Two CLASSES OF " INVESTORS."
I believe that for the most part it will be found that the investors in new capital issues who, by an undesirable choice of securities find themselves heavy losers by the transactions, can be divided roughly into two classes. First the genuine investor, who sincerely places his money in new issues of capital with the desire to obtain a settled income, but is completely ignorant as to the precautions to be taken before parting with his money, and second, the individual who is merely greedy, either for snatching a premium on new capital issues at the early stages of their existence, or who is out for a high rate of interest utterly incompatible with security. At the present time when it is becoming increasingly difficult to obtain 4 per cent. or even 81 per cent. on a full trustee security the investor has to, be particularly watchful with regard to almost every class of prospectus which makes its appearance. In the case of the first-class stocks in the trustee group, it is not, of course, a case so much of questioning the security as of challenging the prices at which the issue is made. There is a tendency at the moment to regard the Government's Conversion of the 5 per cent. War Loan to a 3/ per cent. basis as justify- ing a similar standard for other high-class investment stocks. The argument, however, is not a fair one even when backed by the present spell of cheap money, for the success of the War Loan Conversion was due in part to the patriotism of holders of the old loan, and in part to the knowledge that the Government was in the position. if necessary, of being able to repay maturing obligations,' and by so doing flooding the market with such a volume of new money as to drive up investment securities. During the- next few months, and owing to the scarcity of invest- ment stocks in the market, it is probable that a flotations of sound stocks will be made at high prices scarcely- justified by intrinsic merits and the underlying (Continued on page 563.) good many Finance—Public and Private (Continued from page 562.) facts of the situation. Applications by premium hunters may bring success for a time to such issues, but sooner or later the number of capital issues is, I think, likely to bring down prices somewhat. In all eases, however, where. as measured by the standard of existing securities, new capital issues of the trustee type are offered on reason- able terms the investor will probably find it advantageous to respond to the appeals, though even in issues of this type the investor should not be misled by the mere term trustee stock," but should examine the prospectus for the margin of security afforded by the actual revenues of [ the company or public body making the issue.
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