurate view of the whole business field. Among them are : The careful— they may abnost be said to be ofScial — reports on the iron and steel industry, issued by two lead- ing weekly newspapers devoted to that trade. As a mat- ter of wide-spread interest and importance, those reports are republished now by nearly all the leading daily news- papers. Resumes of the present state of trade are sent to the press, every Saturday, by the two mercantile agencies of New York City. These Argus-eyed concerns are iu close touch with correspondents in every city and settlement in the Union; and their reports are accurate, dispassion- ate and valuable. Various sound and conservative financial weeklies and dailies make a specialty of publishing not only the news but the drift of events in important industries; and they are among the very first to detect and announce a quicken- ing or slackening of business. Bank clearings in principal cities are compiled weekly and are worth watching. COMPETITION There is no influence to which a particular stock responds more quickly than new and damaging competition. It would be almost impossible to point out a form of busi- ness in the United States which is not exposed to competi- 126 HOW MONEY IS MADE tion in some form or other. Even the great railroad lines, which seem to have an entire monopoly of local traf&c, even the Standard Oil Company and various of the other so-called trusts, which appear to come the closest to monop- olies, live, move and have their being in an atmosphere of competition and not one of them is free from more or less of it. Community of interest has minimized rivalries to some extent but has by no means abolished it. Every railroad man will agree to that. While competition is a necessary condition, under which business is carried on, it is only such an increase of com- petition as is likely to exert a vital influence upon earn- ings that proves disconcerting. When Andrew Carnegie proposed to build a tube plant in Ohio in opposition to the National Tube Company, this was a serious threat ; and the common and preferred stocks of the company named promptly fell $19 and $13 a share, although no actual competition could have been felt for a year afterward. The genuine nature of the calamity of the outbreak of new and unreasonable competition was well exhibited by the loss of earnings consequent upon the rate wars be- tween trunk line railroads in the '70s and '80s. An extreme case of loss inflicted upon stockholders by new and dangerous competition was the historic break in Pacific Mail and Panama Railroad, after the opening of the overland rail route to California. Those stocks had sold at unheard of prices during the Civil War period, as a result of enormous earnings. In September, 1868, Panama was quoted at $369. Pacific Mail went to $329 in 1865, and even after a stock dividend of 33% per cent in 1866, it sold at $174. More than a year before the POINTS TO BE WATCHED 127 Union Pacific route was thrown open for business, far seeing holders of Panama and Pacific Mail stocks became convinced that trade and travel would naturally seek the shorter and more expeditious line to San Francisco ; and they began to sell out. By the time the overland railroad was actually in operation, less attentive stockholders took alarm also and selling was more general. By 1870, Pacific Mail had fallen to $30%, and by 1871, Panama was down to $49. New York Central stock was worth $155 in January, 1881, but the West Shore road was finished in 1882 ; and New York Central fell to $81% in June, 1885, in conse- quence of loss of earnings. It was then that the Vander- bilt interests, in desperation, acquired the entire capital stock of West Shore and put an end to a competition which was slowly wrecking the prosperity of the older company. Metropolitan Street Railway sold at $269 in 1899, at which price it may or may not have been dear, all things considered. But after the Subway in New York had been opened for traffic and had diverted millions of fares to its own coffers, Metropolitan sold as low as $103. No doubt, the effects of excessive competition have come within the personal experience of thousands of busi- ness men. No need to dwell upon its consequences. But it is important for an investor to be wide awake to every sign of the coming of serious rivalry against companies whose stocks he owns. TAEIEF CHANGES The propriety of high or low duties on foreign goods is in dispute among politicians and economists, and has 128 HOW MONEY IS MADE ever been since the adoption of the Constitution. The subject will always be with us. No one will contest the point, however, that the substi- tution of one class of duties for the other is a momentous event in the affairs of any country. In the United States, the business world has become ac- customed to the protective principle; and even the pros- pect of reduced duties has always chilled the spirit of enterprise, while the reality has always given a set back to business, sooner or later. On the other hand, enact- ment of a protective tariff, in lieu of one for revenue only, has always proved exciting and has quickened into intense activity the looms, forges and machinery of the entire country. The backward state of American industry prior to the Civil War is held to have been due in large measure to the relaxation of protection under the tariff laws of 1842 and 1857. There can be no question, that the twenty or more tariff enactments from 1861, when the Morrill pro- tective tariff went into operation, to 1872, when the sys- tem had been fairly adjusted to the requirements of home industry, aided materially in developing the mines, sus- taining the factories against foreign competition, supply- ing the railroads with an immense and profitable traflSc, and promoting the farming interests of every section of the States. The lower duties of 1883 on many manufactures added to the force of other evil influences, which ended in the crisis of 1884. The crisis of 1893 rose in a distinct measure from the agitation in the then Democratic Congress for a tariff for revenue only, which eventuated in the Wilson bill. POINTS TO BE WATCHED 129 The prosperity which the States now enjoy must be at- tributed in a marked degree to the protective tariff, enacted under President McKinley. All writers on crises agree in giving great weight to tariff changes. An investor should therefore at all times be fully informed with regard to such actual or possible revolutions in political control at Washington, as are likely to have a bearing on the tariff laws. SUPPLY OF MONEY No BULL campaign in stocks is possible without ample sup- plies of money and moderate rates of interest, at the out- set, and this may also be affirmed of a boom in business. When for any reason, cash holdings of the banks are low and high rates are charged for call and time loans, there is always danger of a decline in securities ; and the condition of the banks may actually foreshadow an ap- proaching crisis. National banks in New York city are compelled by law to maintain a specie and legal tender reserve, equal to 25 per cent of the amount of their deposits. When re- serves have fallen below the legal limit, the loaning power of the banks is ended for the time being. If reserves show a deficit, the banks are perforce obliged to call in a part of their loans. Stock speculators are then obliged to throw overboard a part of their loads in order to raise funds wherewith to repay their loans. Selling of this compulsory character invariably means a slump ia the stock market and possibly a long decline. It may also lead to liquidation in business enterprises. 130 HOW MONET IS MADE The most recent instance of this kind was the situation in Wall street in the Fall of 1902. The banks had reached the limit of their ability to finance the pools and syndi- cates, which had boomed stocks to the dizzy pinnacle of prices at that time. They called loans, initiating the downward movement in stocks, which ended in the "rich man's panic" of 1903 and was attended with a reaction in general business. It is not difficult to keep fully in touch with the condi- tion of the national banks. Every few months, the Treas- ury at Washington calls upon the banks of the United States to make an elaborate report of their deposits, loans, assets, etc., and the replies are tabulated, summarized, and published in the associated press dispatches. The situa- tion in the United States at large is disclosed by these reports. It is important to watch for them. In New York, and other clearing house cities, a state- ment is issued by the associated banks every Saturday forenoon. In New York, at any rate, this weekly state- ment is not a finality as to the whole banking position, for several reasons. Loans and deposits of the trust com- panies are not included, nor are those of such large pri- vate banks as J. P. Morgan & Co., Kuhn, Loeb & Co., the Seligmans, etc., nor of some other institutions. Nor does the statement represent the situation at the close of busi- ness on Friday, but sets forth the average of the six days since last statement. Furthermore, there is always a hidden reserve of loanable funds, consisting of such part of the capital and surplus profits of the banks as is not in- vested in circulation. In New York, this hidden reserve amounts to more than $300,000,000. Imperfect though it be, the weekly bank statement is valuable, because it af- POINTS TO BE WATCHED 131 fords an important clue to the actual situation. It is closely scanned by every active business man. Public attention is generally fastened upon the item of surplus reserves, because the loaning power of the banks depends upon that item. A serious decline in reserves in- dicates the approach of high money and leads to anticipa- tory selling of stocks. A feature of equal importance, however, is the item of surplus deposits. Investors are advised to watch the dif- ference between loans and deposits. Normally, the de- posits should exceed the loans. In dull times, they always do. In New York, the surplus of deposits over loans rose in 1899 to $144,000,000 ; in 1904, to $110,500,000. When an abundance of money is indicated by the magnitude of surplus deposits, interest rates are sure to be low ; and one may rely upon it that the big men and the restless spirits of Wall Street, who have all been held in leash by a pre- ceding period of low reserves and high money, are quietly preparing for a bull market and a revival of business, even if the movement has not already started. The banks always promote such a movement, because they are natur- ally desirous of higher rates of interest on their money. The first activity may be in the direction of a "shake out" in stocks, in order to eliminate the existing long interest as far as possible. Within a few months, how- ever, a bull movement will be found to be under headway and coincidentally a revival of business enterprise. In the tables in the latter part of this book, the reader wiU see how the origin of a bull market coincides with a great surplus of money in the New York banks. On the other hand, when surplus deposits are danger- ously low, a situation is revealed which may and com- 132 HOW MONEY IS MADE monly does foreshadow a serious decline in stocks or an actual crisis. The catastrophe may be postponed for a year or more by manipulation and management, but it is sure to arrive. In New York, the danger line is in the vicinity of about $30,000,000 excess of deposits over loans. When surplus deposits have fallen to that narrow margin, the cause may be looked for in the activity of general business and of the speculators in Wall Street ; and a time is approaching when call loans should rise above 4 and 5 per cent. When deposits fall below zero, (that is, when they are less than loans) the evil day has dawned. Interest rates are then liable to go to 10, 15, or even 25 per cent (and higher) on call loans. If such prohibitive rates are avoided, the re- sult will be due to some extremely happy circumstance or the concentrated and herculean efforts on the part of lead- ing bankers. No operator or pool can carry stocks on a margin profitably, if 10 per cent or more is charged for call loans. At such times, it is inevitable that stocks will be freely sold. What happens to prices at such junctures need hardly be referred to. Previous to the resumption of specie payments, Jan. 1, 1879, an excess of loans over deposits was the chronic state of affairs at the New York banks. Specie had been driven out of the country in enormous amounts by paper money inflation, and to some extent had been hoarded by individuals; and gold formed a relatively small part of the cash holdings of the banks. Great bull markets had been carried on, during that period, through the use of paper money, but after the resumption of gold payments the country was on a different basis. Gold gradually came back to the banks and deposits tended normally to POINTS TO BE WATCHED 133 run in excess of loans. Now, taking the period since Jan. 1, 1879, deposits have fallen below loans on several occasions, as follows: 1879 to the last week in 1883, during which time (with the exception of a few weeks in 1881) loans ran higher than de- posits, every week of each year. Interest rates were high, and, after the middle of 1881, stocks declined steadily for three years. In 1884, a turn in affairs took place and thereafter deposits were normally in excess of loans and the market had a rising trend. In 1887, loans and deposits nearly balanced the entire year; but in the Fall, loans were in excess, and stocks had a strong reaction. August to December, 1890, when leading stocks fell an average of $20 a share. May and September, 1891, eaU money going to 25 per cent in the latter month. In both months, a moderate downward turn took place in the stock market; and, as the banking situation did not improve sufficiently, the buU market culminated in February, 1892. June to October, 1893, call money rising twice to 74 per cent and stocks falling $20 to $35 a share, while a crisis and panic was sweeping the country. August to November, 1896, when, prices being already low, they went lower yet and reached a level, on the average, beneath that of any period for the preceding twenty years, taking the stocks then in existence. Call money was quoted as high as 127 per cent in October. October and December, 1902, when the disastrous reaction of 1903 was coming on. Call money was loaned out in large quanti- ties at from 10 to 35 per cent during this time. AH of 1903, except January and February, a crisis prevailing, and stocks tumbling for six months, although the liquidation so relaxed the tension that call money went no