IN this chapter I (On The Natural Value Of Different Stocks: Banks And Insurance Companies) have now to sum up this somewhat lengthy dissertation on Stocks, Money Markets, Exchanges, etc., with the object of ascertaining, if possible, whether some sound practical scheme of investment, with a definite code of guiding rules and principles as its embodiment, may not be constructed out of it all.

Concerning The Possibility Of Scientific Investment

I am aware, of course, that amid so heterogeneous a diversity of principles, positions, and points of view as we have already discussed, it is impossible to find any one principle so central and commanding as to form the nucleus of a scientific scheme of investment, especially as so many of these principles are bound up with the risks and contingencies of a future which at best, especially in matters of business, can only be imperfectly foreseen. But this very impossibility itself suggests the hope that perhaps the opposite method may be more successful, viz., of leaving the separate heterogeneous principles standing as they are, each on its own independent footing and with its own special risks attached to it, and then treating the whole after the manner of an Insurance Company, where, by the application of the Law of Probabilities, the risks attaching to each can be made so to neutralise and balance each other that a solid deposit will be left over to the good. It is at bottom the old familiar method of getting rid of the business risks of any special concern by putting your investment eggs into different baskets; like the bookmakers who, by balancing a certain number of horses against each other and laying their bets accordingly, manage to make almost a scientific certainty out of a business where the most expert judgment of form and running is likely in the end to lead its possessor, if he relies on it entirely, into bankruptcy.

Geographical Distribution And The Problem Of Investment

Now, I venture to believe that in some scheme of this kind will be found the solution of the Problem of Investment, provided always that you can either make the principles, methods, and conditions of your scheme of investment run on "all fours," as it were, with the condition of things which obtains in, and makes the success of, Insurance Companies; or, if this is not possible, that you can supply what is missing by something of equal if not greater precision and certainty. And, accordingly, it is to the resemblances and differences between the principles on which an Insurance Company is based, and those on which a Geographical Distribution of Capital relies, that I would now direct the reader's attention.

Geographical Distribution Of Capital Compared With Life Insurance

To begin with, then, I may remark that the different categories of risks into which the individual stocks and shares of a Geographical Distribution of Capital are thrown, are not only as definite in character as the categories of risks into which the miscellaneous lives of individual men are poured in a Life Insurance Company, but are more in number. Let us take them in order and follow them from point to point; bearing in mind always that it is the degree of definiteness and limitation that can be imposed on the separate factors of any complex problem that marks the extent to which our conclusions can be reduced to a scientific probability or certainty.

Insurance Companies Dominated By Length Of Human Life

Now, the first and supreme limitation of all Insurance Companies, and the one which dominates all the rest, is the limitation in the length of human life in general. Were this two hundred years, or onwards to . the age of Methuselah himself, instead of practically some eighty or ninety years, the table of risks on which the law of averages and probabilities has to operate, and on which the success of

Universal Depreciation Impossible In Geographical Distribution Of Capital

Insurance Companies depends, would have to be reconstituted from top to bottom. Is there, then, anything corresponding to this, and having a parallel precision and definiteness, in any possible scheme of Geographical Distribution of Capital among the different nations of the world? Yes; and it is to be found in the steady amount of trade which is always being transacted in the world as a whole and which is continually being redistributed among the different nations. This trade not only remains steady as a whole, but, owing to the gradual increase of the population of the world, is, as statistics show, steadily rising in amount, giving the investor assurance that if it is declining in one region of the globe it will, like the atmosphere, be correspondingly heaped up in another; and so makes a universal depreciation or slump at any time in all the securities embraced in a Geographical Distribution of Capital impossible.

In this way the prudent investor gets the same kind of solid support for the balancing of his risks against each other in a Geographical Distribution of his Capital as is given in Insurance Companies by the general equality in the length of human life; and from this supreme certainty as we come down the scale, all the other categories of risks hang suspended, and have to be estimated in reference to it as their fixed point. But these other categories can not only be as strictly limited and defined in a Geographical Distribution of Capital as in a Life Insurance Company; there are also more of them for the investor to catch hold of, as it were, and so help himself to a more accurate forecast of the future of his investments.