Who Is The Best Adviser ?

A large and varied number of securities - amply sufficient for the ordinary investor - can be chosen without difficulty, and in respect of these I purpose giving suitable hints for their selection. In some cases - those outside the usual range of what are termed "trustee" investments,1 though even in this class, as we shall see, discrimination should be used - advice will occasionally be desirable; and the question then arises, whence that advice should be sought? 1. As a preface to the following remarks I desire to promise that I have the highest respect for bankers and stockbrokers as an honourable and capable class of men, and when I add that they are not usually the most appropriate and helpful persons to consult, I base my statement exclusively upon the fact that their particular (specialised) training fails to qualify them for advising upon securities such as the investor whom I am addressing desires to secure and retain - securities, I mean, which may not always be readily saleable, - the investor rather looking, as a rule, to investments which, thoroughly sound, are not subject to incessant fluctuations, and hence preserve a more stable level of value.

1 "Trustee" investments. A word of practical value may here be added. In pursuance of the Rule of the Supreme Court (issued in 1888), the Colonial Stock Act of 1900, and the Act of Parliament passed in 1803, trustees are authorised to invest their fiduciary funds in certain specified securities. These enactments protect the trustees if any depreciation or loss should occur; but it does not inevitably follow that the investments prescribed are all of the highest and most acceptable character. They were selected by persons whose judgment was necessarily fallible, and whose foresight was naturally limited ; and any particular investment fully worthy of selection at the time of authorisation by the Acts and Rule may, in the lapse of time, forfeit the right to a standard position of security. No reflection whatever is intended to be cast upon the judiciousness of the stated category of suitable stocks: all I desire to express is, that the investor should not simply be guided by the List as an infallible rule, but should exercise discretion and judgment in making a selection from it.

The Banker?

2. The banker's chief and legitimate aim in his business, and the specific mode of his training, is the readily realisable form of investments, so that if a sudden and large demand should be made upon the bank - a "run," as it is termed - for coin (that is, the return of the deposits of money made by his customers) he may be able to satisfy it by selling securities; hence he has a natural and proper tendency to restrict his investments to those which can thus easily be disposed of. If a time of want of credit or trust in respect of a particular bank or of banks generally should occur, all the customers, or a large section of them, might simultaneously, under the stress of fear, require the deposits which they had committed to the keeping of the banks - and which the banks would lend in advances to other customers, - and hence it is needful that their Stock Exchange securities should be of such a character as to be immediately convertible into cash (i. e. sold) in order to meet the call.

The advances to customers, again, which constitute an essential part of a banker's business, are very limited in their duration, so that the notion of brief and ready engagements pervades the whole of his operations. It may happen, too, that no distrust is felt about the bank's stability in itself, but if a general want of confidence is produced respecting the solvency of commercial firms and their power to fulfil their contracts, the same demand may be made upon the banks, since the public are afraid that their deposits may have been lent to the people they doubt, and thus prove unsafe. Hence a widespread claim against banks - though in no degree originating in distrust of the banks themselves - for the refund of moneys deposited. (It is irrelevant here to allude to the effect upon the saleability of the bank's securities entailed by general commercial discredit which would necessarily affect the exchangeability of such stocks and shares.) From his professional training, accordingly, the banker's habit of mind is to concentrate attention mainly upon the prompt sale of an investment, and we all know how diffi-cult it is to divest ourselves of fixed modes of regard and to adopt a different view. What the prudent and far-seeing investor requires is not so much the quick conversion of his security as its permanent solidity and a reasonable return of interest.