higher than 15 per cent during the panic. October, November and December, 1905, and the whole of 1906, save three weeks in January and February, and one in July, call money rising to 125 per cent on one occasion, and high rates recurring 134 HOW MONEY IS MADE with every outbreak of activity in stocks and business. This has been an exceptional and remarkable period, and seems to foreshadow disaster. It is probable that brokers and operators provided them- selves with time money at reasonable rates, having resolved never to place themselves at the mercy of the banks, again, as they were in 1902. The bull market halted more than once and there were several moderate breaks in stocks. Yet general business continued booming; and the pools and syndicates marvellously weathered the months in question. A noteworthy fact in connection with the matter of sur- plus deposits is this, that loans were $39,000,000 more than deposits in New York in the terrible year of 1893; $40,000,000 more in 1903 ; $24,000,000 more in the latter part of 1905 ; and over $62,500,000 in December, 1906. When the banking situation becomes dangerous, as indi- cated by the diminution of surplus deposits and especially after they have fallen below zero, a man who believes that the bull market can be carried yet farther and a reaction in business avoided must know where ample supplies of money can be obtained. If foreign trade, deposit of Gov- ernment money in the banks, an inflation of the currency, a flood of new gold from the mines, extensive foreign pur- chases of American securities, or some other influence can not be brought into play to recruit the exhausted resources of the banks, then there is no other recourse except liqui- dation in stocks and a slowing down of business enterprise to relieve the situation. It is sometimes said that a bull market is possible with high money. A part of the explanation of this is the fact, that recovery in stocks, after a crash, begins, while the banking situation is yet near its worst but when im- provement is clearly in sight ahead. POINTS TO BE WATCHED 135 GOLD PEODUCTION According to Dr. Adolph Soetbeer, an authority on this subject, not more than about $3,000,000 of gold was added annually to the world's supply up to the time of the dis- covery of America. When the Spaniards began to take unto themselves and send to Europe the riches of Peru and Mexico, the annual addition to the world's stock of gold was larger but had not risen above an average of $14,000,000 a year up to 1840. Marshall's find in Cal- ifornia and the discoveries in Australia gave an impetus to the output of gold. In 1860, the yearly addition to the general stock of gold was about $140,000,000. Many of the first deposits and mines having been worked out, the annual production fell to $115,000,000 in 1885. South Africa and Alaska have since come into play. According to George H. Roberts, Director of the Mint at Washington, gold was poured into circulation in 1904 to the amount of $347,150,700. The mines are now even more prolific and are sending out more than $1,000,000 of the metal every day. The output in 1905 was nearly $425,000,000. Students of finance are of the opinion, that the great mass of gold which is being added to the reserves and coinage of the civilized world will tend to minimize any serious monetary stringency hereafter and will have the effect of a mild and slow inflation of prices of stocks and all commodities. Frank A. Vanderlip, the banker, has pointed out the startling fact, that, at the present rate of gold mining, the gold coin of the world will be doubled in the next twenty 136 HOW MONEY IS MADE years. It now amounts to $6,000,000,000. Should there be no interruption in the stream of treasure now pouring into the mints, the effects of gold inflation are likely to be more rapid in coming years. It is doubtful if an enlargement of the world's stock of gold will ever prevent periods of monetary stringency. The demands of governments and the inexhaustible energy of business men will always keep pace fully with banking resources. More gold may however minimize the evil. Some time is likely to elapse, after beginning the study of broad conditions, before an investor will be able to apply his information correctly to the concrete subject of the time to buy and sell securities. He should study them diligently, however, and the exercise will prove of the utmost service in the course of time. The main point is to discover, as far as possible, in good times, the approach of a crisis and reaction in trade ; and, in bad times, the coming turn for the better. Suppose that the times have been booming for a few months or years ! Examine now the less obvious facts of the situation! Are loans in excess of deposits? Are interest rates high ? Are financial men anxious about the supply of money? From what direction can relief, if any, be expected? Are corporations in the market for more money, at the very time, when money is scarce ; and are new issues of stock and bonds being launched, enor- mous in the aggregate? Are wages rising? Are the prices of commodities high ? Have stocks been bulled to a height above actual investment worth? Is foreign trade good or the reverse? The promise of the crops, is it POINTS TO BE WATCHED 137 good or the contrary? Does extreme optimism prevail and is personal extravagance seen on every side? Have there been serious exposures of wrong-doing and fraud, and is there reason to believe that more are forthcoming? Has a great calamity, like the Chicago fire or the San Francisco earthquake caused a tremendous loss of capital and impaired the financial resources of the country? Some one or more of these evil factors may always be present in a£fairs, without great harm; but when a majority of them combine, the situation is growing dangerous; and a prudent man will get out of stocks on any boom in the market, and stay out. The situation is sure to be doubly precarious, if the stock market has had four or five years of improvement since the last depres- sion, or if it has had a steady rise for a year or so, without a serious reaction. Per contra, assume that a reaction in trade and stocks has lasted for one or two years at least, and that there has been thorough and severe liquidation. Failures have been heart-rending. Mills and shops have reduced their output, thousands of workmen have been discharged, stocks of goods on hand have declined, and general re- trenchment has been enforced. Now look at the resources of the banks ! Has idle money accumulated there in great stores? Are interest rates low? Are stocks selling on a 4, 4^ or even 5 per cent basis? Has the stock market reached a state of prostration, where bad news does not sufiSce to send prices lower ? If these factors are all pres- ent, then an investor can buy back his stocks at any time, without waiting for the final drive at prices. Both at the top and at the bottom of the market, several weeks or months are likely to elapse before there is any 138 HOW MONET IS MADE important change in prices. An investor need not be mis- led by appearances. If he has bought on a reaction, and held on through several months or years, and has a good increment on the value of his stocks, he can sell when the situation is dangerous, vrith absolute equanimity. At the other extreme, he can buy. In both cases, he must resign himself to wait for several months or a term of years, be- fore the time comes for him to take action anew and either buy or sell his favorite stocks. TURNING POINTS IN THE MARKET HOW THE MABKET ACTS AT TOP AND BOTTOM OP LONG SWINGS.— THE AKT OF MANIPULATION.— PHENOMENA OP BULL AND BEAK MABKETS. —CHARTS SOME suggestions have been made in a previous chap- ter, which ought to aid an intelligent man to form a judgment as to underlying conditions. Are there phenomena in the way the market acts, at any time, which will convey an additional message, with reference to the propriety of buying or selling his stocks? If any suggestion can be gleaned from this source, it is of the utmost importance to the private investor. Looked at broadly, price movements in the stock mar- ket go in long swings. Some of these last for several months; others, barring the occasional reactions, for sev- eral years. A rough idea of the movement can be gained from the familiar comparison with the ocean tide rising upon a coast. The flood advances slowly at first until it has made some headway ; recedes part way ; advances to a higher level ; again recedes, but not so far as before ; and then again advances, finally with a rush — ^the surface of the ocean broken continually by huge swells and the swells, diversified with smaller waves; and at the end of the whole long rise, the coast beaten by heavy billows. The tide then turning swiftly and falling for a long time, 139 140 HOW MONEY IS MADE the surface broken as before, and at the bottom of the ebb, the waves moderate or the sea almost cahn. The comparison, which is not a new one, must be qualified in several respects, and mainly by the circumstance that the ebb runs more swiftly than the flow. The great swings in prices correspond with the cycles in general trade and industry ; but they begin almost in- variably before there is any important change in affairs at large. The first impulse in either direction is apt to originate among men who have large fortunes invested in banks, railroads and factories, and whose responsibilities are so vast, that they are compelled, both for the sake of their fellow stockholders and themselves, to watch closely every sign of coming changes, which may affect the prosperity of their corporations. They are the first, as a rule, to de- tect the cloud no larger than a man's hand, which may overspread the sky. They are the first to note the first faint streaks of promise, which herald the dawn of a bet- ter day. Managers of the railroads, which traverse the grain and cotton fields, make it their duty to be acquainted with the condition of the growing crops from planting to har- vest. Various interests in the financial world have an independent service of their own for collecting the same information. Officials of iron and steel companies are alert to every sign of a slackening or a more insistent demand for material; and they note fresh eagerness on the part of buyers, or a cancellation of orders, before the public are aware of the facts. Bankers are necessarily the first to mark increasing courage on the part of merchants and to know whether they foresee good or bad business TURNING POINTS IN THE MARKET 141 ahead. From a thousand sources of information, men of large means learn to forecast the future of business and of earnings (and thus of stocks) and to adapt their own course to the coming changes. Most of the information, not all, but certainly part of it, is placed at the service of the public by the financial dailies and weeklies, whose keen and educated reporters are, from professional pride, as anxious to be the first to unearth and publish important data of this class, as are the bankers and capitalists to ob- tain it. If they do not get every important fact as soon as the bankers do, they are at any rate certain to discover it soon afterward and to publish it to the world in time for all practical purposes. Large fortunes have been made through the prompt- ness with which men of wide acquaintance with affairs have addressed themselves to the future, at critical pe- riods, no matter whether the spirit of the moment were that of the deepest gloom or the most unbounded optimism. Quiet buying of good stocks and bonds in times of de- pression by such men, and, conversely, quiet selling of such securities as are not needed for control, in a period of enthusiastic prosperity, mark the true turning points of the market. But such men are not by any means the only active factors in the stock market. Hundreds of keen, able and brilliant men buy and sell stocks for the profit to be de- rived from their transactions; and among them are sev- eral who conduct campaigns of great magnitude, for themselves or others. Some of these men aim at the actual control of corpora- tions and may in the end retire from active speculation to become sober and conservative managers of properties. 142 HOW MONET IS MADE Commodore Vanderbilt and Jay Gould were of this class ; but, during the creation of their fortunes, those two men of genius were dariag operators in stocks, planning and managing great campaigns, although they were compelled to employ many brokers to carry out the details. At the present day, James R. Keene, John W. Gates, Jacob Field, and a few others of kiadred abilities are the leading oper- ators. Thomas W. Lawson, of Boston, should be added to the list. They have all grown into prominence since the Civil War. Nearly all are members of the local stock ex- changes, in order that they may have the advantage of the smaller rates of commission on purchases and sales which prevail among feUow members. AU of them possess for- tunes won on the field of financial battle. In the course of time, all of them will retire from active speculation; but their places will be filled by younger men; and as a force in stocks, the independent operators will always have to be reckoned with. Through long experience, they have become expert manipulators of the market; and their talents in this direction lead to the employment of some of them, from time to time, by great financiers, for the conduct of important campaigns in stocks. Easily the prince of them aU is James R. Keene, a man of cool, sound, alert intellect, hard as steel, brilliant in exe- cution, patient, and amazing in the extent and variety of his information. Long a successful manager of bear cam- paigns on his own account, and perhaps better fitted by temperament for that side of the market, Mr. Keene took the bull side m 1901 ; and it was he who marketed United States Steel, common, at from $45 to $55 a share. His other achievements have been remarkable. It is such men as these who undertake the actual man- TURNING POINTS IN THE MARKET 143 agement of bull and bear campaigns. The market reflects their operations and purposes. It is to be noted that a campaign in stocks is a real and serious matter. If the security market did nothing ex- cept reflect leisurely buying and selling by actual inves- tors, it would seldom move rapidly in one direction or the other. But the market is not left to itself in this way. Whether arising from the impatience of the American temperament, or from a desire natural to all men to have a thing over with and to attain results quickly, it is a fact, that whenever the force of circumstances dictates either a serious reaction or a rising market, men do