Proxy

A person who is empowered to represent another in a given matter; the name is also given to the instrument by which a person is empowered so to act.

A person who votes by proxy on stock belonging to another is said to hold a proxy en the stock.

A put (on a stock) is a contract or written agreement binding the issuer to receive from the holder, stock named in the agreement within a certain time at a certain price if the holder shall so demand, or in other words, shall elect to deliver (put) the stock. For example, A signs a promise to receive 100 shares of some specified stock from B at 100 at any time within 60 days if B so demands. A sells this promise to B for, say $100. If, within the 60 days, the stock falls in price so that B can buy it at a profit, B buys it at the lower price and calls on A to receive the stock. The stock must go below 99 before there is a profit for B. If the stock advances or does not fall below 99, B, of course, does not deliver (put) it and A makes $100 on his risk. In delivering the stock B must give one day's notice, except on the last day, when no notice is required.

If a dividend becomes due on a stock during the pendency of a put on it the dividend goes to the seller of the put if the stock is put (delivered) to him. A dividend always goes with the stock.

A put on grain or any other speculative commodity is based on the same general principle as in the case of stocks.

A system of enlarging operations by use of paper profits (profits in transactions not yet closed and consequently not yet in hand).

Illustration

One hundred shares of stock of the par value of 100 is bought at 10 on a margin of 5%. The stock advances to 15. There is a profit of 5% which can be used as margin in the purchase of 100 shares more. The price goes up to 20. There is then a profit of 5% on the second lot and an additional profit of 5% on the first lot, so that there is an unencumbered profit of 10% on 100 shares or 5% on 200 shares. The profit is utilized as margin for the purchase of 200 shares more. The price goes up to 25. Then there is an unencumbered profit of 5% on the whole 400 shares or 20% on 100 shares. This profit is used to buy 400 shares more.

Then, perhaps, the price drops to 20. There being only 5% margin on the whole 800 shares the whole accumulated profit of $3,500 disappears, as well as the margin of 5% provided for the purchase of the first 100 shares. Should the price go on up to 30, however, the profits would be increased by $4,000, which would provide 5% margin for 800 shares more of stock, making the total amount of stock held 1,600 shares, 1,500 of which would have been purchased with profits.

Selling stock at intervals on a decline, using profits for margin, is pyramiding, as well as buying it on profits on an advance.

In compiling railroad reports the total earnings or receipts from traffic are set down as gross earnings and the remainder, after deducting operating expenses (cost of handling traffic), is net earnings. To net earnings is added other income (usually derived from investments, which are often in the form of securities held to control other roads) and the total is gross income (as distinguished from gross earnings). From gross income are paid rentals and other charges, interest requirements (commonly called fixed charges), etc. The remainder is designated as net income. From it are paid dividends and what is left is surplus.

In reporting gross earnings it is the practice to divide each month into four weeks. The first seven days are counted as the first week, the second seven days as the second week and the third seven days as the third week, while the remaining days of the month are counted as the fourth week. In a month of 30 days the fourth week consists of nine days, and in a month of 31 days it consists of ten days. Thus, the fourth week may contain two Sundays.

The custom is to compare railroad earnings in a given period with those in the corresponding period in the year before. Railroad traffic is light on Sunday, so that when a fourth week containing two Sundays is compared with a fourth week containing only one Sunday, or vice versa, allowance must be made for the difference in the number of working days (week days). Likewise, in a monthly report of earnings a month may contain five Sundays, whereas the same month in the preceding year may have contained only four Sundays, or the reverse.

A railroad as a rule makes a weekly report of gross earnings; it makes a monthly report of gross and net earnings, with deductions for charges of all kinds, so that a monthly report takes account of everything in the month in question; and finally, the road makes a yearly (annual) report which is a consolidation of the twelve monthly reports with details added, and with remarks by the president and other officials.

Sometimes called simple adjustment; a readjustment is when the financial reconstruction or rehabilitation of a railroad or other corporation is voluntary - that is, by concurrence of the security holders. Reorganization, as distinguished from readjustment, is when the financial reconstruction is compulsory - that is, when it is effected by a receivership and foreclosure.

In a readjustment (a financial reconstruction that is voluntary) bondholders may exchange their bonds for new bonds bearing a lower rate of interest than the old ones, but in such a case the loss in interest is compensated for by the delivery to the holders of the bonds who make the exchange of a bonus in (a gift of) stock or in some other security, such as income bonds (income bonds receive interest only if earned). Or, the bondholders may exchange their bonds for a smaller amount of new bonds, receiving stock or income bonds as compensation for the surrender of a portion of their holdings.

Again, cumulative stock may be exchanged for a larger amount of non-cumulative stock. Or, the exchange may be on even terms, with compensation for the surrender of the cumulative right on the stock.

The compensation usually takes the form of a bonus of some kind as, for instance, income bonds.

Financial readjustments without foreclosure to enforce them are not numerous.

Bonds and stocks, the holders of which agree to accept the terms of a readjustment plan, are termed assenting bonds and stock; bonds and stock the holders of which do not accept the terms of a readjustment plan are termed nonnassenting or unassenting bonds and stock.