GENERAL RULES Let us set down, in conclusion, a few rules which will serve to summarize the chapters which have gone before, and to suggest starting points for further studies on the part of the reader. These rules are not offered as final and complete pieces of armor, guaran teed to give complete protection against all the haz ards of financial fortune. They are rather a means of encouraging the reader to form the habit of sum marizing his reading and observation in practical fashion, and of driving his thinking thru to conclusions which are clear and powerful enough in his own mind to influence his conduct.
1. Thoroness.—A chief cause of the troubles which arise in operating a business is lack of thoroness thoroness in the mastery of the essential factors of any situation, in preparation before action, in the choice of a location, in the analysis of processes, in providing for all contingencies in contracts, leases and options, and in the study of the markets. Similarly a lack of thoroness in investment is the prolific mother of losses. Failure to study the underlying conditions, failure to master the significance of the signs of the barometers as they stand at a given period, failure to read the mortgages, trust deeds, franchises and other important documents which determine .liens, and the resort as a consequence to impulsive trading and whimsical experimentation on the market, can only lead to the same results which similar conduct would produce in any other field of endeavor.
2. Promotion versus is well to dis tinguish between investment and promotion. A min ing expert may reasonably handle a prospect; an in vestor should only hold shares in an established mine. A specialist in some branch of mechanics may prop erly develop a patented device; an investor should hold only the securities of established manufacturing cor porations. To put capital into an enterprise which has not yet a proved earning power is not investing but promoting.
3. The man behind the long before he died, J. P. Morgan said that he would not loan cap ital to a man without character, no matter what secur ity might be offered. As to pure investment, it may be said that, with the many undetermined elements in the American property law and the thousand and one causes of delay which American methods of trial procedure permit, often an unscrupulous man can largely deprive property of its power quickly and economically to satisfy debts. As to the earning power by which business property avoids the costs and wastes of liquidation, the intricacies of proprietor ship-accounting provide only too ample an opportun ity for a man, whose motives are not right, to disguise his operations. The best way to avoid the nervous
strain of suits at law and the complexities of falsified accounts is to analyze the character of the men to whom one proposes to intrust property.
4. Trustee system.—The approved method of rais ing funds for a new enterprise is to appoint a trustee, usually a bank or trust company. The trustee receives money and disburses it for purposes legitimate for the inauguration of the enterprise, or else returns it to the subscribers, less a specified maxi mum percentage for expenses of flotation. The re lations between the enterprise, the trustee and the subscriber, under such a method, are governed by a trustee's agreement, which the prospective subscriber would do well to examine.
5. Developing pro perties.—Different types of in vestment are appropriate for the different ages of a lifetime. It is proper for a young man to seek in vestments in growing regions, in young cities and in businesses of a promising future. The natural in crease of population, operating thru a couple of dec ades will both increase his capital, thereby accom modating the increasing expenses of middle life, and will enhance the security, as security should be en hanced in the investments of later life.
6. Speculation versus investment.—There is a dis tinction in the temperaments of capital owners, and there is a distinction between investment and specu lation, but guidance is available in the resources of or ganized knowledge. Mr. Henry Lowenfeld, in the British Financial Review of Reviews, of January, 1911, said: It has sometimes been asserted that there is no marked difference between investment and speculation. This was true at one time—before research, investigation and experi ment had raised investment to an exact science. There is now a very distinct line of demarcation between the two. The future result which any investment is likely to produce can now be gauged with a remarkable degree of accuracy, while there is no known means of foretelling how a specula tion will mature. Moreover, it has now been proved con clusively that investment and speculation cannot be com bined with any prospect of success ; for each must be con ducted from an entirely different standpoint in every es sential.