"Intrinsic Value Of A Security."

I have frequently employed the phrase, "the intrinsic value of a security," irrespective of its varying changes. The phrase is valid. Where we possess reasonable grounds for judging - from character and financial resources - that the issuer (whatever it may be) of a bond or share is stable and prosperous, and likely, so far as human foresight can gauge, to continue in that state - so that the principal may be counted safe and the interest sure - the security in question may be rightly described as embodying intrinsic worth, and to be affected only by those consequences and vicissitudes which attend alike, in graduated degree, the soundest creations of man.

A Purchase Implies A Sale, And Vice Versa

In the course of variations in prices an elementary fact - so true as to have degenerated generally into a barren truism - is constantly forgotten: the fact that a purchase necessarily implies a sale, and a sale, a purchase. I am in no degree defending speculation as a practice and business: but I must judicially weigh the facts (as I shall more fully show in a subsequent chapter) which the course presents. I here refer to a proposition in illustration merely of hazy modes of thought. No investor is gratified to perceive his securities decline in value, and suggestions are not infrequently made that speculations for the "fall," or bear operations can be prohibited. Apart from the ridiculous impracticability of such a suggestion, the obvious statement which I have submitted fails to be remembered. If the prices fall by these sales, the careful investor buys and is thus benefited; and the existing investor is rendered hopeful of a sure recovery through the influence of the succeeding purchases involved in that process. Through the operation of the feelings which form the motive power of investing, the tendency is always to a condition of equilibrium or a level state of values; and perturbations at one time in one direction are invariably, where the security is intrinsically sound, rectified at another time in the restoration of the stable position.

Syndicates

Connected with these operations are various associations and acts whose object is, by systematic and organised procedure, to depress or elevate prices. A syndicate 1 is usually a body of speculators who make purchases or sales in combination in order to attach an apparent activity or adverse aspect to the values of particular stocks as an inducement to the unwary public - who imagine that the change of price is genuine to buy or sell according to the direction where the syndicate's expected profit lies. If the syndicate, for example, promote a rise by fictitious dealings, and the public respond by purchases at the increasing price, the syndicate sells at the profit thus created. These evil combinations are customarily attended by various devices and manoeuvres adapted to promote the designs of the operators. Rumours, for example, are circulated respecting the security - extolling or depreciating it as the case may be; pointing out promising prospects or the indications of vanishing prosperity: in short, whatever statements are likely to impress a credulous public with hope or apprehension. For the ordinary investor, generally speaking, is too frequently a vacillating and timid person, readily sensitive, where money is concerned, to sanguine or doleful feelings, without inquiring into causes; and upon him falls finally, as a rule, the burden of the losses which to the syndicate mean gains.

1 Syndicate : in the appropriation of this word to a class of financial transactions we seem to perceive a grim irony of use. The term is derived from syndic, which itself represents the Greek (from with, and justice) as denoting one who assisted in a Court of Justice; a subsequent meaning was that of advocating one's own cause. Comment may be safely omitted.

"Rigs" And "Corners."

These concerted manoeuvres, baseless rumours, fictitious dealings, are termed Bigs;1 and an incident in the working of rigs consists of the Corner.2 By means of these connected processes a combination of speculators may virtually (not virtuously) obtain possession of the whole of a particular class of stock - assuming, in the extreme case, that the total amount of that stock is comparatively limited and cannot be increased - and thus secure the control of its market. For those (external to the syndicate) who have sold the stock - probably in the expectation of a further fall, and accordingly the acquisition of a profit - thus find it impossible to procure a supply for delivery: they are then compelled, for the avoidance of bankruptcy, to purchase at any price which the syndicate may demand. In this hopeless condition the victims are said to be "cornered" or a "bear corner" has been created.

1 Rig: perhaps allied to a Scandinavian word, to cover, then applied to decoration with personal adornments; and here, in an ironic sense, the wrapping round of the fictitious procedure of a syndicate with the attractive semblance of reality.

2 Corner: derived from the Latin cornu, a horn, and applied to the resemblance to a horn presented by the meeting-place of converging sides or edges in space.