First : Security of principal and interest, or the assur ance of receiving the principal and interest when due.
Second: Rate of income; or the net return which is real ized on the actual amount of money invested.
Third: Convertibility into cash, with which is included availability as collateral.
Fourth: Minimum fluctuation, or stability of market price.
Fifth: Prospect of appreciation in value.
These five qualities are present in different degrees in every investment, and the scientific investor always selects securities in accordance with the qualities upon which he desires to place emphasis. The average investor does not thoroly realize that a high degree of one quality implies a lower degree of other qualities. He may have a general impression that a security which pays unusually well is likely to be somewhat unsafe, but he rarely applies the same reasoning to other characteristics. For example, it is quite common to find a private investor who wishes to make a permanent investment, and has no thought of reselling, buy ing bonds which possess in a high degree the quality of convertibility. From his point of view, this is pure waste. A high degree of convertibility is only obtained at the sacri fice of some other quality, usually rate of income. If this investor more thoroly understood this point, he would buy an inactive bond of equal safety and higher yield, thus increasing his income at the expense of a quality which he does not need.
20. Convertibility.—There is, perhaps, a general tendency to over-buy convertibility, especially as that quality is conferred by listing on some prominent stock exchange.. The more any particular employ ment of capital is a speculation rather than an invest ment, the more important the feature of convertibil ity becomes, for speculation is the effort to profit by changes of market price rather than from income earned by the productive use of the capital in in dustry. When the investor converts into time money propositions at the top of the market, he should give greater attention to marketability than when he purchases stocks at the bottom. •
21. Sources of investor will find the records of market prices in the Wall Street Journal and the Commercial and Financial Chron icle. Abbreviated lists are published in most New York, Boston and Chicago papers. Among invest ment periodicals, Moody's Magazine and the Maga zine of Wall Street may be mentioned. There are two manuals which compile annually the essential in formation contained in corporation reports. These are "Moody's Manual of Railroads and Corporation Securities," and "Poor's Manual of Railroads." Much information can be compiled at little expense by writing at frequent intervals for the special cir culars and analyses advertised by bond houses.
The investor should not learn ticker terminology and he should avoid forming the habit of ruminating daily on the shifts he can make in his securities.
22. Investment and most im portant of all, care should be taken to choose an honor able and powerful bond house. Such a house will serve not only as a source of supply, but as a counselor before purchase, and a means of securing full current information regularly after purchase.
"An investment banker," says Mr. James Sheldon of Lee, Higginson and Company, "is one who sells with his recommendation a bond which he owns, hav ing purchased and paid for it after critical examina tion. He serves the lender with his advice, his ex perienced organization, his expert staff and his financial resources. His feeling of responsibility continues until the bond is paid, principal and in terest." In recent decades, a great elaboration of the forms of promoting and property management has been going on in this country. In consequence, the in vestor has found himself assailed on all sides with the propositions of bidders who are rivals for his money. He has been unable to increase his knowledge as rapidly as the situation has increased in complexity. In making an unaided choice he is unable to analyze these various types of enterprise sufficiently to safe guard himself. V His position may be graphically pic tured by Figure 8.