6. An immediate rise in price.—Along the same line of enhancing the attractiveness of the opportun ity without necessitating any consideration of the con ditions which affect earnings, is the device of warning the investor that the price of the stock is to be raised. The explanation is never made that the price which is to be raised is merely the issue price of the pro moter, and not the outside or open market price. As a matter of fact, there is very rarely an independent market price.
The following letter is typical of those urging in vestors to buy stock because the price may advance at any time: You received the preliminary prospectus that I sent you last week, didn't you? If you haven't you had better get one quick, for it tells all about the first public offering of 50,000 shares of the stock at thirty-seven and one-half (37Y20) cents per share. The minute the sale starts no stock can be had at a cent under 37%0 per share unless some of the pre-public offering stockholders decide to sell a portion of their holdings thru cut rate brokers and reap a profit that will let them carry — stock on velvet.
7. Profits of other business.—It is not a good sign when a prospectus enlarges upon the profits which have been made in businesses which are in no way related to the one under consideration. One firm of promoters in one of their letters detailed the history of the United Shoe Machinery Company. In a printed circular there appeared the story of the Pull man Company. In another letter the story of a share of the Singer Sewing Machine Company is given thus: There was a woman in a small town in Ohio, who had just lost her husband. Prior to his sickness, her husband was a man who believed in new enterprises, and from time to time he had speculated in a small way in creative enterprises, principally mining stocks.
At his death, after a rather long illness he left his wife destitute and considerably in debt. Among the creditors was a grocer who had given them credit to the extent of a hundred odd dollars.
The widow being an honest woman wanted to pay her debts and before leaving for her eastern home in Massa chusetts, she tendered the grocer some supposedly valueless stock certificates, among which was one share of Singer Sewing Machine stock.
The grocer accepted the certificates as full payment of his bill, realizing that he probably would receive nothing, otherwise. A few days later the grocer called up a broker, with whom he had transacted some business and found that one share of Singer Sewing Machine stock was the only one that had a market value, for which his broker bid $9.6.
The grocer logically said, "If this stock is worth $9.6 to someone else, it is worth that much to me!" He had the certificate transferred to his name and placed it among his valuable papers.
A little more than a year later, he received a dividend check for $6 and a stock dividend of 100 per cent or an additional share of stock. This opened the grocer's eyes and he again called on his broker in order to inquire the price of the stock, with the intention of purchasing a fair sized block, for he reasoned that a corporation that could pay 6 per cent and 100 per cent in stock should be an attractive investment.
When his broker told him that the stock was firm around $110 per share he at once figured that the stock was too high and again passed the opportunity of laying the foun dation of extreme wealth, for in a year he again received a 100 per cent stock and an 8 per cent cash dividend.
He again inquired the price of the stock only to find that the $110 stock of the year before was selling for $165 which he had rejected as out of the question on account of its high price.
These stock and cash dividends continued until he died four years ago, and his one share of stock had increased to sixty-four shares which were sold at $300 per share to settle up his estate, netting his heirs $19,200 which did not include the cash dividends received during the grocer's life.
What is the argument of all this? It is that the Singer Sewing Machine Company was once a great opportunity; the Company is another such en terprise; seize the opportunity.
However, there is a deeper play of policy than this. It has to do with the reader's sense of value. If a reader will feed his mind sufficiently with the details of stories of wealth quickly got—of 100 per cent dividends and of fortunes from single shares—he will become dissatisfied with the rate of interest on sav ings bank deposits, bonds and conservative invest ments. Then he will find nothing which will satisfy his fever to be rich quickly but the alluring pictures drawn by the artists of the fairy land of finance. His value sense will be destroyed. He will no longer be able to see things normally and rationally as they are.