Finance = Public and Private The Snare of the Stock Exchange

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AMONG the wills recently published in the newspapers was one which attracted attention by the fact that the testator used the opportunity to make a protest - in two directions, one of them being concerned with the exactions of the tax gatherer and the other with the alleged dangers of the Stock Exchange. " I earnestly entreat my sons," said the testator at the close of his will, " to keep united and loyal to each other and in investments to avoid the snare of the Stock Exchange."

I fancy that not a few, and certainly all who earn a livelihood in their profession of stockbrokers or stock jobbers may be inclined to resent this apparent imputa- tion upon an honourable profession. Nevertheless there will be many who will not be slow to perceive the real drift of the warning and will recognize that the reference is not to what may be termed the legitimate activities of the Stock Exchange but to the excessive use by an uninstructed public of the facilities which it offers for speculation as well as for investment operations.

FORTUNES FOR THE FEW.

For, in the main, the warning of this particular testator is by no means to be disregarded, and if a record had been kept, say, over the last fifty years, I have little doubt that it would be found that while speculative operations on the Stock Exchange have brought fortunes to a few individuals, the great mass of the public has been made poorer rather than richer by those operations. It will be noted that I have made the challenge extend over a considerable period of years, the reason for which will be apparent from some subsequent comments.

SPECULATIVE TENDENCIES.

At the present moment, both here and in the United States, the public may be said to be taking a very active share in both speculative and investment operations, and one sign of this is to be found in the amount of space devoted by almost every daily journal to investment or market notes, obviously written for those who are follow- ing with more than customary attention the fluctuations in Stock Exchange prices. So far as New York is con- cerned it may be said that these speculative operations are stimulated by the same system and facilities which prevailed previous to the War, but in this country some click must almost necessarily have been imposed by the more restricted contango facilities at the fortnightly settlements, so that for the most part the public has to provide either out of his or her resources, or out of money borrowed from a bank, the necessary amount for taking up the shares acquired. Moreover, as a consequence of the sounder technical position of markets resulting from a restriction of contango facilities, the markets have been less vulnerable to " Bear " attacks.

Indeed, speaking generally, it is quite probable that for the past few years the public has gained rather than lost by its purchases of Stock Exchange securities both of investment and speculative descriptions, though an exception is undoubtedly furnished in the case of rubber shares, where the fortunes have fallen to the few who were well informed and bought early in the boom, the general public, as is usually the case, having been assigned what in vulgar parlance is generally known as the position of !` holding the baby."

CYCLES OF PRICE MOVEMENTS.

Undoubtedly, however, one explanation of the long series of gains in public securities is to: be found in the simple fact that following upon the Great War every security throughout the Official List, from A to Z, ex- perienced a wholesale and phenomenal slump. This is a phenomenon which occurs from time to time in Stock Exchange history, a previous occasion having been the prolonged and general fall which followed the financial crisis of 1890. On such occasions when the general turn in the tide at last comes, it is probable that sooner or later the recovery will be of a very general 'nature, usually commencing with high-class investment securities and terminating in some outburst of activity in the speculative descriptions. Such a period, however, usually covers quite a number of years, and -unless interrupted by some great force, the task of the investor 'is an easy one. At the outset a good many shares can be picked- out of the basket almost with the eyes blindfolded, and then as the process of recovery eX-tends the task of selection, of course, gradually becomes more difficult, until the apex is reached and caution has to characterize every purchase. He is a wise investor who, refusing to take his tips in wholesale. fashion either from well-Meaning friends or well-Meaning journals, prefers to study these' market tendencies and is prepared on occasions to let his re- sources accumulate until a favourable moment arrives.

THE PRESENT CYCLE.

At the "present time we are clearly going through one of these stages of recovery after depression, and that is why, as I said in an earlier paragraph, the assertion that the general public usually loses on balance in speculative operations on the Stock Exchange must be applied over a considerable period, for it would be quite possible to demonstrate that over a short period the gains are often far more numerous and extensive than the losses. Speak- ing generally of the period through which we are now passing, it may be said that the recovery in securities, which commenced with British Funds about 1920 and has since extended to so many other departments of the Stock Exchange, has only been held in check, so far as high-class investment stocks are concerned, by the fact that the comparatively firm money rates, combined with heavy taxation and high costs of living, have made the investor at present unprepared to accept a lower yield than about 41 per cent. even on the best class of security. Given a reliable indication of a material easing of the value of loanable capital, and the moment will be ripe for a further upward movement in gilt-edged securities which would have its repercussions upon other sections of the markets. Unfortunately, not having the gift of prophecy, I am not prepared to affirm, with any confidence, that such a decline in money rates will occur, though, in passing, I might, perhaps, draw attention to the fact that for some time past monetary authorities here and in the United States seem to have been concerned in restraining a natural tendency of rates in the downward direction, a circumstance which is rather suggestive of such a decline ultimately taking place. On the whole, however, the general tendency of Stock Exchange prices has been sufficiently uniformly favourable in recent years to make the task of selection reasonably easy, and to have given to the investing and speculative public a decided taste for the occupation of seeking to add to their resources by acquiring securities likely to advance in value.

THE " SNARE."

It is, however, I think, just here that the warning of our friend, the testator, may well be taken to heart by many of the amateur speculators on the Stock Exchange. By some law which may be difficult to explain or comprehend, it seems to be fated that those who are driven to Monte Carlo, either by gambling fever or by urgent needs occasioning an intense desire for ready cash, should lose heavily, while those to whom gain or loss is a matter of some indifference, " break the hank." In the ease of Stock Exchange transactions, while the same results often attend the two different classes of individuals, it is a good deal easier to discover the cause. The man who is glued to the tables at Monte Carlo is usually destined to ultimate loss, and those members of the public who cannot leave Stock Exchange operations alone for a single day or a single week are likely to share the same fate. It is sometimes said that the difficulty with the speculative public is to induce the speculator to take a profit. I think, however, that the matter goes farther than that, because, even when the profit is taken, the speculator often cannot be induced to invest the profit in a gilt-edged stock, or to let it lie on deposit possibly for weeks or months, awaiting another suitable opportunity for acquiring a stock that is undoubtedly at a low level. The imagination has

been so fired by the profits secured in one direction that there is eagerness within a few days to go on venturing in other directions, until the final loss only too frequently exceeds all previous profits, in addition to which there has been infinite strain and fret to the individual. This, I think, is the " snare " to which the testator refers, and the most experienced members of the Stock Exchange will be the first to endorse the warning.

RATIONAL METHODS.

A really careful and intelligent study of market ten- dencies, which are affected not only by great cataclysms, such as those I have referred to, but by great influences favourably or adversely affecting particular industries, constitutes a really interesting mental exercise for the individual, and one which will not beget the feverish de- sires excited by the mere blind tips to buy this, that or the other " for a quick rise." The pastime may be less exciting than the getting in and out of speculative favourites within a brief period, but it will ultimately, I think, be found more satisfying not only to the mind but to the pocket. The Stock Exchange is an excellent institution, but it was made for man and not man for