Finance—Public and Private
Investing in Industrials
Ix another Columh_ reference is Made. to the somewhat uncertain ;tendency now characterizing the movements of public securities, and. of _Industrials in particular. Last week I dealt at some length with the manner in which the situation was dominated by the great specu- lative movement on the Stock Exchange 'in New York, and that factor is still one to be reckoned with. How far it will be kept in check by a curtailment of loan facilities by the banks in New YOrk, or how far the restraint of still 'higher rates will have to be applied, remains to be seen, but whichever of the two processes is adopted, there must -be some repercuSsions here. All this,- hOweVer, has nothing to do with the intrinsic merits of the securities dealt' in, however much price movements may be temporarily affected, and while, of course, - the boom in Industrial shares, like all other booms, will reach its zenith, it is highly probable that the movement has not yet spent its full force. TIP'S.-. r': Intending buyers will do Well, however; to recognize that it may no longer be a case of all and sundry Industrial stocks moving up• logether;_hut 'father of the greatest discrimination being required in the - Selection of par- ticular stocks.. And, with all deference to the many journals which to-day are-tipping individual" favourites, I would strongly counsel the investor not to be in a hurry to acquire any such favourites without due inquiry and investigation. These recommendations no doubt serve a useful purpose in directing the attention of the small investor to particular shares or groups of shares which rnight otherwise have escaped his attention, and so long -as-iinquiries are made there is often profit to be made. It is quite extraordinary, ,however, to note the Teekless- ness with which investors _who :cannot afford to lose any . part of their scanty resources will, on the bare chance of making a few pounds, follow the blindest tip and in nine cases out of ten will , make their inquiries after the purchase instead of before taking that important step.
RESPONSIBILITY OF THE BROKER.
But, it may be asked, from whom should the inquiries be made ? and the reply is that undoubtedly, in nine cases out of ten, the stockbroker is the one from whom advice slionld be sought. , anow, of course, that it may be said that there are "many instances where the stock- broker's information is meagre. and that, actuated by a desire to obtain the order and secure the commission, the advice is not always that of the careful expert. If, however, the potential investor will press his inquiries somewhat closely, asking for an explanation for the advice given, he should not find it difficult in testing whether the counsel is worth following or not. There are two points on which the investor not thoroughly in touch either with markets or with the concern in. which, he is investhig.his capital requires advice., If he is an investor pure and simple,, without a_speeial eye to:a quick profit through a rise in vidues,.he will be primarily, if not-solely, concerned with the intrinsic merits of the shares to be acquired; If, onn–the other hand, he is in reality. a small -speculator hiding under, the garh of the,. in- vestor, .h will then find- the advice,-..of an experienced broker invaluable with regard to the actual state of the market. It may- be, for example; that the. -broker, althcnigh recognizing the shares" to be quite -desirable and also likely, sooner or later, to have a rise in value, will also know that owing to the unwieldy speculative position on the Stock Exchange an intervening collapse in price is highly probable.' On this 'point, with his knowledge of the position. disclosed at -the fortnightly settlements, he will usually be an expert, and in ninety- nine eases out of a hundred if the client-is adVised by his broker to hold off froth the Market at the moment he will do well to ,follow the advice.
THE JOURNALIST AS EXPEHT..
In these days of " recommendations by newspaper " I spgge§t, f4;1109-Jilugb confidence is reposesLiu the_ universal knowledge of the financial correspondent pr editor, who is being too frequently expected to fulfil -the role of the expert broker. Not long since I received from a correspondent (without even a stamped envelope for reply) a long list of possible securities and was invited to tick them off in the order of their merit and state :specifically which I thought was most likely to appreciate most in value Within the given period. Even if tie inclination had been' there—and I am afraid it was lacking—I should, if I had fulfilled the request with a due sense of responsibility, have certainly been corn- :pelted to consult an expert broker on the matter and while it is an easy thing to suggest " we „should i:dvise you Sell *C1 " or that S should not he retalied that " P is good for a quick rise," I doubt very much whether as a result of such communications from financial seers the pockets of the small investor are very often permanently enriched. ,.„ _
INDUSTRIAL. L.OpiRINES.
There is one general aspect. -abOut Industrial shares, however, which is :very well brought out in the latest quarterly review* the Britith; Foreign and Colonial Corporation, which-I thnik may very well be commended to the attention of those Who are really studying the possibilities of Industrial shares as investments. The article deals especially with some of the newer industries and also with the prospect of the status of many Industrial shares being raised as a consequence of well-considered combines, and especially combines that are not handi- capped by over-capitalization. For example, I suppose that if some fairly cautious investor had propounded the question to me some years ago.as to whether the X.Y.Z. Tobacco shares were regarded as coming in the investment class, I should have replied that while the company might be very prosperous and while the shares might rise further, they could not be regarded as in any sense an investment security. A rather different reply, however, would have to be given to-day in the case of some of the shares of the big tobacco combines (in which the smaller concerns have been fused) and so in other directions of the investment market—Imperial Chemicals to wit—it does not follow that after sensational movements in prices, which may or may not have overdisConnted future possibilities, the shares may not finally settle down into the investment rank. Indeed, we know that quite recently. one of the foremost statisticians of the day, and one eminent in the insurance world, drew attention to the manner in which careful selection might be made in the Industrial groups for shares worthy to be mixed in the lists of the best Insurance companies' investments.
STABILIZING PROFITS.
By this process of amalgamation not only are great economies often introduced, but by a judicious elimination of the prospects of excessive competition, the prospect of stability of profits is increased. Of course it must not be supposed for a moment that the intrinsic merits of an Industrial security can be judged merely from the point of size, for as a matter of fact the industrial cemetery abounds with records of disastrous combinations with huge capital. 'Nevertheless, in these matters, we learn something from experience, and I think that possi- bilities in the direction I have indicated may account, to some eictent; for some shares in. the Industrial groups having been pushed up to what seems an absurdly high level.
EFFECT ON GILT-EDGED STOCKS.
There is, moreover, a further thought which is very well brought out by the article to which I have referred, namely the possible effect upon the already acknowledged group of gilt-edged securities if' Industrials should increasingly come into the rank of investment _stocks. From what I am Wog to say 4 shoUld, not like it to be supposed that *TV11-4ndreft Sat lipeatinents.- ..(13ritishi)Roreign and. Oblonial Corporatiott, Greishinit StreetrE.C. 2.) . thexe_is_reason- to regard the-general outlook for British Funds and kindred securities other than favourably. All the same, it will be well to recognize that if new capital flotations continue to proceed with the activity which has characterized them during the last year or two, and if at the same time the area, so to speak, of investment descriptions is to be enlarged by the inclusion of the more important Industrial securities, any upward movement . in the gilt-edged class must almost necessarily be of a t somewhat slow and restrained character.
ARTHUR W. KIDDY.
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