not wait to let events take their natural, slow and orderly course. They promote the movement, with a view to pro- ducing tangible results as soon as possible. For any such campaign, a number of important and delicate details must be arranged. Nothing is left to chance. Nothing is done hap-hazard. So far as is possible, every contin- gency is foreseen and provided for. No operator can go on the floor of an exchange and do all the buying and selling himself — at any rate, without revealing his plans to a certain extent. A number of brokers must therefore be employed. Each member of a pool must be instructed also, concerning the part he is to play in the buying and selling. Private inquiries must be made, which will bring to light, as far as practicable, the extent of the existing long or short interest in stocks. It is also necessary, in some cases, to arrive at an under- standing with the large owners of a given stock, which is about to be manipulated. The plotting of a campaign involves a thousand other details. Oyama, fighting his way into an enemy's country, never had a greater variety 144 HOW MONET IS MADE of preparations to make, than James E. Keene, in charge of a great campaign in stocks. The pools, also, consult frequently and act together. No bull market will ever be undertaken until underly- ing conditions are ripe for one. There must be ample sup- plies of money, interest rates must be moderate, and liquidation virtually ended. It is upon these points, that an investor should fasten his attention. With reference to the banking situation, no one need ever be in the slightest doubt. In June, 1904, for example, when sur- plus deposits in New York were $75,000,000 (they after- ward rose to $110,500,000) when time loans were not higher than 3 per cent and call money 1 to lyi per cent, the flag had already been waved for a start in a bull mar- ket. Every man could have read that sign for himself. As for liquidation, in any year, its conclusion is likely to be made public soon afterward. Brokers who issue market letters, newspapers which comment on market fac- tors, and advisory houses which make it a business to guide clients in the buying and selling of stocks, are reasonably certain to know when liquidation has practi- cally come to an end. When the ground work is laid, as above indicated, for a rising market, an investor should consider the propriety of buying back the stocks he has sold on a previous swing upward. The first care of the leader of the bulls is to make sure, so far as in him lies, that every speculative long account has been sold out, or that the stock will not be thrown on the market at an embarrassing moment, and that the petty traders and the public have been pretty well shaken out. Prices are kept weak and made to look as though TURNING POINTS IN THE MARKET 145 destined to go lower yet. The woman who bought, from the proceeds of a Pulhnan dividend, one share of United States Steel, common, around $20, as her private specu- lation, and sold it in despair at $9, just as the bull market of 1904 was about to begin, was a perfect type of a great class of people, rich and otherwise, whose holdings the manipulator wishes to have liquidated, before aggressive bull tactics are resorted to. This is one reason, why the very first act, after improvement has actually set in, is often to put stocks lower than before. Thousands of small traders, and investors who are at sea about Wall Street methods, may have held through the final dip in prices; but it will not be an absurd ex- pectation that they will hasten to sell on the first impor- tant rise. As these people have been proof against fright, an effort will be made to tire them out. This policy ex- plains why, after the market has had a long and contin- uous decline, it is apt to remain utterly inert and para- lyzed for weeks and even months. Great operators do nothing in a hurry; they have infinite patience. During this period, prices fiuctuate feebly and uncertainly. ,Quick slumps follow the rallies. A few stocks are put to new low records, even while the balance of the list is edging its way unobtrusively upward. Many owners of stocks have been in the habit of selling at such a time as this, tired out, disgusted, and fearful of even greater losses. Exactly when they ought to buy, they sell. It is what the operator wishes. After the situation has been liquidated as thoroughly as possible, active operations for the rise begin. The small investor needs to wait patiently and watch carefully for such periods as these, which are turning 146 HOW MONEY IS MADE points in the market, and are called and actually have the character of "periods of accumulation." Banks, pools and the "big men" are buying, whether they ad- vertise the fact to the world or not. Low interest rates, ample money supplies, and a sold-out stock market are irresistible temptations to organize an upward movement. When bad news no longer drives prices down, and under- lying conditions are all right, the bear market is ended. In the early stages of a bull market, many devices are resorted to, having for their object to mystify the public and prevent them from buying stocks. So far as the pools have the power to do so, they withhold from view the favorable features of the situation. Heads are shaken and pessimistic comments somehow creep into the news- papers. Rumors of lower prices are afloat. Something seems to be "hanging over the market" and small buyers are unconsciously led to "wait until the situation clears up a little." Meanwhile, the formation of a short interest is sedulously cultivated. In due time, prices are shot upward a few points in two or three days. Those who are short wait to see what this means. Buyers think they wiU now go in, on the next re- action. In only too many cases, a reaction never comes; and if it should do so, it is so abrupt and unexpected, that buyers are frightened and do not go in at all. Traders may even go short a little more. Two or three stocks are taken hold of, now, and ad- vanced, generally the high-priced ones, of which there is a limited supply in the Street and of which the general public have little or none. Later, another group is ad- vanced. The "cats and dogs" have their turn in time. Then the standard stocks are again bulled. It is at this TUENING POINTS IN THE MARKET 147 stage of the rise that a good manipulator shows to the best advantage. He keeps the market rising and gives it an appearance as if the rise were nearly over. Yet the tide contiQues to flow and a new "high record" is made every week or two by various good stocks. All these pro- ceedings may have consumed several months. Finally, in despair, thousands of buyers rush in and pick up their favorite stocks, sometimes just as the market is nearing its top for the time being. This is precisely the end at which the manipulator has been aiming. The market is kept active. Million-share days and even two-mUlion- share days are witnessed at the Stock Exchange. "Now, at last we have a great bull market. ' ' Under cover of the excitement, pools and operators unload their long stock on belated buyers or the wildly enthusiastic traders, and manoeuver for a ten to thirty point downward swing. At this critical period, a variety of devices are em- ployed to restrain the public from selling. Dividends may be raised on popular stocks. Rights may be given on others. Gold may ')Se imported. Rumors abound that certain stocks are "going up ten points" or more. Often, non-dividend payers and "wild-cat" stocks and even the great high-priced stocks are actually sent up, to give cre- dence to the rumors. Finally, when a strong break comes, high money or some other plausible influence, temporary in its nature, is put forward as an excuse, and the break is even utilized to induce the public to buy more stock. This is an important moment for an investor. Again he must study the banking situation and all the other points which need to be watched. A market, which will not advance farther on good news, is over with. Too much good news is always a bad sign, because the good news 148 HOW MONET IS MADE is apt to be saved for the culmination of a bull market. Many wise men sell out on general principles when the news is too good. If the newspapers are all bullish, if you hear from all your friends that stocks are going ten or twenty points higher, if even your clergyman and other persons who are entirely exempt from suspicion of an intentional desire to mislead, help swell the chorus, the time has arrived to sell out, especially if the market has had a long and continuous rise. And this has always been true, no matter whether the market went a little higher afterward or not. Too much good news, tremen- dous volume of transactions at the Exchange, and univer- sal bullish enthusiasm mark the culmination of a bull movement. When prices can be put up no farther, rely upon it, that the operators are getting ready to put them down. No matter whether such a proceeding is harmful to busi- ness interests, no matter whether it actually brings on a great crisis, the writer is only stating the fact. A market which is going up no farther is certainly going down ; and the speculators combine to carry the decline as far as pos- sible, in order to reap a harvest of profits on the short side of the market. When a bear campaign begins, traders go short of stocks. To do this to advantage, they are obliged to sus- tain prices for a time, while selling more than they buy. One of the conspicuous tests of a successful operator is the ability to sell, while apparently buying. It may seem incredible that this can be done, yet it is an every day performance. "Washed sales" or "matched orders" are one of the agencies, through which the object is at- tained. Orders are telephoned simultaneously to several TURNING POINTS IN THE MARKET 149 brokers. Some of them are directed to sell, others to buy. Each broker rushes to the post and executes his order, none of them aware of the orders of the others or that they all emanate from the same source. If his work is skillfully done, the operator ends each day in an im- proved position, having sold more than he bought, and the public no wiser or actually mystified. They may not do these things in Utopia. But this is the United States. Not long ago, it required washed sales of 300,000 shares to get rid of 30,000 Southern Railway stock near the top of the market. While the insiders are getting out of stocks and going short at the top of the market, it is usual for a few se- lected stocks to be bulled to much higher figures, to attract attention and conceal the real designs of the big specula- tors. In 1903, just before the great break began, heavy advances took place in Delaware & Hudson, Southern Pacific, General Electric, Missouri Pacific and People's Gas. Meanwhile, the professionals were all getting short of their favorite stocks. At the proper moment, all operations for the rise come to an end. Lacking their former support, prices com- mence slowly to fade away. Slow and feeble rallies are succeeded by rapid dips, in which prices go a little lower than before. When the decline has imperiled the ten point margins of stubborn and skeptical traders, more margin is eaUed for by the brokers with the inevitable result that a quantity of stock is thrown overboard. A quick slump is the consequence. In due time, heavier sell- ing breaks out and the bear market is under full head- way. Finally, the twenty point margins are exhausted, more stocks are thrown over regardless of price, and there 160 151 152 HOW MONEY IS MADE is another smash. Every outburst of liquidation carries the market farther down. From time to time, traders who are short cover their commitments and there is a smart but short-lived rally. On these rallies, the pools sell more stock. One terrifying break succeeds another, until, after months of confusion and loss, the bear market culminates and prices are again at the end of their swing. At the psychological moment, the strong come forward again, take hold and support the market by their pur- chases and the whole story is repeated. It is the periods of accumulation and distribution, each one covering several months, which an investor must watch for. He will be aided by close attention to under- lying conditions and by the comments of conservative newspapers and bankers. An investor will lose nothing by training his mind to a habit of cynicism. In the famous Joe Millerism, the courtier was warned not to be- lieve all he heard at the French court. An investor must not believe all he hears in Wall Street. He must look at the future and judge whether the times ahead are favor- able to stocks or the contrary. Wall Street always dis- counts the future. This he must learn to do also. A clue to turning points in the market is sometimes afforded by charts. An investor is advised not to make a fetich of charts, as so many small traders do in Wall Street. It would be absurd to suppose that the whole meaning of the market can be read in charts. On the other hand, they are a graphic representation of what stocks are doing; and they show at a glance whether a given stock is cheap or high. An investor can obtain the material with which to make a chart, by taking a news- paper which prints a detailed list of all the sales, each TURNING POINTS IN THE MARKET 153 day, on the New York stock exchange. The chart should be kept in the form of the sample one hereto appended. A chart shows where a stock stands at any stage of the movement then in progress. If it is high, that is not necessarily a sign that it will not go higher. If it is low, it may go lower yet. But periods of accumulation and distribution are generally indicated. A number of swings and turns at the top of a long rise, and especially a strong dip downward and a rally back to about the same high figures again, are held to signify distribution. At the bot- tom, which is commonly better defined than the top, a number of movements back and forth, with a raUy of sev- eral points and a return to about the lowest figures, is a sign, as a rule, that accumulation is going on and that in due time a strong rise will follow. Those who pin their faith entirely to charts believe that "double tops" and "double bottoms" are the thing to look for. There is something in this; but it will not do to rely absolutely upon the pools and operators showing their hand too plainly through the charts. The main point is, that when a high top is made, followed by a decline, and the market rallies back to the top and refuses to go through, then that is proof that too much stock is for seile there and distribution is evident. At the bottom, when a return to low figures has taken place