10. Quotations.—A characteristic quotation sheet of foreign investments, as issued by Bull and El dredge, of New York City, for August 14, 1916, is as follows: 11. Scientific distribution of investment.—These various foreign securities, which are now placed within the reach of the American investor, give him for the first time an opportunity to neutralize the hazard of the violent ups and downs of American finance thru distributing his investments over the international field. The investors of Europe have practised such a system of distribution between countries for some time. The essential principles of distribution have been thus formulated by Sir E. F. G. Law, in the English Financial Review of Reviews of November, 1907: To give fair play to the law of average in the selection of stocks for investment, care must be taken that cur rent dealings in all those chosen shall not be influenced solely by a single market; (2) that they shall be distributed among different countries ; (3) that they shall belong to different categories ; (4) that the total sum invested should be fairly equally divided among the different stocks ; (5) that the number of stocks selected must vary in proportion to the sum to be invested, but should never be less than four or five, in the smallest investments ; (6) that each individual stock should, as far as possible to anticipate, offer good security; and (7) that the past history of the stocks selected should show that the fluctuations of the individual securities have all kept approximately within the same limits of width of variation.
With reference to the first rule, namely, that deal ings in investments should not be restricted entirely to one market, the writer says further: Each market is in turn affected by two main classes of influence—political and economic. If a country is at war, or even threatened with war, the reality or prospect of a large increase in the national indebtedness must affect its credit and the price of its Government stocks, and the de preciation of these must react on practically all other securi ties which find their chief market on its Exchanges. Again,
if the Government of a country should, rightly or wrongly, be considered to be unable or unwilling to protect rights of property, it is evident that capital, if not definitely with drawn for investment abroad, will be too timid to risk new ventures, and financial and commercial depression with de preciation of stocks will follow in due course. The fore going are self-evident political causes of financial deprecia tion which have been frequently exemplified in recent years. As regards possible economic causes, it is sufficient to cite the failure of staple crops, owing to droughts or other un propitious climatic influences, and the ruin in one country of an important industry thru the development of the same industry in another country under more favorable condi tions as, for instance, the crisis in Sicily, due to the suc cessful competition of American with Sicilian sulphur. Any number of economic changes might be quoted which have materially affected the prosperity of various countries at different times, and the result of which has been to limit the investing power of the public and, therefore, to cause a general depression in the respective investment markets. When trade is depressed, savings are restricted and the amount of capital seeking investment becomes very limited ; in such circumstances the supply of securities soon exceeds the demands of investors, and consequently, irrespective of the intrinsic merits of individual stocks, there is a general fall in prices on the Stock Exchange. The advisability of distribution of investments among stocks dealt in on different markets is apparent.
This subject of distribution of investments will be referred to again in the last chapter of this book.