Natural Rank Of Water Debenture Stock

And now a word or two on those ordinary Industrial Debentures which have neither Monopoly, Charter, nor Guarantee at their back. Of these the natural rank is determined in quite a different way; namely, by the amount and quality of the Capital that lies at the back of the Debentures as their security. Indeed it may be said that they have no natural rank, but may lie anywhere in the gamut from the most gilt-edged of securities down to the fluctuating level of ordinary business shares. All will depend on the amount of tangible, realisable, industrial plant which, in the event of a break-up sale, lies behind them in each individual case.

Industrial Debentures Which Have No Natural Rank. Industrial Debentures After A Break-Up Sale

If, for example, the Capital at the back of these Debentures is sunk in tangible property, freehold or leasehold, land, buildings, or plant, with a relatively high break-up value on a forced sale, it is well; but if half of it, say, is made up of mere goodwill, or patent rights almost time-expired, or depends on the lives of managers of exceptional ability, it is not so well. But if the security of the Debentures rests almost entirely on goodwill, without a Monopoly property site of exceptional attractions to back it, or on businesses which have been paying exceptionally high dividends without exceptional qualifications whereby to limit or prevent competition, it must, in the swift, changing fluctuations of the modern industrial world, be not well at all. Mr. Lowenfeld, in his book {All About Investment), has admirably summed up the whole matter in a passage which runs to the following effect: "If Money is invested in the Debentures of such concerns as can show twice as much of their Capital in Preference and Ordinary shares as they have in their Debentures; in concerns which have, further, a ten or fifteen years' history of solid business with a narrow range of fluctuation; and, again, can show profits which will cover the interest of these Debentures at least three times over, and, besides, always keep a good deal more of cash or liquid assets on hand than will meet their current liabilities - then you may consider them as safe over a very considerable length of time as even the most gilt-edged of securities. For it would indeed go hard with them if, thus amply secured, the break-up value of their assets would not be sufficient to redeem the capital of these Debentures at their original price." Besides, as we shall see later, such Debentures are less subject to the intrusions of the political complications of the outside world, or the intrusions of home and local politics, than Government Securities themselves.

Money Invested In Debentures. Joint Stock Ordinary Shares A Speculation

As for the Ordinary shares of ordinary Joint Stock Companies, depending as they do on the ups and downs of commerce and industry at every point in their course, they may be said to be beyond the range of definite forecast either on their cost side or their selling side, either in the ordinary competition or in the new-inventions and processes which they may have to encounter, and so are and must be the subject-matter of speculation rather than of investment for stability and security, and need not concern us further here. Like pariahs, they have no inherent natural rank, but at best have to be taken on trust by all except those who have inside knowledge of their particular character and working. They are, indeed, the standing danger of the investing world, owing to the facility with which they lend themselves to fraud and delusion; and the only protection the public has against them lies in the knowledge of how to read their balance-sheets with penetration and discretion. The law itself has in recent years given the shareholders and the public every facility for forcing a full disclosure of the affairs of all these Limited Joint Stock Companies, whenever their audited balance-sheets are either too abstruse or obscure for adequate comprehension. But the shareholders rarely insist on this, and prefer rather to trust to the reports of their Boards of Directors, under the illusion that the interest of the directors and the shareholders must necessarily be one. It would be both interesting and appropriate at this point to retail some of the methods by which the books of a company are falsified by swindling directors, but as my space is limited I shall be obliged to defer this until some future occasion.

Importance Of Reading Balance-Sheets. Geographical Distribution Of Capital And Greater Revenue And Security

And now, having attempted to determine, in a rough kind of way, the relative natural rank of the various orders of stocks and securities, I shall proceed in the succeeding chapters to deal with a still more important aspect of our problem, and one, too, to which all we have as yet said leads up - namely, those principles, both of Money Markets and of Industrial Exchanges, which cause an inversion of this natural rank among securities, and so make a Geographical Distribution of Capital among the various nations and divisions of the world a source at once of greater revenue, greater stability, and greater security than the most gilt-edged stocks of any single nation.