and the stock refuses to go much if any lower, then buying is indicated. The chart must be looked at broadly and must be considered with reference to underlying conditions and the general situation. Ruled paper can be bought in stores where mathemati- cal supplies are kept, especially for the keeping of charts. XI DULL DAYS IN STOCKS THEIR MEANING AND WHAT THEY PORTEND— A FEW NOTEWORTHY EXAMPLES A PHENOMENON which is witnessed in Wall Street, at intervals, and which is full of significance, is the recurrence of exceptionally dull periods in the trading. From time to time, there happens a week or a month, during which the market wends its slow way along as sluggishly as a muddy brook crosses a flat, when traders are tired beyond expression, and the public seem to have lost all interest in securities of every description. Few of the real phenomena of the Street are without meaning; and to veterans, these dull periods are highly significant. They are not to be confounded with the mid-Summer and mid-Winter halts in the market. Trading is usually at a low ebb, twice a year, on the first occasion because of the vacation absences of a throng of traders and oper- ators, and in December, owing to the distractions of the holidays. The phenomenally dull periods may coincide with one or the other of these halts, now and then; but what we are considering here is something different from the normal mid-Summer and mid- Winter dull days. Citing the unusual periods, first, it may be said that 164 DULL DAYS IN STOCKS 155 .iutense dullness in the stock market has preceded a serious break in prices, twice during the last fifteen years. In 1890, a prosperous and fortunate year in the early months, few clouds were visible on the financial horizon, except in the always troubled region of politics. The usual January rise and reaction had been followed by a good Spring rally, running into May. July was duller than common. The Silver Purchase act was under dis- cussion and became a law in that month. Many traders in stocks had an idea that what the farmers believed might be true, that inflation of the currency would boom prices of stocks and commodities both. There was a pause to consider the situation. In July, sales at the New York stock exchange fell to an average of only 83,400 shares a day. Conservative men' feared the consequences of the silver law and stopped buying. Farther, the crops were not in good shape, owing to dry weather. The hesitation in the market foreran a fall. Europe was disturbed by our silver legislation and had troubles of its own besides. When prices began to move, they fell; and with the ex- ception of an extremely mild rally in August, an almost unbroken decline took place, lasting the remainder of the year and ending in a violent smash. Intense dullness in 1890, therefore, signified an alteration in underlying con- ditions for the worse and foreshadowed a bear market. Another such instance was the extraordinary dullness in the Spring and Summer of 1896. After the Spring rally, the market fell into the doldrums. May 27th of that year is often referred to as almost a record day of only 65,700 shares. Prices had come up nicely from the low figures of 1895 ; but 1896 was a terrible year and any hesitation in the upward movement was an unfavorable 156 HOW MONEY IS MADE feature. Apathy for a month or more, at a season when the market is normally active, was succeeded by a heavy drop in prices ; and the great break of August carried the level of the market down to the lowest point, known to the present generation of active men. To all appearances that low level will never be seen again, unless in conse- quence of some catastrophe in national affairs not now dreamed of. These two cases are the only ones of importance within fifteen years, in which an entire paralysis of the trading was the forerunner of a serious decline in prices. As a rule, intense dullness precedes a strong movement upward, no matter at what level the market is standing. In 1891, 1893 and 1894, the notable periods of stagna- tion coincided with the Summer vacation period. Condi- tion of the crops played no certain part in the dullness of those months. Crops were excellent in 1891, poor in 1893, and good in 1894. July was practically, in each of those years, the lowest point so far as prices were con- cerned. In the week ending June 30, 1894, sales did not go above 576,000 shares, making it probably the dull- est full week of the present generation. On July 3d, sales were 60,200 shares. What that meant to brokerage offices may easily be imagined. Seats on the stock exchange suffered in value and pessimism was so rampant that many brokers thought their seats would be useful there- after only as heirlooms. In each of the years named, the stagnation was far greater than was normal. It indii cated definitely an end of liquidation, and was the pre- cursor of booms in prices, which started when activity returned and gained momentum later. In 1895, the smallest volume of transactions was in DULL DATS IN STOCKS 157 January and February. Sales averaged about 120,000 shares a day. Utter and hopeless inertia settled down upon the market. No broker earned his salt. This was, however, the end of a seven months' decline, liquidation was over, the situation had cleared up, and, with trifling reactions, prices rose then until September. In 1900, when the average of railroad stocks was higher than at any time for ten years (except for a few weeks in 1892 and 1899), the month of August was excessively dull. Drouth had affected the wheat crop and the allied armies were besieging Peking. Aug. 22d sales amounted only to 86,000 shares. The average for the month was about 150,000 shares a day. On the worst six days, trading reached a total of only 672,000 shares. The intense dull- ness of August meant that, after a run of twelve months, liquidation had completed its course. Stocks were in strong hands. Important interests were maturing plans for a bull market; and, after a short and sharp shake- out, there followed a steadily rising market until the May panic of 1901. This was a typical case of the usual sequence of great dullness in the stock market. In the exciting bull market of 1902, the dull month was June. In one week, sales did not go above 1,325,000 shares. The public were being subjected to the tiring out process. The bull party had a tight rein on prices; and men who were shrewd enough to put the proper inter- pretation on the phenomenal dullness of June were lifted to wealth before the frosts came. June was the month just before the great upheaval in prices of good railroad stocks to prices three and four times greater than the figures at which they sold in 1896. March 10, 1904, was the smallest day in eight years. 158 HOW MONET IS MADE The smash of 1903 was ended. A fine rally into January- had taken place and then prices drooped nearly to the low level of 1903. Prices held their own but there was no buying. During the last week of April, only 1,070,000 shares were dealt in. June 28th, sales of 87,900 shares only were reported. As a matter of fact, March was the turning point in the market. Liquidation had ended. The Northern Securities ease had been decided (against the Union Pacific interests) and the bad news did not depress the market farther. A realizing sense of the situation finally dawned on the bear party, which hastened to cover its short sales. A new era of higher prices dawned on Wall Street; and since then, the market has risen to the highest point ever known, exceeding the high average of 1864. Phenomenal dullness reigned in Wall Street in June, 1905. A good reaction had occurred in May and prices had started upward again. Such persons as had not sold their long stock during the previous break were tired out, as far as possible, by a dullness and apathy which seemed to presage another fall. During the week ending June 17th, total sales on the New York exchange amounted only to 1,800,000 shares or so, little more than one full day's business in times of active manipulation. On the 15th, 129,000 shares were done. Drowsiness fell upon the market, the stock ticker, and all things animate in Wall Street. On the 17th, Saturday, 83,000 shares were dealt in. Since then we have had over a million shares on a Saturday. On the 17th, St. Paul changed in price just J^th of a point; Union Pacific, }ith; and United States Steel, preferred, %ths— all magnificent stocks whose enor- mous volume on an active day is a feature of the furious DULL DAYS IN STOCKS 159 trading. That was the record for dullness. There could be nothing worse than that. There never was anything worse except perhaps on March 12, 1888, the famous day of the blizzard, when practically no business was done on the exchange, sales being only 15,250 shares. The stagna- tion of June, 1905, meant, what it usually does, a strong movement upward as soon as activity returned. Enough has been said to show the importance of watch- ing for periods of remarkable dullness in the stock mar- ket. They form turning points. It is imperative at such times to search closely into underlying conditions. If those conditions are sound, a great rise is ahead. If they are dangerous, there may be a flicker upward just after the resumption of active trading, but the market is bound toward a lower level. It may be remarked, incidentally, that the top of a bull market is commonly attended with great excitement in the trading, an enormous volume of sales, and wild and erratic movements in prices. With reference to intervals of dullness in the trading, it may also be said that the same phenomenon is watched for, each day, by those who wish to profit by small turns in prices. If, on a rally, active trading stops or falls dull for an hour or more, that is generally held to signify a coming turn downward of a few points. Per contra, if trading falls dull, after a break, and prices refuse to go any lower, those who are short cover at once and play for an upward turn. XII WHEN TO BUY SECURITIES DOCTRINE OF PIVE-YEAE AVEKAGES.— REACTIONS HALF-WAY BACK.— RULES FOR BUTING ARRANGED AND CODIFIED IT is taken for granted, that an investor has sold some, or all, of his stocks at high prices during a boom, and wishes to recover them lower down, or that he has come into the possession of surplus funds, which he wishes to invest safely and profitably. It is also presumed that he will confine his attentior to standard, respectable and long established securities, which will afford him a regular income; and that he knows what they have sold for in recent years, their rates of dividend, earnings and surplus profits, and in a general way the financial standing of the companies in other re- spects. All this is fundamental. To determine for one's self the proper time to invest in securities requires a study of the matters outlined on the previous pages of this book, the lessons to be learned from which will now be set forth, even at the risk of a little repetition. An investor should seldom be in a hurry. By waiting a few months or even a year, and by proceeding in a perfectly cool and matter of fact way, he will sometimes buy a favorite stock many dollars a share cheaper than the prices ruling at the moment. Safety of capital can 160 WHEN TO BUT SECURITIES 161 only Ke assured by buying stocks when they are cheap and when there is a prospect of higher prices for them. This cannot be insisted upon too strongly. In any event, one will often save the equivalent of more than a year's dividends by patient delay ; and a man who cannot wait for a decline has no business to put his money into stocks. If, in addition to safety, one wishes to add an actual in- crement to his principal, he must certainly buy when the market is down and not during the whirl of a furious bull market. While awaiting his opportunity, an investor might amuse himself by making a chart of the fluctua- tions of the stock he has particularly in view, covering a period of a year or more back. To clear away one misconception, at the start, allusion may be made to the doctrine, entertained by some, that a stock is to be bought when it has fallen to, or below, its average price for the last five years. Such a rule is well enough, but it would give an investor few oppor- tunities. If that plan had been followed in 1905, for ex- ample, one might have tried to buy some one or more of the excellent stocks, named below, at the prices set oppo- site: Am. Car & Foundry, pfd. $ 78 Lake Shore Amer. Locomotive, pfd. . 88 Louis. & Nash 108 American Sugar 127 Manhattan 131 Atchison 67 *Mo. Pacific 102 Baltimore & Ohio 90 Nat '1 Biscuit, pfd 100 Canadian Pacific 114 *N. Y. Central 142 Central, of N. J 167 N. Y., Ch. & St.L., Istpfd. 