13. Converting at the top and pro tect himself in the trade cycle, the investor should make two adjustments. At a point as near as possi ble to the bottom of a major downward movement of stocks, he should invest in those securities that will be affected favorably by improvement in business. Such investments are convertible bonds and seasoned dividend-paying stocks. As near as possible to the beginning of a prolonged downward movement of stocks, the investor should switch to the investments which are least affected by panics and depressions. In doing this, he should take care to secure invest ments which can readily be marketed when the time comes to convert back into the other class of holdings. Such securities are gilt-edged bonds and short-term notes. In connection with this use they are called "time money investments." This indicates their im portant characteristic, namely, that their price at any time is a reasonably pure function of the ruling rate of interest for time loans.
To make these two conversions of holdings and yet remain as safe as possible, the investor should dis regard small fluctuations, stay out of the market when the indications are not clear and watch for the top and bottom markets only. When convinced that business and finance have entered a period of im provement after one of depression, or are well along in a period of speculative excitement, he should convert. He should not strain after the last point, and should be content to adjust himself for the long pull.
14. Signs that the bottom has been signs that the bottom has been reached are indica tions that business has been cut down to adjustment with the capital resources of the country by a process of liquidation; that the banks are again in a sound and well-fortified condition; and that security values represent real property, productively efficient, and that there is not an excess capacity for the production of reasonable necessities and conveniences, according to a moderate scale of living.
15. Signs that the top has been top has been reached when security prices have capitalized the earnings of such an exceptionally high state of prosperity as if they were to be permanent earnings, and when bank loans approach parity with deposits, showing that further liquid funds are only to be had from the advance of bank capital and undivided sur plus. When the top has been reached, labor troubles are prominent, from the effort of wage-earners to keep ahead of the rising cost of living. Many divi dend increases are announced and many new promo tions appear. Imports are gaining on exports, if they have not overtaken them. The leaders of mar ket opinion are giving out interviews in opti mistic vein, but merchants are cutting down their stocks as rapidly as possible. Brokers are particu larly pressing with their offerings. By their wide spread advertising they show that the speculative fever has taken hold of many people. Extravagant living indicates that capital is not being saved to de velop industry further.