At the present time we are witnessing events similar in principle to these happenings of fifty years ago. The great world-war has shaken the accepted adjustment of values like an earthquake. As a consequence of this there is likely to be speculative excitement in many fields. One of the first signs of it has been the rise in the stocks of all companies obtaining war contracts. This rise has not been confined to securities listed on the Exchange, for its most violent mani festations have shown themselves in unlisted properties. The stock of the Du Pont Powder Company, which was sell ing at about 170, has risen to 700 and fallen back to about 600.
6. Intrinsic influences.—That group of factors that are termed intrinsic influences is more susceptible of analysis than the first. The following classification will help to make clear what influences govern the in trinsic value or worth of a stock. Each of the head ings given will be treated separately.
(a) Business and money market conditions, includ ing the income-producing capacity of capital as rep resented by other forms of investment.
(b) The profitableness or fluctuations in profits of the general class of business engaged in. Some in dustries never make spectacular profits, but there are times when others, notably copper, oil, zinc and other mining companies, make huge profits, almost irre spective of the inherent soundness of the companies themselves.
(c) Management and character of the company— its financial structure; proportion of assets to capital; past, present and prospective earnings. This may be considered solely in relation to the company's position in its own special trade, as well as in connection with business and money market conditions.
(d) Anticipated or potential profits. Prices of stocks depend as much on these as on present or actual profits. If the dividends are limited, as in the case of many preferred stocks, then the primary price factor is the security of the dividend.
7. Business and money market whole body economic may be likened to an organism, in which every organ must perform its function if health and efficiency are to be maintained. If thru some mishap one organ becomes clogged, the whole organism suffers, to a greater or less extent, according to the nature of the trouble. In a similar manner, if there is a total or partial failure of crops, the stocks of railroads, milling and other industrial corporations fall in price. A decrease in a crop involves a cor
responding decrease in the revenue derived from its transportation, and also less work for the mills. This is probably the simplest illustration that can be given of the "general business conditions" that affect stock prices.
The reader will rightly conclude that if, in order to forecast stock prices, it is necessary to survey the whole field of business, including the income-producing ca pacity of other forms of investment,' he has no light undertaking. He will realize the fact all the more vividly when he knows that this set of factors is only one of many that must be taken into consideration.
8. Business the more impor tant indications of the general business situation are: size and conditions of crops, railroad earnings and traffic returns, bank clearings, pig iron production, ex ports and imports, trend of commodity prices, prob abilities of legislation on tariffs, trusts and other gov ernment regulation of business.
How the prices of stocks vary is shown by the chart on page 316. In this chart is given the aver age for each month of the highest daily prices of twenty railroads and twelve industrial stocks since January, In charts of this character the monthly average of the lowest price is frequently given. This informa tion is, however, only valuable when the charts are drawn on a larger scale than can be employed here. Where the scale is large the eye can grasp the range of variation, but on a small scale chart this cannot be done. The lines show peaks and valleys, as well as minor movements. The lines are broken for the months when the Stock Exchange was closed.
Now it is a well-known fact—one which the chart will serve to emphasize—that stock prices fluctuate more or less with varying business conditions. As time goes on, men will probably be able more ac curately to forecast these conditions. This is indi cated by the progress that has already been made in the study of the causes of crises, depressions and•pan ics. It appears from these studies that there is a cer tain amount of uniformity in the intervals between crises, and in certain of the accompanying phenomena. This fact has led to the suggestion that a law of their periodicity might be formulated. It is said that crises tend to recur, and that prosperity, crisis and depres sion succeed each other with such regularity as to warrant the use of the word cycle in this connection.