107 Chic, Mil. & St. Paul 157 *Pennsylvania 141 C. C. C. & St. L 83 Union Pacific 97 Delaware & Hudson 154 U. S. Steel, pfd 79 Illinois Central 139 Western Union 88 162 HOW MONET IS MADE Only three of the stocks named, those marked with an asterisk, fell as low in 1905 as the prices given; and in- deed few others fell in that period to their five-year average. Obviously, this method of judging when to buy would have had little practical value in 1905. It would have answered, during certain periods after the Civil War and in the '80s and '90s. In 1903 and 1904, the plan would have been good enough, because there had been great depression, with heavy drives at prices; but other considerations would have dictated buying then and they would have been convincing and sufficient. On the whole, it is so seldom that the five-year average can be depended on as a guide that its practical value is almost nil. With reference to bonds, the five-year average may apply; but even in that case, this is not the rule to govern. In other lands, where conditions may be stationary, the five-year-average plan may answer in any given year. Some other guide must be sought for in a region like the United States, where underlying forces are lifting the whole body of good stocks to higher and yet higher levels as time rolls on and the country is working out its mani- fest destiny. There is one contingency in which the doctrine of average price may be acted upon. When a stock has risen rapidly from a previously low level, it is apt to react nearly or quite half-way before resuming the up- ward swing. The phenomenon is seen more distinctly in the speculative and highly manipulated stocks. A case in point was afforded by Tennessee Coal & Iron, which rose from around $32 in May, 1904, to $106 in WHEN TO BUY SECURITIES 163 April, 1905, an advance of about $74 a share. A month later, the price had reacted on profit-taking to $73, a drop of $33 a share or about half the rise. Reactions half-way back are often seen in the foot-balls of specula- tion LQ Wall Street; and instances of the tendency are shown in the chart of Southern Pacific on another page. An investor who has become convinced that a long period of prosperity lies ahead, that the bull market will run on for some time, and that a stock is worth the price it is selling at, can frequently buy his favorite to advantage on these half-way-back reactions, if he has missed his opportunity at the bottom. The best guides for buying are based on common sense, a knowledge of underlyiag conditions, and a clear under- standing of the present situation of the market with reference to the last crisis or period of depression. Assume, first, that good times are returning after a long term of depression. The upward movement may have just begun. Is money accumulating in the banks? Are rates of interest less than 4 per cent? Have there been failures, a great decline in stocks, smash after sma^h in the stock market, and do standard stocks sell at prices which would return more than 4 per cent on the money invested, perhaps 5, perhaps 6 per cent? Can an in- vestor gather from such sources of information as are open to him an idea that liquidation in stocks has virtually ended? In a year of this character, the time to buy is during a strong drive in prices in the months from July to October. In every year of depression since 1860, bot- tom has been reached some time between July and Octo- ber. In those years, stocks may have seemed amazingly cheap, all things considered, in the Spring, but experience 164 HOW MONET IS MADE shows that they have always been cheaper yet in the Fall. No iron-clad rule can be laid down, as to whether it is preferable to buy in July or the Fall in these years of prostration. No investor can dispense with the exercise of judgment in every action on the subject of stocks. But if he keeps his eyes on the banking situation, he cannot go far astray in deciding whether to buy in July or at some later date. It may be said, however, that pur- chases as early as July in a year of desperate depression, after one or two years of the downward swing, are gen- erally safe enough for all practical purposes. An investor is then merely taking back good stocks, previously sold at much higher prices ; and if they go somewhat lower in the Fall, no harm can come to him, provided that the trend of the times is toward betterment. But suppose that an investor did not recover his stocks at or near the bottom of prices in a year of great de- pression! Suppose that the bull movement has made some progress upward, when he comes into the money which he wants to invest, and that prices are higher than they were! What then? If conditions remain good, if money is easy, the banks have ample resources, times continue to brighten, and prosperity looms large for months or years ahead, then the best time to buy is at the bottom of the normal yearly swings in prices. June or July, after a considerable drop in prices, or later in Sep- tember or October, is the time to buy. In a general way, a good rule in years of reaction is to buy when things look absolutely the worst, when men who hang all day over a stock ticker feel sure that some catastrophe is impending they know not what, and that prices are going lower yet. The inexperienced part of WHEN TO BUY SBCUEITIES 165 the public always sells at such a time as that; and an investor can get any stock he wants without bidding up the price to do so. A man must have some confidence in the future of his country and its inexhaustible spirit of enterprise and its resources. A panic in an improving year always brings a bargain day, sooner or later. If one is not quick enough to buy on the day of the great smash, he can commonly do so to advantage a few days later, because, while there is invariably an excited rally immediately after a panic, a second decline nearly if not quite to the low level reached before has always heretofore taken place. On a great break, stocks are always bought in quantity by prominent financial interests to support the market and prevent it from going to pieces entirely ; and when order has been measurably restored, these stocks are sold, and during the selling there is another recession. During a great boom in business and stocks, millions of money are dispersed for dividends and interest, every month. It frequently happens that an investor has idle funds at such a time. What shall he do? He is exactly the man, for whom, in the parlance of the Street, the pools and operators are "gunning." The air will be found full of reasons why he should not delay but invest at once. Those who have stocks to sell want his money and they will put forth every effort to induce him to buy at high prices. This is the most dangerous and diffi- cult time for an investor. He must ask himself: Are stocks selling above investment worth? Has the boom been in progress several years? Have money supplies been diminished by the activity of business and by stock market operations, until loans are more than deposits, 166 HOW MONEY IS MADE or until surplus deposits are nearly at zero 1 Are interest rates high? What is the state of foreign trade'? Does disturbing legislation threaten? Have there been ex- posures of fraud or wrong-doiag? On a calm and dis- passionate review of these, and all other, elements of the financial situation, are there present a majority of the circumstances which always forerun a crisis and a reac- tion in trade? To all appearances, the sky may be clear, no clouds or distant mutterings may indicate an ap- proaching storm, every favorable factor may be treated lightly by the press (which, from principle, not at all from mercenary considerations, prefers never to alarm the in- vesting public), unbounded enthusiasm may prevail among acquaintances, and rumors may abound of yet higher prices for stocks. This is precisely the time not to buy. In a few instances, stocks may rise higher. An investor may feel, for the moment, that he has lost an opportunity in some of them. He will do well, however, to wait with a perfectly calm mind for the rising tide to halt and then to ebb furiously in the manner character- istic of periods of crisis and reaction. He will buy only when the reaction has run its course, as nearly as can be judged. It is seldom worth while to buy an active stock imme- diately after a dividend has been increased. The tempta- tion to go in at once is almost irresistible, especially if the stock at once starts upward. One may rely upon it, that the insiders and their friends have had advance informa- tion of the good thing coming and have been buying the stock when it was low, in order to sell out later. Good news, such as this, is certain to be followed by at least a moderate reaction. That is the time to buy. WHEN TO BUY SECURITIES 167 Those who have ample funds, a portion of which they are willing to risk in the purchase of non-dividend-paying stocks, often devote some attention to bankrupt companies, which are about to be organized. A great deal of money has been made in such stocks. One needs only to com- pare the present value of Northern Pacific, Reading, Erie, Union Pacific and other stocks of that class, to realize the profits which have been made by courageous buyers, who accumulated some of those securities when they could be had for a song. No doubt, years of waiting followed, but sterling companies were sure to shake themselves free from their difficulties in time. In the rearrangement of the finances of a bankrupt company, it is not uncom- mon to levy an assessment of $1 to $5 a share, or more, on the stock. An investor will wait until the plan of reor- ganization is published. He will then know exactly what he has to face. Many holders will sell rather than pay the assessment; and it seldom fails to come to pass, that a buyer can secure the stock at as low a price as before and sometimes lower. There will be little harm in wait- ing until he can buy stock, on which all the assessments have been paid. To summarize the whole matter, and to codify the rules for buying as far as practicable : 1. — ^In years of trade depression and reactions in stocks, buy only in the late Summer or Fall, on some strong drive at prices, and when a stock has fallen to, or below, actual investment worth. 2. — In years of good business, if the market has not risen for more than one year, buy on strong reactions in the Summer or Fall months, and especially if the market has been extremely dull for several days or weeks. 168 HOW MONEY IS MADE 3. — In a good year, buy during a panic or the second drop of prices, after recovery has begun. 4. — After a dividend has been raised, buy after the next strong reaction. 5. — After a stock has long been inactive and when the price is low, buy when transactions become large and the price begins to rise. 6. — Do not buy after' a long or sudden rise, especially if the price has risen above investment value. 7.— If a stock is not above investment value, buy, after a sud- den rise, when the stock has reacted half-way back. 8. — ^Do not buy a stock, whose earnings have been barely able to meet fixed charges and dividends, if an intention is made manifest to expand the capital or bonded debt considerably. 9. — ^Buy the stock of a company about to be reorganized only after the plan of reorganization has been made known. XIII WHEN TO SELL SECURITIES. TOP OF THE MARKET NOT SO DEFINITE AS THE BOTTOM. — BOOMS AND THEIR ENDING. — STOP ORDERS. — A FEW NOTEWORTHY INSTANCES IN Wall Street, among the men who trade actively in stocks, in order to catch the twists and turns in prices, from week to week, it is not uncommon to find individuals, who have a genius for buying at the exact psychological moment, but who tend to overstay and frequently let the profits of to-day run into losses to-morrow. There are others, whose insight as to the proper time to sell is marvelous, but who lack the faculty of buying at the right juncture. It is possible to train the mind so as to act with reasonable discretion in both cases. With reference to selling, a general rule, which has stood the test of time, is to let go of stocks, when they are above investment worth, when there is excited buying by the general public or by traders who are short of stocks, when the volume of transactions is unusually large, and when those periods coincide approximately with the logical culmination of a normal yearly movement in prices, especially if the rise has been in progress for several years. The rule seems simplicity itself. In prac- tice, it is difficult to follow, owing, to speak plainly, to the credulity and cupidity of human nature. It is presumed that an investor has bought good stocks 169 170 HOW MONEY IS MADE during a period of depression or reaction, and that, by patient waiting through good and evil days, he has seen $15, $25, or more, added to the value of each share he holds, and that he has meanwhile received one or more dividends on the stocks. Trading at the stock exchange may be fast and furious. Enthusiasm prevails on every side. Sales have run up to an aggregate of one or two million shares a day. The time may be at hand for the top of a normal yearly swing in stocks. At this juncture, an investor will free his mind entirely from the tips and rumors of "Wall Street and consider, in the most matter- of-fact way, how much higher, if any, the market is likely to go. It is important to watch for the phenomena of the top of a bull movement, elsewhere referred to. In its origin, a bull market is as much the product of natural forces, as are the plants, the leaves and flowers, which cover the face of nature in the Spring; and the growth of prices resembles the slow progress of the crops, in that the movement is exposed to accidents and must be carefully aided by the art of man. But there is a vast difference in the circumstances which attend the harvest. On the farms and plantations, the husbandman can sedately pluck the fruits, reap the ripened grain, and harvest the sugar cane and cotton, with full knowledge that the time has come and that delay will ensure the blighting of aU his hopes by the inevitable and bitter frosts of Winter. The signs that the harvest time has come are not so obvious at the end of a bull movement in stocks. They never are as clear at the top as at the bottom of the market. An investor must always be attentive, but need not be WHEN TO SELL SECURITIES 171 in undue haste. He must consider, first of all, whether the swing upward is likely to last for years, as it did after 1861, 1865, 1877, 1884, and 1896. He must decide how much is left of the usual four- or five-year swing upward. He must also determine whether he will wait for the end of the long swing or take advantage of the normal yearly turn. It is probably safer to pursue the latter course, because an investor will then remain a closer student of conditions ; and he will be safer against accidents, war scares, crop shortages, the death of prominent magnates in the financial world, and unexpected exposures of ras- cality or failures of institutions. As elsewhere narrated, at the top of a bull movement, the great operators and pools must create a public fol- lowing to which to sell their stocks at good prices. The manner in which they do this has already been told. The point is, that, when the market is being made to look the strongest, forces may be mustering which are certain to bring about a reaction or a long decline. A cool-headed investor will reason over the matter with entire sang froid. Suppose that Union Pacific had been bought in 1904 around $75. In November of the same year, the stock had risen to $117, then the highest price on record. An advance of $42 a share must have proved, and to many did prove, a strong temptation to sell. But the company had paid 4 per cent for years ; and its earn- ings had grown finally to around 10 per cent in excess of fixed charges, as appeared from its financial reports. It was as certain as anything could humanly be, that the moderate rate of 4 per cent would in time give place to a larger annual distribution on the stock. The times were improving. No signs of trouble were visible in the finan- 172 HOW MONET IS MADE cial outlook. Surplus deposits were large and money in ample supply. The usual January or Spring rise was just ahead; and it could have safely been taken for granted that nothing would be lost by waiting until that time. In February, 1905, there was a week of excited trading at the New York Stock Exchange, with total sales of almost 2,000,000 shares a day. During that swirl up- ward, Union Pacific was rushed to $138 a share. At that price an investor would get less than 3 per cent on his investment. That was the time