Sub-Dividing The Group

The first of these cross-divisions connects the countries which trade with each other and supply one another's wants, and so are reciprocally affected by one another's prosperity or adversity. The second of the cross-divisions connects the countries the bulk of whose shares are dealt with on the same Stock Exchange, as, for example, our Colonies and India, which have the London Stock Exchange for their centre, thus marking the effect of the Money Market on the loans and debentures of our investment list when these latter are otherwise adequately secured on their industrial side. The third of these cross-divisions connects the countries whose natural resources, like those, for instance, of Brazil and Argentina, are rich, but where the capital necessary for their development is insufficient, with others, like England, where capital is overflowing, but fresh openings for it at home are not forthcoming; thus marking the parts of the earth where loans on private industries - as distinct from Government or Corporation Loans - can be planted with the assurance of a high yield of interest. And the last cross-division, the one with the most universal and all-pervading importance, is between those countries whose Government Loans pay a high rate of interest and those which pay a medium or a low rate; for the Government rate of any particular country, like a higher or lower pitched key, will raise or depress the value of all stocks whatever in that country, even after Money Markets, Stock Exchanges, Trade Currents, and purely Industrial Security have produced each its own proper effect, and done its best or worst with them.

Overflow Of Capital In England. Security Of Industrial Basis For Loans

Here, then, is a complex of separate definite principles and conditions, playing into and around each particular stock of each and every country, and modifying the natural industrial or commercial value of each stock on an investment list. If, then, the industrial basis for the loans and debentures of our investment list is so fully secured as to be above suspicion or reproach, it is evident that we must depend for our average yield of income from them on the way in which we balance the influence of these various Trade Currents, Money Markets, Stock Exchanges, and Government Securities of the different countries against each other.

Larger Yield And Equal Security

If this be accurately and skilfully done, there is no reason why the prudent investor should not be certain of getting a larger yield of income, with equal stability and security, from a Geographical Distribution of Capital than from any other mode of investment. It is thoroughly scientific in character, inasmuch as there is nothing haphazard in the selection of its list of stocks; and, besides, all the factors that enter into the problem can be sufficiently well known from day to day, month to month, and year to year, from the reports of Money Markets, Stock Exchanges, Trade Statistics, and Government Loans. For in the art with which it balances these factors of a few stocks against each other, it resembles rather, as I have said, the hedging of the scientific bookmaker than the averaging of the ordinary Insurance Companies.

Personal Judgment In The Selection Of Stocks

Like the horses in a race, the number of stocks in an investment list are few in number; while the qualities of the horses, their past records and present form, the jockeys that ride them, the length of the course, the nature of the ground, etc., correspond to the past history and present quotations of the stocks, and to the Money

Markets, Stock Exchanges, and Trade Currents which ride and dominate them. The weighing and combining of the points for or against the horses in order to determine the odds given or taken, and so to give balance and symmetry, stability and security to a book, depend on personal judgment and penetration; so, too, do the weighing and combining of the points for or against a stock, and the giving to this stock its proper place in the balance and symmetry of the investment list as a whole.

The Problem Of Geographical Distribution Of Capital

The problem of a scientific Geographical Distribution of Capital, in a word, is the problem of the scientific selection, by means of personal discretion and judgment, of a small number of stocks which, under conditions of great complexity, and an immense number of possible combinations, will balance each other's risks. In an ordinary Insurance Company, on the other hand, the problem is, how to pack into a small number of generalised categories of risks such a large number of miscellaneous lives, thrown helter-skelter in, as will neutralise each other's risks by their numbers alone, without the intervention of any further personal discretion or judgment in the matter. Of course, the more definite and accurate the categories of any classified risks, even of an Insurance Company, the better.