Stocks and Shares and Morals
AFEW weeks ago a new company was floated and its prospectus duly appeared in the Press. Following the now common practice, it invited applications for a certain number of £1 Preferred Ordinary shares and an equal number of is. Deferred shares, applications for the latter alone not being entertained.
The prospects of the company appearing good, and the names of the directors inspiring confidence, I applied —being a small investor, with a good deal of emphasis on the small—for 400 of each. The issue was heavily oversubscribed and I was allotted just a quarter of what I had applied for. The pound shares, as always happens, went on the market at a discount. The shilling shares started at 6s. 9d. After hovering about there for a day or two, they dropped to round about 5s. 6d., and I considered whether to sell, a hundred shilling shares being hardly worth holding permanently for the sake of the dividend. While the considering was in process, the shares began to move up once more, first to 7s., then to about 10s., and then to 13s. 3d. At that figure I decided to sell, but by the time the broker put the transaction through the price had gone to 14s. 8d. That, as it turned out, was almost the top of the market. My original expenditure of £5 brought me in £71 10s. within a little less than three weeks. To complete the story, the £1 Preferred shares have moved up to above par, and I invested the proceeds of the sale of the shillings in a purchase of more of the pounds.
That, of course, on the face of it, is very satisfactory. If I could do the same thing every week I should get rich fairly quickly. And I am not sure I couldn't do some- thing like it, on a smaller scale, in most weeks. The same process, issue of pound and shilling shares, over- subscription, quotations of the pound share at a discount and the shilling at a heavy premium, is common enough. The Preferred share does not fall as much as the Deferred one rises. At no great expense and virtually no risk, given reasonable prudence in the choice of the company, a comfortable profit could be made by buying both classes at their issue price and selling them a fortnight or month later.
But suppose my £66 profit were possible every time. (I realize, of course, that £66 is a trifle to the serious investor, but I am speaking of the professional man below the super-tax level.) Suppose, to put it a little lower, I saw my way to, say, £50 a week by this class of operation. Why, not ? Well, I don't know. But there is such a thing as getting money too easily. Coins and Treasury notes and cheques carry their best meaning as symbols when they represent a fair remuneration for honest work.
The Quakers, whose meetings I sometimes attend, give their members a rather searching " advice " from time to time, urging them to " guard against the spirit of speculation and the snare of accumulating wealth," with the added injunction, " Remember that we must account for the mode of acquiring, as well as for the manner of using and finally disposing of our possessions." Whether it is by following that admirable counsel that the Quakers have made themselves as comfortable in this world as many of them seem' to do is a not uninteresting question. But the immediate purpose here is to try to find where the moral guiding line in matters of investment runs. It is not a question of what can be just kept on the right side of - the division between legitimate and illegitimate, but of how the good citizen —without too much affectation or pharisaism about the good—will invest his money. - Let us assume that we are dealing with a business or professional man living on his earned income and confining his Stock Exchange transactions to rearranging his capital and reinvesting his dividends. Assume, further, that he regards money as involving certain responsibilities, and stocks and shares not quite is mere' money-symbols, but as representing an actual partner- ship, however small, in industry or the public finances of some town or country. That means that certain forms of investment will be avoided altogether. It is a question here of individual standards or, if you will, idiosyncrasies. Personally, though I am not a teetotaller, I should put no money into breweries or distilleries. That may be illogical, but having the whole field of investment before me, I prefer to turn in some other direction.
To regard money as involving responsibilities means, further, that the good citizen's investments will represent genuine transactions. Options and margins will be avoided. Will he, then, invest with an eye to dividend solely ? Only the financial purist, I think, would maintain that. It is obViously legitimate for the best of good citizens to scan the field for some industry which he believes ought to prosper, put his money into that and, if the shares do in due course appreciate, sell out and invest his increased capital in something else. There is no more objection to investing for an appreciation of capital than there is for a high dividend, though either, if carried to an extreme, may be rather too much in the nature of a gimble. But for the man living on his earned income and spreading his investments in small sums over a wide field, so as to avoid risk of any wholesale loss, his adventures in the market may be something of a hobby, and success will be valued as much for the element of sport or the mental relaxation provided as for the financial advantage secured.
But certain general standards may be expected of the good citizen. On the whole, his money will be doing better service if it goes into industries producing commodities of general practical benefit than if it serves to swell the output of entirely superfluous luxuries. If the Government should need money,. patriotism may impel the good citizen to buy British bonds at some sacrifice of annual return. (That, of course, applies only to a new issue. The Government gains nothing by the transference of its bonds from one holder to another.) Similarly, where foreign bonds are involved, he will give a preference to loans approved by the League of Nations, for there is a guarantee there that the money will be expended on sound financial lines for purposes of public utility. He may well feel, further, that any apparently sound project for the construction of a garden city or for the replacement of slums by decent houses has a claim to some fraction, at least, of his available funds, though the annual interest may be nominal.
Fortunately for the conscience of the good citizen, he can fairly easily make the best of both worlds, so investing his money as to put it to uses that directly or indirectly benefit the community generally and, at the same time, bring him a satisfactory return and provide him with an interest in life off the ordinary beat of his daily work. But a just- balance needs to -be kept, all the same. The " satisfactory return " may become too vital a factor. The fun of the game may turn stocks and shares into mere counters: Between putting his few hundreds or thousands into Consols and putting them into greyhound racing there is a wide enough field of choice. And it would, no doubt, be easier to frame better criteria than I have adduced here. The subject is sufficiently. important to make serious suggestions
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