to sell. A few months later one could have repurchased $20 a share lower. On the increase of the dividend to 10 per cent Union Pacific has since risen above $180. Take another instance! Suppose that an investor had bought United States Steel, preferred, early in 1904, around $55, having become convinced that the Corpora- tion was able, and resolved, to maintain the 7 per cent dividend. By October the stock had risen nearly to $85 A quarterly report is issued by the Steel officials, and from this, it could have been learned that profits were steadily expanding and that the trade had entered upon a period of genuine prosperity. The facts would have justified the belief that Steel, preferred, would ultimately rise to par or higher. A sound industrial, tried by the storms of depression and reaction and paying 7 per cent regularly, should be worth from $100 to $120 and upward. Until the security in question should have approached the higher figure, then, no important reason would have appeared for selling. Had an investor sold during the excited market of February, 1905, he could have realized around $96 for his stock and would have added the hand- some sum of over $40 a share to his principal. He might WHEN TO SELL SECUEITIES 173 have bought again, next month, a few dollars a share cheaper; but the prospect of this was small; and the in- vestor might have safely waited for the quotation which the stock seemed destined to reach at a not distant date. At the top of the Spring rise in 1905 it went nearly to $105. This figure coiaeided with the culmination of a normal yearly swing; and that was the time to sell. Steel, preferred, reacted nearly to $90 during the dull Summer months of 1905 and has since been sold at $113. A typical instance of the proper time to sell was sup- plied by St. Paul in 1902. Purchases could have been made around $150 several times ia the first three months of 1901 ; and on one occasion it sold as high as $186. As a 6 per cent investment stock, at $186, St. Paul would have yielded about 3J^ per cent on the purchase price. Scores of investors sold their holdings then and repur- chased, the same year, $30 a share lower. By September, 1902, St. Paul had been buUed to $198^. It had been "tipped" for $200 and came near enough to that figure for all practical purposes. The market then hesitated. The stock was about to be placed on a 7 per cent basis; but around $200, even then, the stock would have paid only 3j4 per cent on the purchase price. At the critical moment, in order to support the stock and enable the pool to market its later purchases without a loss, the Street was filled with rumors that St. Paul was going to $220. A few rash speculators may have bought at the prices then ruling; but at $220 St. Paul would have paid less than 3J4 per cent. Money was worth more than that then. Surplus deposits of the New York banks were al- most exhausted. Interest rates were high. Every under- lying condition pointed to a coming crisis and reaction. 174 HOW MONEY IS MADE Credit was badly strained. Buyers at Spring prices had more than $30 a share profit and this would have paid the 7 per cent dividend for four years. Conservative in- vestors sold without more ado. St. Paul never went even to $200, much less $220 ; and it entered upon a downward swing and its fall was never seriously interrupted until September, 1903, when it sold around $134 a share. Those who did not act promptly and get out in September, 1902, had an opportunity to do so around $180 to $183 in the January rise of 1903. It is always harder to decide when to sell than when to buy. At the height of a bull movement current gossip tends to blunt the perceptions as to the foundations on which the market rests. The hysterics which prevail at the bottom of a bear market, or in a hotel fire, or when the steamer is in trouble at sea, are as hard to contend with as the contagious enthusiasm which rules when a bull market is fast and furious. Hotel lobbies and the newspapers are full of tales, most of them grossly ex- aggerated, in which all sorts of people, including actresses, head waiters, valets and clerks, are reported to have made fortunes in the stock market and to have gone in again on various stocks named. Cynicism is the best ally at such times. A careful man will disentangle himself bluntly from all outside influences; and if any of the stocks which he holds are in truth going higher, he will "let the other fellow" make the money and will sell him the stocks to do it with. He should then leave the market, stay out entirely, and wait for the normal downward swing which is sure to follow. He can afford to devote himself to private affairs for a few months before com- mitting himself again. WHEN TO SELL SECURITIES 175 A practice which will be found useful to many who cannot, or do not intend to, pay close attention to market vagaries, or who expect to be absent, is the employment of so-called "stop-loss orders"— stop orders, for short. These are a protection against sudden panics and unex- pected reactions. The theory of stop orders is based on a number of con- siderations, among them being the tendency, already re- ferred to, of stocks to react half-way back after a strong rise or fall. No greater decline than half-way is likely ever to take place, unless a bull movement has definitely ended; and conversely, no greater rally than that may be expected, unless the market has finally turned upward for good. An investor who makes use of a stop order would wait until there had been a good rise, say $15 a share. To take a concrete instance, say from $80 to $95. He would then order his broker to "sell the stock at $88 stop." That is half-way back. As the rise goes on, he will raise the stop order, placing the point for a sale half-way back from highest quotations. All this will not prevent him from selling at any time, and any price, he chooses; but it will ensure at least a part of his profits in case of a sudden panic like that of May, 1901, or any other severe reaction while he is away or inattentive. A useful fact to bear in mind is this, that, in bull mar- kets, the highest prices of any given year are made either in January or April, on the one hand, or in the Fall. In a bear market, and during a trade reaction, they are made in January or February. To summarize, a few rules will serve as an approximate guide as to the time to sell. 176 HOW MONEY IS MADE 1. — In any event, Bell, when every underlying condition of finance points to an approaching crisis and depression. 2. — Sell, when the price is above investment value, on any sudden rise, or at the top approximately of a normal yearly swing. 3. — Sell, in January or February, when surplus deposits have fallen near to or below zero, when interest rates are high, and when the slackening of trade can no longer be disguised. 4. — Sell, as a normal yearly movement in prices reaches its usual period of culmination, if you expect to repurchase after a fair reaction. 5. — Never sell a stock which has been carried through a long and sustained decline, when it is at absurdly low figures. 6. — Never sell on news of a strike among the workmen of the corporation, unless the stock is above investment worth, and then you should sell anyhow. 7. — Never sell during a panic, in a bull market, except on a stop order, but hold on until the rally, and then judge dispas- sionately. 8. — Never sell a good stock on mere market rumors. They are too often set afloat to mislead. 9. — Finally, do not be discontented if your stock does not bring the very highest price which has been paid for it. The highest prices seldom last for more than a few minutes and cannot be realized by a person away from Wall Street and by few in it. XIY MAXIMS OF WALL 8TEBBT A GOOD investment is a good speculation. Actual value will tell in the end. No man ever makes himself poor by taking profits. All stocks move, more or less, with the general market. After a period of great dullness, the start upward is always due to some special event or to manipulation. Buy when everything looks the blackest and when every one else wants to sell. Securities can usually be bought at less than their real value during a sudden scare or panic. Wait patiently for the proper moment ; and never buy or sell simply for the sake of doing something. "The first requirement of success in Wall Street is patience."— Jai/ Gould. If you do not see the way clear, do nothing. Sell when securities are high, especially if the price is above the investment value. Maniptilation, which does not bring public cooperation, always ends in reaction. A manipulator may be all-powerful for the moment; but only for the moment unless conditions are with him. In a general decline, merit in a particular stock does not count for the time being. The market will be here to-morrow. 177 178 HOW MONEY IS MADE Always have some resources free for bargains. Values may and do foreshadow higher or lower prices, but manipulation is necessary to realize them. All things come to him who waits. The opportunity of a lifetime must be improved dur- ing the lifetime of the opportunity. No grist can be ground with water which has run past the mill. Look before you leap; but he who never acts never makes. The public usually buys at the top and sells at the bottom. Prices always look strongest at the top and weakest at the bottom. "The man who is right six times out of ten will make his fortune."— James B. Eeene. Those who can give good advice are least anxious to. Make up your mind how much profit can reasonably be expected; when your figure is reached, sell; and do not go in again until after a strong reaction. Speculation begins where certainty ends. Caution is the father of security. If you go into Wall Street to make your fortune, you will probably not even make your living. If you go there to make your living, you may make your fortune. — S. V. White. Buy privately, but you may sell publicly if you will. In buying stocks, select those whose earning power, and thus their actual value, is above the price. No one is always right, but successful men are more often right than wrong. Wall Street advice is free and is worth it. — Thomas W. Lawson. MAXIMS OF WALL STREET 179 If you intend to sell on the next rise, buy only those securities which have a broad and free market. Be silent when a fool talks. Never sell stocks on account of a strike. — Addison Cammack. Do not try for the exact top, or bottom, of the market, because you are liable to overstay. Small losses often prove great gains. Do not sell a security, which has long been inactive, just as it begins to move. Follow a strong movement with a stop loss order a few points down. Dullness after a protracted decline usually foreshadows a rise. The right time to buy (Amalgamated Copper) is be- tween ten a. m. and three p. m..—H. H. Rogers. Do not plunge recklessly after one or more successful trades. It seldom pays to be stubborn. If industrials work lower, a reaction in trade is de- noted. This ensures a smaller tonnage for railroads and a fall in railroad stocks. Little and often fills the purse. The market does not change its main direction sud- denly. Never sell stocks short in the Spring, when the sap is running up the trees.— Daniel Brew. Never ask a leader of the market what he is doing; the question would be impertinent. An investor can do nothing to make prices, but he can take advantage of them. Express no careless opinions about securities; no one 180 HOW MONEY IS MADE can tell what harm an unthinking word may do.— Jacob Field. If a market receives a sudden shock, remember that the worse and more violent the break, the more rapid the recovery. Great financiers never oppose general conditions, but they sell or buy according to their judgment as to the state of affairs, which will prevail months and even years ahead. When everybody is bearish, buy. When everybody is bullish, sell. Never tell what you are going to do until after you have done it.— Commodore Yanderiilt. When some one gives you a tip, do not act at once. Take time. Think it over. Secure the fullest informa- tion. Then act.— Louis V. Bell. Panics come out of a clear sky like violent storms. No profit is secure until the stock is sold. If prices are high, then whoever looks for higher prices yet must have sound reason to expect a betterment in earnings or general conditions. New York is a world's market and whatever promotes or unsettles confidence abroad is reflected here at once. A bull market is possible with high money. During a storm it is sometimes best to stay at home. In a bull market never sell out at a loss stock which has been bought during a bad break. The fiercest bear is a bull who has sold out too soon. The market will always do well enough as long as earnings keep up and money is easy.—/. P. Morgan. Buy when every one is selling. Sell when every one is hviymg.—Bothschild. MAXIMS OP WALL STREET 181 Prices do not respond to conditions, they respond only to manipulation.— The motto of cynics. What goes up must come down. If you have planned for large profits, never take small ones. XV FINANCIAL TEEMS AND PHEA8E8 A. FEW OF THE TECHNICAL TERMS IN" USE IN FINANCIAL CIECLES DEFINED FOE THE BENEFIT OF THE GENERAL READER Account.— More in use in London than here. In England stocks are seldom paid for at once, but are settled for for1> nightly. Two days are set apart, twice a month, for the settlement of contracts in stocks. To "buy for account" means that they are to be paid for at the next fortnightly settlement. Adjustment Bonds.— Bonds issued for the adjustment of the finances of a company. They are a lien on any new property, not covered by previous bond issues, and, with reference to other property, they take their place after already existing liens. Arbitrage.— The buying of stocks in one market, where they are low, and the sale of them in another, where they are higher. Or the reverse. The profit is usually small and results from quick turns in the stocks. A class of arbitrageurs on the New York stock exchange devote themselves to arbitrage transactions between that city and London. Averaging.— To buy every half point or so down, in a 182 FINANCIAL TERMS AND PHRASES 183 falling market, or to sell short on a similar scale up, in a rising market. The object is to make total transactions average a satisfactory and safe figure. Bear.— A bear on stocks is a man who believes that the market will go down, who therefore sells short in order to buy back at a profit, and whose operations, if he is a manipulator, tend to aid the fall in prices. Bill of Exchange.