Meanings Of Expressions Used

Before proceeding, it is desirable to add a few words upon certain expressions which are necessarily employed throughout this book, throughout all treatises upon finance and business generally, and in all the concerns and arrangements of life. The meaning of many words is simple and limited, and easily competent of grasp, with full apprehension and ready application. With the extension and growing complexity of social and business relations other words require to be introduced to describe them; these words accordingly possess wider meanings, and frequently a set of meanings, bound together by a general sense, though showing slight shades of difference. And, as the affairs of life which need description amplify, the terms expressive of them tend to become more or less indefinite, so that, although a general sense can always be attached to them in their current use, the exact extent and definition of that sense cannot be obtained by reference to a dictionary, but must be interpreted on each occasion by the general knowledge and experience of persons in the class of cases to which they apply. Hence we had to employ such wide terms as "reasonable," "sufficient," "adequate," "success," and others. It is the same in the commonest affairs. What is "reasonable wear and tear" of a house or furniture which is lot? No one can define it with precision; and in any dispute which arises it has to be determined by the rough approximate notions - called comprehensively "common sense" - which persons have gained by practical observation of what constitutes fair, and ordinarily careful, usage (here, again, we must introduce vague words like "fair") and usage which is violent and unusual. The interpretation of these terms in business, or operations of a special nature, demands, of course, this native common sense, conjoined with skill and knowledge appropriate to the business or operations concerned.

The several criteria to be applied to a company prior to selection, which we have specified, appear to express an ideal condition.

This is true; but it is the well-founded boast of British trade, commerce and finance, that so preponderant a proportion of our undertakings virtually satisfy them all. So that gradually the history of a particular company grows and becomes consolidated in the business mind into what may be termed "general reputation," by which we are ordinarily guided in our judgments, without the necessity of minute investigation.

Investments To Bo Avoided By Ordinary Investors

Breweries, mines, shipping, telegraphs, iron, coal and steel. Many sound investments may be discovered here; prosperity, of course, depends largely upon the vicissitudes of home and foreign trade; and in the case of breweries, upon disastrous competition between themselves; the consequent unproductive creation of capital; the possibilities of restrictive legislation and the changes in popular habits of life and social views. The ordinary investor is advised to omit all these undertakings from his list; they require for a just discrimination too special a knowledge and vigilance of oversight for him to command. In companies largely or exclusively dependent upon particular social demands, or the requirement of certain articles or manufactures, a difficulty in judgment arises which claims examination in respect of (1) the public fashion or need changing or becoming modified whereby the demand for such commodities is affected; and (2) the possibility, if such an event occur, of additional capital requirements (which will tend to reduce the value of the existing capital invested) for adapting the machinery and processes (or completely changing them) in adjustment to the altered character of the demand.

Caution Necessary When Private Concern Becomes Joint Stock Company

Here, again, it is to be observed that when a flourishing private business is converted (as the definite tendency appears to be) into a joint stock undertaking, and the investor, on the knowledge of the past successful working, is tempted to invest in the new company, the chance is to be weighed whether the prosperity is likely to continue when the personal energy, cautious enterprise and tested ability of a small body of persons whose private position, personal honour and individual capital were at stake in the management, are supplanted by the (frequently) inferior sagacity and less stimulated power of supervision and administration of a different board and officials. If an investor is competent, on the change of constitution, to examine and assess the prospects, he will preferably select the debenture or higher preference stock, provided he find that a substantial annual margin of surplus revenue exists as a protection after payment of the interest upon the stated stocks. But at this initial stage of transformation exceptional care and caution are requisite.

Difference Between Peculator And General Investor

The position of a speculator and a general investor are here particularly distinguished; a speculator may possess special knowledge, or he may naturally assume that, for a time at least, the venture in its altered form will probably succeed; there are certain traditions and a solid good-will which, from mere custom, frequently remain attached to a transformed business or trade, especially if the former modes of work which have produced success continue; he will then watch for any signs of diminished public favour occurring from any cause, and then sell before a decline (if this should occur) should definitely set in. But this is not the right procedure for the usual investor; if he think well of the company from special knowledge he should defer his purchase of their debenture issue until, from the accounts and the general reputation which the business may maintain and augment, he feels reasonably assured of its established solidity and prosperity under the altered conditions of management. Delay may in all ventures miss a profit; but the confirmation of the habit of thoughtful delay - delay which means inquiry and scrutiny - wins in the end, and, at all events, helps to avoid precipitate losses.