Misplaced confidence has been ruinous to the small fortunes of thousands. Undoubtedly there are numerous bonds of Southern and Western municipalities as well as bonds of public service corporations, which present a minimum of risk, paying from 5% to 6%, but buy such only of bankers of long experience and good established reputations, and who are known carefully to follow rules and customs which years of practice have fixed as proper. It is partially from an attempt to explain such rules, so that one may select with intelligence, that the contents of this book are offered to the reader.

Again: let the careful thinker consider if there are not certain investments based upon the needs of this nation of great resources which must, in the very nature of things, be sound. Who was it that once said "a man will see a fly on a barn door and miss the door" ? Look at a map of the United States; do not get too near it; one, by so doing, sometimes sees the name of a small village, but does not see county or State names, which are in large letters. Consider this map from a broad and general standpoint; grasp, in your mind's eye, the enormous traffic of this country; the big arteries of transportation. It would seem that the bonds and many stocks of these large railroad lines should be reasonably safe, for these big systems carry commerce from ocean to ocean - if ill-advised state, governmental and political interference can be curbed - bringing the products of the West to the Eastern marts, and, also, in vast quantities for shipment to the European markets. They, likewise, transport the manufactures of the East to the West as well as to the steamship lines, in some instances controlled by these same railways, which pass them on to the Asiatic countries. Such immense traffic as this must furnish the basis for sound investment if anything can.

Unquestionably, there are almost countless small investments, here and there, which are safe and very profitable in interest return, but it is the belief on the part of so many that they have found just such a security which leads them astray. Better follow well-established rules and not be tempted by the wayside. No one may gainsay that there are not many gold and copper mines which are good, very good, but how often does the outsider get a chance to buy such a security at a legitimate price? When found to be beyond reasonable risk they are high in price. Certainly, many pay more than 3 1/2% or 4%, but it takes an expert to pick out the good ones among the multitude of mining issues for the benefit of the kind of investor referred to here. It is customary for reputable banking houses, handling mining securities, to first have the properties examined by competent engineers and other well-known experts. When this has been done, they have gone as far as possible for the protection of the purchaser, for no one can see into the ground beyond the property already developed. There is the ever prevalent element of risk in investments of this class.

If the temptation to buy mining investments of any kind is allowed to influence one, bear one very important point in mind, viz., that a mine is ever consuming itself, - so, likewise, are such properties as oil wells, quarries, etc., - and at some future time, the product must cease altogether, or the mine reach a depth too great for economical production. The shares of a mine, therefore, should not be valued entirely by dividends. A sufficient allowance should always be made for the exhausting of the mine's resources. In case of a bonded debt upon a mining property, the investor should be sure that there is a sufficient sinking fund set aside for the payment of this indebtedness, and this sinking fund should be ample to allow for the reduction in the mine's value, for the reasons given above. In relation to mining, it is probably true that "more money has been put into the ground than has been taken out of it."

Do not be argued into buying a mining security based on the location of the mine being near another similar property of established value.

Let not the fact that a security can be bought at a discount - less than its face value - alone entice you to a purchase. That in itself is no argument to buy. It should warn one even to a more careful scrutiny of the property back of the investment. It is a well-known fact that the suicidal policy of buying only at a discount wrecked one savings bank.

Do not judge the value of shares by one dividend or by an increase in the dividend rate. The value of shares based on dividend rates can only be ascertained by a period long enough to test the corporation's dividend paying ability through good times and bad. A corporation which has been, for a term of years, paying 7% per annum upon its shares, quoted on the market at 100, enjoys extraordinary good business which, for the time, warrants the increase of the semi-annual dividend rate from 3 1/2% to 4%f equal to 8% yearly. Speculators seize the opportunity to force the price of the stock to 114, at which price the increased dividend rate still equals only 7% return upon the investment. There is no certainty that 8% can be maintained, nevertheless up has gone the stock, and investors buy it more greedily at 114, yielding 7%, than they did at 100, yielding 7%. It will take fourteen years of the dividend increase to return the market value increase of the stock. Perhaps that is hardly a fair way of putting it, but it may cause people to hesitate before acting according to the belief that one swallow makes a summer. Stocks are forced up or down in the market upon the least excuse, and those close to the scene of action make money at the expense of those who allow themselves to be influenced by surface appearances, and who do not probe to the bottom for real conditions.

When an industrial business, which has been conducted as a partnership, is changed to an incorporated company, and the public is invited to buy its securities, the intending investor should ask himself: "Why, if the business was such a good one, did the old firm wish to let the public into its profits?" All kinds of plausible answers can be given to such questions, and, in many cases, the incorporation is justified. As a rule, however, such methods of financing industrial concerns are best justified where many firms or corporations, or both together, in the same line of business, are united under one management to reduce competition and expense. It is the capitalization of a single firm which is more to be guarded against. Even in the consolidation of several " industrials," it is essential to consider if the business is dependent for its success upon the continued management of some, or the greater part, of the original owners. If so, it is necessary if such a management is retained, that its ownership in the stock of the new company is sufficient to continue its interest to make the company a success, or some plan adopted to insure as good or better management of the whole as the integral parts had formerly. In this connection, the reader will do well to turn to the subject " Industrial Securities."