— A draft, or written order, for the payment of money, issued usually against a shipment of goods, the draft to be paid at the point to which the ship- ment is made. The term, bill of exchange, is used in international transactions, but it means no more than draft. It is drawn by one person upon another and is to be paid to a third party or bank. Bourse.— The name given in Europe to a stock exchange. Broker.— A man who executes an order for the purchase or sale of securities, in behalf of a customer, charging a small commission for his services. Bucket Shop.— The name given to an office, which is ostensibly a regular brokerage concern, but which as a rule has no connection with or membership in any ex- change. The concern accepts orders for the sale or pur- chase of stocks, but often records the order without exe- cuting it, or, if the order is executed, then the bucket shop sells as much stock as the customer buys, or buys as much as he sells, thus never carrying stocks. If the customer wins, the bucket shop loses. Conversely, if the 184 HOW MONEY IS MADE customer loses, the bucket shop wins. Practically, the bucket shop bets against its customers as to the course of the market. It is asserted that when the bucket shops of the country are loaded with orders for long stock for their customers, they engineer a raid upon the market, with a view to wiping out their customers' accounts and pocketing the money. Bull.— A man who believes that the market is going up, who buys and carries stocks for a rise, and who labors to bring about higher prices. Call. — A contract which pledges the man who sells the "call" to deliver a certain stock, at a certain time, at a price named. The seller receives a sum of money, say $100, for the "call." Practically, the transaction is a bet between the parties as to the future course of the stock. Call Loans.— Money loaned out on collateral security, with the understanding that the loan is to be repaid at any time on demand, that is to say, on call. Cats and Dogs.— A "Wall Street term, applied to obscure, non-dividend paying or worthless stocks. When the "cats and dogs" are suddenly boomed in price, the bull party is supposed to be for the moment at the end of its re- sources for continuing the upward movement. Clearing House.— A building to which all the banks of a large city, connected with the Clearing House Associa- tion, send all the checks against other banks, received FINANCIAL TERMS AND PHRASES 185 in the course of the previous day's business. Each bank presents to the representatives of other banks the checks it has against them. If a bank has, on the total of these mutual exchanges, a credit balance, it receives from the Clearing House the amount in cash. If it has a debit balance, it must send the amount in cash promptly to the Clearing House. The credit and debit balances are exactly equal; and all the money received from one set of banks is at once paid out to the others. There is also a clearing house, connected with the stock exchange, in which stocks are "cleared" in the same way as the checks in the clearing house of the bankfj. Clearing House Loan Certificates.— These are certificates for money, issued in times of monetary stringency, by the Clearing House, upon deposits of securities as collateral. They are received by all the banks in the association, in lieu of cash, in the settlement of balances against each other, and they enable the banks to go through a financial crisis without suspending payment. Commission.— A broker's charge for the sale or purchase of securities. It amounts to J^th of one per cent for each transaction, or $12.50 for each 100 shares of stock. Contango.— A term used in London, meaning the charge paid by the buyer of stocks for continuing his contracts until the next fortnightly settlement. Comer.— A situation, when all the floating supply of a stock has been purchased by a pool or by operators, who can then dictate the price at which sales shall be made. 186 HOW MONEY IS MADE It is a fearful weapon against those who have sold a stock short. A great many successful comers have been en- gineered in Wall Street and many others have been at- tempted but failed. Covering.— The buying back of stocks, which have been sold short. Domestic Exchange.— Drafts for money issued in one city and payable in another. The discount, or premium, at the banks on domestic exchange shows which way the tide of money is tending between the two cities. If a bank in Chicago has too much money on deposit in New York and can use its funds more profitably at home, it buys drafts on New York only at a discount, and seUs drafts on New York either without charging a premium' or at a discount. Finance Bills.— Foreign exchange is sometimes sold by the international bankers, not against a credit for goods, produce, or securities sold abroad, but against money bor- rowed abroad. In that case, the drafts are called finance bills. Plat.— Without interest. When stocks are loaned flat, it signifies that the short interest in stocks is large. Foreign Exchange.— Drafts for money, issued by bankers in the United States against bankers abroad. When goods, produce or securities are bought in the United States by foreign purchasers, the sellers here go to an international bank and deposit their own drafts against FINANCIAL TERMS AND PHRASES 187 the purchasers, with bills of lading, etc., and receive the banker's own drafts against his correspondent abroad. Cotton is the quickest maker of foreign exchange. "Whether exchange is high or low is of great importance to "Wall Street. When it is high, the tendency is toward exports of gold, that is to say we have been buying abroad more than we have sold and the excess must be paid for in gold. Conversely, when exchange is low, the tendency is toward imports of gold. Par of exchange is 4.8665. No exact figure can be named for the gold export and im- port points of exchange, because the figures vary from day to day; but normally, when exchange sells around 4.89 or higher, gold exports are indicated; and when it sells around 4.842 or lower, gold imports are probable. Fractional Lot.— Stocks are sold, normally, in blocks of 100 shares or their multiple. A fractional lot is less than 100 shares, and usually costs, to buy, a trifle more per share than in the ease of 100 shares, say ^ oi a point. Giving Up.— Frequently a situation arises in which a broker does not wish to appear personally as a buyer or seller of a certain stock, or a customer wishes to operate through another than his regular broker. A different broker is employed to execute the order, who then "gives up ' ' the name of the broker for whom the order has been executed, and that ends the transaction. Granger Roads.— The northwestern lines, whose earnings are in a large measure due to- the transportation of grain. The leading grangers are the Atchison, St. Paul, Rock Island, Alton, Northwestern and Union Pacific roads. 188 HOW MONEY IS MADE Holding the Bag.— Taking all tKe stock offered without bidding for it. It signifies either quiet accumulation or an unwilling taking of stock by a pool or the bankers, who give this support to a stock or the general market in times of reaction. KaflBrs.— A name used in London for South African mining shares. Lamb.— The novice in stocks, the credulous and inex- perienced, upon whom the unscrupulous prey. Legal Reserve. — The amount of money required by law to be held against deposits. The national banks of New York are compelled to keep 25 per cent of the amount of deposits in their vaults in lawful money or specie; and when the reserve falls below 25 per cent the banks are forbidden to add to their loans. Legal Tender.— Ten kinds of money are in circulation in the United States. The following are legal tender: Gold coin, standard silver dollars, and Treasury notes, act of July 14, 1890, for all debts, public and private. United States notes (greenbacks), for all purposes, except duties on imports and interest on the public debt. Subsidiary silver coin, in amounts not more than $10, in one pay- ment. Minor coins, to the amount of 25 cents. The fol- lowing are not legal tender: Gold certificates, silver cer- tificates, and national bank notes ; but the certificates are receivable for all public dues, and national bank notes are receivable for all public dues except duties on im- ports. The Government has the right to pay out national FINANCIAL TERMS AND PHRASES 189 bank notes for all its debts, except interest on the national debt and except in redemption of national currency. Long.— To be "long" of stocks is to have bought them for a rise. Manipulation.— The operations whereby stocks are forcibly raised or lowered in price, without reference to outside conditions. The art of manipulation has been carefully studied and proceeds with a thorough knowledge of human nature. If the public are to be attracted into buying a stock, it must be kept active. Operators usually resort to matched orders, that is to say, they order one broker to buy a certain number of thousand shares of a stock at a given price and another broker is ordered to sell an equal quantity. Another lot is bought at a higher price and a similar lot sold at that price or better, if better price can be obtained. The process, carried out with energy, sends the price of the stock up. When a stock is to be depressed in price, similar tactics are re- sorted to on the downward side. The exchanges forbid fictitious sales; but as these matched sales and purchases are cleared regularly through the stock exchange clearing house, and as a commission is paid upon them, they form a regular feature of every campaign in stocks and cannot be prevented. The art of manipulation has other fea- tures, among them the setting afloat of rumors calculated to aid the result desired by the operator. Margin.— When a man buys stocks on a "margin" he does not pay the full value for them, but deposits with his broker a certain percentage of the par value. Ten per cent is the usual margin. The stocks must be paid 190 HOW MONEY IS MADE for in full, and the broker does that out of money he has borrowed from the banks on time or call loans. In the case of wild and dangerous stocks, the broker re- quires 20 per cent margin. A few active speculators ar- range to have their stocks carried on a 5 per cent margin. Whatever the margin, say 10 per cent, if the stocks de- cline in value an equal number of points, the margin is wiped out. The buyer of stocks is obliged to pay interest on the amount of money advanced by the broker upon the purchase. Upon short sales of stocks no interest is charged, which makes short sales a favorite with many traders. Parity.— Equality in value. If stocks sell in Boston at the same price as in New York, they sell on a parity. Point.— A "point" in stocks is $1 a share; J4 point, half a dollar a share ; and so on. Pool.— An association of a few individuals for operations in the stock market. A pool aims either to bull or bear stocks. There is always a manager of the pool, who as- signs to each member the amount of stock he must carry until the deal is finished, and the part he shall play in the daily buying and selling required for manipulation of the stock. In order to conceal the purp\3ses of the pool and its exact position, some of its members sometimes sell stocks openly, while the pool is really accumulating, and vice versa. A "blind pool" is one in which the members contribute the money for its operations but take no part in its operations, the manager alone knowing what is being done until the final accounting to the members. Put.— A "put" entitles the buyer thereof to "put" or FINANCIAL TERMS AND PHRASES 191 deliver stock to its signer, within a time and at a price named. The buyer pays a certain sum for the privilege. A "put" is only one form of betting that a stock wiU, or will not, decline in value. Pyramiding.— "When a speculator for the rise has a profit on the stock already bought, he sometimes uses this greater value of the stock as a margin for farther pur- chases. The speculator for a fall follows the same plan, making his profits the basis for additional sales. It is a dangerous expedient and can be resorted to with safety only in the early part of a long swing in the market either way. Short.— To be short of stocks is to have sold them for a faU. The trader is out of all long stock and then "goes short. ' ' He orders the sale of a certain number of shares ; the broker sells them at ruling prices. The broker must deliver the shares thus sold, and he borrows them from some other house and pays for them in full. When the short sales are covered, the stock then bought is delivered tc the house from which the original lot was borrowed. As the broker who loans stock and receives pay for it in cash can then loan out the money so received at interest, he usually pays interest to the borrowing broker. When, however, the short interest in the market is large, he does not pay interest, or at any rate only a nominal rate. Spreads and Straddles.— A "spread" is a double privi- lege, which entitles the holder either to deliver to or call from the signer the stocks named in the contract at the prices stated. If the price in each case is the same, the privilege is a " straddle. ' ' Stop Orders.— The same as "stop loss orders." If a 192 HOW MONEY IS MADE trader is carrying long stock, and wishes to make sure of some of his profits, in the event of an unexpected de- cline, or if the market is going against him and he wishes to limit his loss, he gives the broker a "stop order." If he has bought stock at 100 and it has risen to 110, he might say "sell at 105, stop." Then if the stock falls to 105, it is sold at once and the owner has at any rate made five points on his purchase. If he has bought at 100 and the stock does not go up, he might order the broker to "sell at 98 stop." His loss would be limited to two points. Stop orders are used conversely by those who sell short. Stirplus Reserve.— The amount of reserve in lawful money of the associated banks, or of a single bank, in excess of the 25 per cent required by law. If surplus reserve is large, the loaning power of the banks is equally so. If surplus reserve disappears, and especially if it is replaced by a deficit, the loaning power of the banks is exhausted. In the latter case, the banks are obliged to call in and reduce their loans. Technical Conditions.— A rally in the market is some- times enginered on "technical conditions," which would mean that the market was oversold, i. e., the short interest was unduly large. A decline may take place on a dif- ferent set of technical conditions, the market being over- bought, that is to say, all the brokerage houses loaded with long stock and no short interest in the market. Washed Sales.— Practically the same as "matched or- ders." Wild Cat Stocks.— Virtually the same as the "cats and dogs," the "pups," etc. EANGE OF LEADING STOCKS 193 P5 <1 H H M 1—1 O CO M O QQ P o P5 a i HliM io|ao t-loo Hln n|<» iH I— 1 3 Hi« FH|e» 05|Tti ml"* Hn OTt«ococsQO coco CO CO C0-«*b-CO I— i ^ 00 OOOlfllot* 6 4 ■a a 12; ? Hi-* H]^ M|-)i m|.* H"* »-( lO in (M CS OS .t>CDt* 1 1 ;z; h? fe a Q fe hIm tQ[(D »|-* n|-# Hi-* Ci Ol Cq .H 00 OS CO t^ t* 00 i-H i-H 1 ^ jj ,fi d ft P Ph t-3 h^ M|^ Hn io|« Hm «|oo OS CO CO CO - ^ OiH(MC0'*lrtCDt-000iO^(NC0it<10 5D OSOSOSOSOSOSOSCSOSOSOOOOOOO Q000Q00000Q000Q00000OSOSO5OSOSOSOS 194 HOW MONEY IS MADE H EH M I— I O (^ m M Q O d3 I— I P < O P^ ^ -. i 1 (5 1 O 0) P 1 1 t> l> d 3 S ^ & i w Hi* CO CO b-]ai OO 00 CO 00 H H« H« -<« O »-l -* t- OS Ol l« 1 1 1 O O o o o o o o o o o O f. 1 1 < ft 1 ft C/3 1-5 t>. 1 1 R <) tB a o o w O 00 CD rH to C5 00 CO »-( rH o rH O rH CI rH rH rH s O o & 1-5 1 1 ft III •< 5 HIt). CO CO O I-H Oi S|DO CO Til o|«) 05 to|ao Hoo nl« ff^"* CM O O t- o o rH rH O O CM a- lO ^•^ o O o O o cq ^ -1< rH -^ ^ U3 -a & a 1 1 i ^ ^ ft > 1 ft CD m 1 OQ 1 II §• 1? a m K w ^^ CO CO CO CO 00 rH 1D1« Oi rH l-i« ^ QQ rH Oi CO 05 3? 00 Hi-* MIOO HJW OS CO O CO OS rH 2 3 1 A N ^^i_ ^ ^ o 1 ^ o o d Iz; Q ^? M CO as !3r 1— ( 1-H i-H (M T-l. Oi a? ■r-\ CM CO 1-\ 5 rH CO 1—i CO t-H CO »i« ITS 1(0 O -H rH rH S^ fe ^ 1 1 1-5 :i 1 4 1 1 1 to p > o 4i 8 o ca c8 Hi lO 3? pa* CO CO CO OS s o rH OS § CO O iH CN O t^ (M CO (M r-* 1-^ ■r-\ (5 ^ O 3- i-H rH rH rH rH oil-* It- o t> t- t' l> t* i Q o 00 iH iH CO Oi CO 1-H CO rH CD 00 oi GO r-i GO rH OS rH § OS rH rH § iH OS I-t CO o -tH »0 CO o o o Oi OS OS ■r-\ T-i t-{ RANGE OF LEADING STOCKS 195 m § § !2i <1 fl O H|« H« «l« t-lw 00 t- to 1-1 1-1 (M CO in IQ i£3 51 Nov 59i Sep 65| Aug o Hi ■a ^ 1-5 02 Hoi (M rH s iH ^ a s 1^ lOlOO r<]^ m|^ .-I lO t> CO i-i iH rH (M ^ «5 ^ CQ 03 O a fl ^ OS Cq" t^ CQ ']yf t-]0O A CO CO ^ cq :t< CO in iH iH rH ffi CO ro rH rH m la ^ ^ Tt< lO in 00 00 00 00 00 1 1 1 II 1— 1 Tt^ Oi Oi 1 1-3 1 at m 1- § 1 -g s o 4 a C^ (M O OS CO 00 oi Oi ^ ^ CD ^ 02 I=H H|M rH|-lH Wl-H b- m Qo iH ■* CO iH rH iH o ^ © O QQ P w]-* H|a> ,H|ei in l> rH CO t- o rH rH CM 1 h3 CO ^? O cq" CO L-' CO CO CD ft CO 1 CO CO lO ^ t- 00 02 00 3 H, O H^ ia|oo t- IM O 00 iH rH iH iH s4a M|N »!-# e9[ae OS o in o CO in rH rH tH S o o o o Ift o He H]N Hid (M d Til Ti* :? Hn ui ta la CD CD CO CO § 1 1 &ll Jz; DQ o S to t- c? o O CO -^ «o 1-1 >-( 1— 1 © P CO 00 I— I OS CO 1 § iH i-l iH CO 03 3 O) 3 CD t* 00 Cs § g g g 1H 1H rH T-t § iH (M CO O O O O) G3 O) »-t rH iH •* m CO o o o OS OS OS rH tM iH 196 HOW MONEY IS MADE at fn eg 1 1 1 g- 1 1 CD O "A bo 1 o a b- (M o uo ST CO ^" ^^" to to o r~< sr en esjo) H« CO rH C35 C3) rH O rH rH ^ >• 1 3 1-5 1 1 1 ■3 i 1 J 1 1 S t^ Q d 3 in g b- U5 (M CO CO in CM ^" O ira CO b- CO to to Hoi c» O 05 to 0> 00 n T*( CO CO CO o o o O o o CO CO ^ '^ ^ -# Ttl 1 fn I>* -S a 1 •-» -1^ o C < ft CD 1 o ^ s 1 1=1 III ty i-H w ■H n|QO O tH rH w (M CO rH 3 CO b- I— [ (M rH b- Hm •*" 131 O M CM CM 1 1 :i 1 1 1 1 4 1-5 1 1 .das, ® H ft !^ (^ iH rH r-t »JO w lO lO to CD CD b- t- b- b- b- hi ■a >, 1 02 p4 1 a. P 1 Pi 1 © ® O *i CO O CO a- rH rflOO H* H« rH rH rH n o o ^ lO lO lO lO to b- t* t* b- t* ^ ■a CO :? 1 ft 0) 02 > O 0) ft -g 1^ 1 1 1 1-5 III o s -* GO 1* '^ CO t o fe" <1 1 ^ 1 1-5 ■s o 1^ 1 ft CD 02 d o ^ ^ CO £M r-1 ?5 iH CO 1-t to (M o CO iH t^ -* 1~-\ iH CO 3? C30 rH CO o in CO CO CM > CO CO CO 00 CO 00 CO t- t- eo O O O C3 O O ^ O 1 CO CO CO OS 1-1 CD CO b- 00 00 Ol o CM rH 1 O) Oa O) rH rH rH RANGE OP LEADING STOCKS 197 Pi M I— I 02 P3 O Ph m M o o cb l-H Q < o O 12; o1 ^ 1 >» eg 1 1 Fh ^ 1 Uh i32 1 1 1 O > > © o o § H« H|M H|N t-|« icin -io. wi« rAl> Hw Hei HN f s;f lO o OS OS -* -* OS CO ■* ira Tj( U5 ■* CO A CO T-t CO CN rH 01 1-i CO CO rH 00 00 fH 00 S ?q e3 0) ^ :^ -4J o §> a > O i 1-3 P< >^ 1 ^ O C3 c9 % 1 P Q ►-& P »i» H|N Hti Hit. rfm O o (M CM T-i 00 T)< Oi m to CD to CO a> 05 00 OS (M cq C^J O l-H rH tH 05 a> o O o o ■* ^ t* QO n T-H iH iH rH rH rH rH rH r^ rH 1-i ^ 1-< T-\ ^ t- t- t- t- L-- t- t- lO lO W IC t> l> Xy t- t- t- ■a 1 1 fe fl ft Iz; F-5 ,si bD >, r-|M s CO t- t> rH rH ^ >^ 1 1 O 1-5 ;zi 1 l-D III w H-n MlTlt Ho» Hl». Ho. H« nN oliH. 5 Ir- 4< CO -rH O rH CO rH If5 CO rH O C-l O T)< rH ;S O o C<1 -* ^ (O CO ■* O cq O CO Cq (M rH 00 * g rH w iH rH r-\ rH rH (M (M (M > 1 +3 o O "¥ ^ h ^ 1 CQ 02 p PI 1-5 1 I a s l-J & nl-l> ml-* H|M Hl« H« Hoo H» Hn Ho» rH|M Ho. mlio «:|«) i N ■^ OS CO CI rH "Ctl b- CI T)H «o CD O (M 00 OS CO w CO -^ t— » M> 1 O 60 1-5 rd J3 H? 1 tt) > rd tX t» d 1 ^ ^ 1 ^ p 1 1 ^ c3 cS cS s ,3 i-^CO H)N -M H|^ r-|« kcloo HH. Hs< Hn «]■* Ml-* Ht. H«i CJ t> CO b- »-( O Th lO t* O OS r-i CO -^ lO 00 o cq « CO tH hK "h^ Hn O o O l-H O O O O O o o CO CO o o o o o w IM CO -* m «D I- CO a o iH r-t iH iH iH rH rH r-i rH T-i rH rH rH 1-i r-\ rH rH rH 198 HOW MONEY IS MADE 02 P5 H M 1— I 02 P3 o M o O EH 02 is O f^ C5 P5 g ■a k t> c| ;z! iz; S 6 t3 H«i O lO C-I OS ■* rH rH i-t o k1 15 1-5 1-5 1 rH O rH t» <0 OS S L- t- t- fn 1 1 1 1 1 1 Q4 CQ (D 1 1 1 1 1 IS 1^ S ft 1 1 1 1 1 1 1 !z; -^ 1-5 1 w i'' cq Hn CO »l«i S 00 rH ■H OS iH 3? rH 1-H H|00 (M Blot) >:|«> 0!|H. H» rH Cq O ^ Kj in o ^ 3 1 1 1 1 1 1 1^ 1 ^^^ 1^:^:^ ^ H. Hoo CO CM ^. O I— I rH rH rH o rH O iH CM IQlx OO CO Ho. Ho. Hio rH 1^ 00 M CO CO ^ O O o o o o o O o O O O O o O O O !^ ft :i CO l> 1 Pi CD t-s 60 1 Ph 4^ 0) ft 1^ 1 a Oi ■H i-H r-( 05 rH Ho< on* O iH 00 IN Ho. OS OO o «5 OS CO CO -«*< o o h3 S ^ 1 1 :i 1 CD 1 1 1 4 & ZQ 1 1 ■3 •-5 r® « 4 PH 1-3 ^ CO O CO 00 CO »— 1 b- 00 CO 1— 1 Ho» rH O 3 rH rH It- r-t 00 oo tH CO O CQ CM O lO b- IH) CO CO CN CO -tJ4 ^ t- t^ t- t> t- t* t> b- t- t* t» t> l> t- t- OS o 1-H rH rH GO 00 r-1 OS oo CO OS S OS 00 OS 00 CD 00 00 1-i OS 00 1-t OS OS 00 rH O o OS rH O tH CM O OS co o OJ rH ^ lo to O O O OS OS OS rH rH rH RANGE OF LEADING STOCKS 199 02 12; H H M 02 P5 o 02 M o O CQ I— I p O P5 ■a 1 1 i 1 ft P >? w 05 rH 00 Hi* OJ 00 L— 00 Oi ^ P- OQ p M i 1-5 iz; ,0 rQ <0 0) CD s CO to CO to to to CD (O CO ^ 1^ 1 1 PI <1 ^ 1 1-5 Ml 1 t-3 a, p3 P OQ t-3 (J w 3 rH Hi" in en CD 00 ml* mlDO IC rH rH §5 rH CM CO 1-A ■<* in rH CO 1-^ rH Hl« OS CO ■<*< CX> 00 rH rH rH 1 1^ O4 CQ ^ 1 1 U ^ i ^ 1 & S d .? '3 pR ►? ;^ 10 00 § 05 to CO «5N CO H|CO 1—1 00 C5 to 05 ^ ^ rH i-f -* r-H CO HloO ic:) 3 to in lO 10 10 lO m >o 10 m CO » ►^ 1 1 > 1-5 Ph Ph 02 1 <0 t! s W CM CO CO CO 01 00 s? CO -1™ m CO rH|M CO Hoi -* rH in Oi ?q CO rH rH ^ 3 1 ;i (0 1 ^ 1 M ^ t ^ ^ ^ h? !>> 1 1 1^ -^ fe § CO 1-i (M c-1 rH rH rH CM rH H]0. rH CO to to CO to >o|co H«> CO « CO CO rH ■Z3 H|0, r-H CO CO CO CO CO f. 1 1 4^ 1 1 02 1 P. 02 1 g 1 1 1^ ^ S g i w t— 1 rH C|M) r- ( rH BlIOO rH CO cq Oi 00 CM (M -* « T(l OS OS 00 rH rH rH 1 Hi 1 rt ^ ■3 1-5 1 1 1 1-5 1 ft QQ H ^ S loloo rH 1' O r-{ CO rH OS •'^ Tt< CO OS O rH O l-i T-\ 1-t ■k m lO lO lO o t- tr- t* t^ t- t- t- ■a S ^ P 1 >. i Ha O P O P > O § II § 1 w tH CO lO 1— 1 M|C0 rH -In CO r-t CO rH H-» o CM nloo CO CO r-i t-lQO CO 1-t r-i rH W OS lO C* 4^ O 1 s 1^ S !5 rH O o rH O in CO rH 00 o Hi-* in 00 00 CO 00 00 rH CO »!■* M OS rH O rH CO CD -^ rH rH rH > «3 CD CO CD CO u> CD ■* ^ ■* •* r*J l> t- b- t- ^ t*. 1 1 ft o IS a o O Hs III! s a Ho. 0) (X) tr- oiloo U5 to alto CO to §8 H« K|^ rH rH rH CO tH W3 m r^ iH r-i r-i 1 >• 1 1 02 1 1 1 4 1 >* 1 OQ fe f^ S o Ho. Ho "If 1' t-loo CO Hoo Ct3 -l« o s s otItj. CD o ITS rH -^ CD OS O CO CO iH i~f r-( > s H2 in ^- ■* O o O o o Ho. ^ lO IC lO lO CO CO ■a 1 1 1 bo <1 3 02 1 :2j 4^ S £ ^ S •^ P 1^ P o «2 w -loo 3 o 3 CO OS CO CO rH CD 00 to rH CI 00 CO eo ;* o o w CO o ira CO CO oa CO CO 1 A 1 i 1-5 ■a *-i 1 i •-5 iS 1-5 1 1=1 i-s o >• H o as o S (s p 12; 4 p O rH vn o I— I rH 1-i 00 CO rH in CO OS rH OS rH CO t- -^ OS CO t- l> 00 00 00 I o OS CO rH Oi 00 OS CO CO rH OS 00 rH in OS 00 00 00 r-i 00 rH OS OS rH O r-i O OS rH (M o OS rH CO -^ lO CD OS OS OS OS r-t r-i r-l tH RANGE OF LEADING STOCKS 201 CO M (— I OQ P5 O 02 W Q O EH 02 Ci5 I— I o Hi o :^ d •a (0 ^ a ^ ^ g S^ =3 <» 3 •-a ;=( H5 43 •^ S -^ CI 9) ® a> a Ph fi Ph 1^ F< P <^ ^ HJM (-let «lHl HlH. 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CO rH to in I-H H« »!■* r+tf lO t> CO 3SS fc 3 9 ^ 1 o P 1 1 ^ 1 P 1-5 1=1 ^25 "3 CO O OS O 05 00 00 His. o 1— t o CM lO cq rH C^ CO CO rH CO (M rH rl rH il ^=' ,-.!« ■* lO O lO Tt^ •« ■* -"^ lO lO W m lO in lo 1 o CO IN iH CO OO iH s OS 00 iH to Oi 00 r-t 00 00 rH OS OS 00 »H 3 OS rH O OS m Tj< W CO o o o OS O) OS rH rH rH RANGE OP LEADING STOCKS 203 w. < EH M I— I m O 02 M o EH m o d3 P5 f. 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S. Co., 96 Garfield, President, 84 Debentures, 29 Gates, John W., 97, 142 Delaware & Hudson, 7, 36, 41, General Electric, 149, 199 73, 75, 104, 114, 149, 161, 197 Gentlemen's agreement, 89 INDEX 233 Giving up, 187 Kaffirs, 188 Gold: Premium on, 74, 75; pro- Keene, James E., 86, 89, 142, auction, 68, 135 144, 178 Gould, Jay, 15, 84, 85, 90, 142, Kuhn, Loeb & Co., 130 177 Grand Trunk, 44 Lake Shore, 38, 104, 114, 161, Granger roads, 187 200 Grant & Ward, 86 Lamb, 188 Grant, President, 81, 86 Lawson, Thomas "W., 96, 142, 178 Great fires: Boston, 78; Chicago, Legal: Eeserves, 129, 188; tend- 78, 137; New York, 65 ers, 188 Lehigh Valley, 44 Hamilton, Alexander, 59 Lincoln, President, 72, 76 Harlem Railroad, 44, 74 Little, Jacob, 69 HiU, James J., 98, 99 J^o^g Island, 41, 44 Hocking Valley, 199 ^°^S of stocks, 189 Holding the bag, 188 Looking at the books, 48 Huntineton, C. P., 15 Louisville & Nashville, 42, 161, ^ ' ' 200 imnois Central, 17, 36, 41, 71, McKinley, President, 94, 97, 129 104,114,161,199 McLeod, A. A, 91 Industrial stocks, 52 Machiavelli, 11 Interest rates: And surplus de- Mackay John W. 11 posits, 210; effect of gold pro- Madison, President, 60 duction, 27; foreign, 23; in Maine Central, 36 early times, 23, 24; legal Manhattan, 161, 200 rates, 24; on bonds, 33; on Manipulation, 119, 141, 189 investments, 21; on time Margins on stocks, 149, 189 loans, 26 Marine Bank, 86 International Paper, 199 Matched Orders, 148 Inter-State Commerce Commis- Maxims of Wall Street, 177 sion, 47, 88 Metropolitan Bank, 86 Investors: Number of, 9; how Metropolitan Street Railway, they make money, 11; do they 127 200 run the most risk? 13, 52 Mexican Central, 38 Iron production and prices, 67, Michigan Central, 36, 74. 104, 69, 71, 73, 76, 77, 78, 81, 83, 114^ > , , , 86, 93, 125 Michigan Southern, 71 Ives, Henry S., 88 Millionaires, 3, 8 Minneapolis & St. Louis, 38, 42 Jackson, President, 63, 65 Minneapolis, St. Paul & Sault January rise in stocks, 107, 172, Ste. Marie, 201 174, 175 Missouri, Kansas & Texas, 38, Jevons, Prof. W. S., 56 201 Johnson, Prof. Joseph P., 27 Missouri Pacific, 121, 149, 161, Josephs, J. L. & S., 65 201 234 INDEX Money stringency, 59, 60, 62, 63, Panics, 59, 60, 62, 65, 68, 70, 75, 65, 70, 72, 75, 76, 79, 89, 91, 78, 79, 86, 89, 91, 93, 97, 99, 98, 100, 111 105, 165 Morgan-Belmont syndicate, 93 Paper money: Contraction, 62, Morgan, J. P., 11, 89, 130, 180 76, 115; inflation, 73, 74, 115 Morris & Essex, 36 Parity, 190 Morse, Anthony W., 75 Patience as a factor, 145, 177 Morus multicaulis, 64 Peabody, George, 11, 16 Pennsylvania Co., 42 National Biscuit, 161, 203 Pennsylvania Bailroad, 10, 36, National Cordage, 91 38, 44, 161, 204 National Lead, 201 People 's Gas, 149, 204 National Tube, 126 Petroleum, 72 New York & New England, 92 Point in stocks, 190 New York Central, 17, 38, 42, Points to be watched, 119 78, 87, 104, 114, 127, 161, 202 Pool, 190 New York, Chicago & St. Louis, Preferred stocks, 45, 49 42, 80, 161, 202 Pressed Steel Car, 204 New York Gas Light, 7 Pullman, 145, 205 New York Midland, 80 Puts, 190 New York, New Haven & Hart- Pyramiding, 191 ford, 36, 202 New York, Ontario & Western, Railroads: Dawn of construc- 202 tion, 6; miles of new line, 64, New York Produce Exchange 66, 69, 71, 77, 81, 82, 88, 92; Trust Co., 97 rate wars, 81, 85, 86, 126; re- New York Stock Exchange, 6, 7, ports of earnings, etc., 121 18, 155 Beactions half-way back, 162, New York Warehouse Co., 80 175 Nou-dividend-paying stocks, 45, Beading, 42, 44, 45, 46, 48, 49, 47, 85 53, 74, 81, 84, 91, 92, 94, 104, Non-interest-paying bonds, 34 167, 205 Norfolk & Western, 42, 203 Beal estate speculations, 64 Normal yearly movements of Beoeiverships, 71, 80, 81, 84, 91, prices, 105, 164, 169 92, 94, 115 North American, 203 Bepublic Iron & Steel, 205 Northern Pacific, 80, 92, 94, 97, Besumption of specie payments, 167, 203 81, 132 Northern Securities, 99, 158 Bich man 's panic, 99, 130 Bichmond & Danville, 42 Ohio Life Insurance & Trust Eipley, Edward P., 110 Co., 70 Roberts, George H., 135 Overend, Gurney & Co., 76 Eockefeller, John D., 12 Oyama, 143 Bockefeller, John D., Jr., 53 Eockefeller, William, 108 Pacific Mail, 103, 126, 204 Bock Island, 41, 205 Panama, 103, 126 Rogers, Henry H., 54, 179 INDEX 235 Borne, Watertown & Ogdens- burgh, 43 Rothschilds, 48, 66, 180 Safety in investments, 30 St. Louis & San Francisco, 43 San Francisco earthquake, 137 Savings banks: 1820 and 1905, 8; investments, 35 Seligman, J. & W., 130 September break. 111, 112, 163, 164 Short of stocks, 191 Silver Purchase act, 89, 90, 92, 155 Soetbeer, Dr. Adolph, 135 Southern Pacific, 43, 149, 150, 162, 206 Southern Eailway, 38, 43, 149, 206 Specie payments, 61, 65, 72, 81 Speculation inevitable, 12 Spreads and straddles, 191 Spring rise in stocks, 107, 112, 173, 175 Standard Oil, 22, 126, 206 Stanford, Leland, 15 State of trade, 124 Stedman, Edmund C, 6 Stewart, A. T., 35 Stocks, 44 Stop-loss orders, 175, 191 Sun spots, 56 Supply of money, 129 Surplus: Deposits, 70, 100, 131, 144, 166, 173, 210; reserve, 192 Swings of the market, normal, 105 Tariff changes, 62, 64, 66, 67, 69, 72, 77, 86, 88, 90, 92, 94, 115, 127 Taylor, Moses, 15 Technical conditions, 192 Tennessee Coal & Iron, 162, 207 Texas & Pacific, 38, 43, 207 Toledo, St. Louis & Western, 207 Trans-Missouri decision, 96 Turning points in prices, 100, 137, 139, 144, 146, 152, 154, 159 Undigested securities, 85, 98 Union Pacific, 18, 36, 38, 39, 43, 49, 53, 87, 92, 94, 120, 126, 158, 161, 167, 171, 207 United Railroads, 36 United States Bank, 4, 5, 59, 60, 61, 63, 65, 66 United States Leather, 45, 208 United States Rubber, 208 United States Steel, 8, 10, 38, 43, 49, 52, 120, 122, 142, 145, 158, 161, 172, 208 Vanderbilt, Cornelius, 15, 74, 81, 142, 180 Vanderbilt, WiUiam H., 85, 88 Vanderlip, Frank A., 135 Venezuelan message, 93 Villard, Henry, 86 Wabash, 43, 209 War: With Mexico, 67; with Spain, 96 Washed sales, 148, 192 Washington, city of, captured, 60 Washington, George, 3 Wealth of the United States, 7 West Shore, 87, 127 Western Union, 43, 161, 209 When to buy, 50, 160 When to sell, 169 White, S. v., 91, 178 Wild cat stocks, 192 Wisconsin Central, 209 Woodward corner, 79 Workmen buying stocks, 8 CHARLES W. 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