Success Dependent On The Closest Analysis

My point is that while Insurance Companies could almost dispense with all distinctions of risks whatever, provided they had mere gross numbers enough of lives to pour into them; a Geographical Distribution of Capital can only succeed in proportion to the discrimination, accuracy, and completeness with which each factor or element involved in the problem is separately analysed and grasped in relation to every other and to the whole.

The Only Existing Scheme Of Geographical Distribution Of Capital

Such, in bald outline, is a brief summary of the principles which, in my judgment, ought to preside over a Geographical Distribution of Capital; and before closing this already too lengthy dissertation it would be well to consider to what extent they have been embodied in any detailed existing scheme. The only one of which I have any cognisance is that of Mr. Henry Lowenfeld, as unfolded in his various books on Investments; a scheme the essentials of which were subsequently carried out by the late Sir Edward Law, when engaged in his capacity as director, in investing the huge surplus funds of one of our most important Insurance Companies. Personally, I am much indebted to Mr. Lowenfeld for being the first to suggest to me the various elements which, as a practical investor, he had found entering into the composition of share values, as well as into their

Mode Of Action; And For Suggesting Them To Me As A Proper Subject For The Science Of Finance

I propose, therefore, to wind up this dissertation by giving an outline of his scheme; but before doing so I shall sum up Sir Edward Law's leading maxims in his own words, in order that the reader may have the opportunity of comparing the relative positions occupied on this problem of investment by a speculative economist like myself, on the one hand, and a practical financier on the other, and of observing how closely their conclusions coincide.

Sir Edward Law On Geographical Distribution

The first of Sir Edward Law's principles is that the stocks selected for an investment list should not all be confined to one market; the second is that the group of stocks selected should be distributed among different countries; the third, that they should belong to different categories; the fourth, that the total sum invested should be fairly equally divided among the various classes of stocks selected; the fifth, that the number of stocks selected should vary in proportion to the sum to be invested, and that the small investments should comprise at least four or five different categories of stock, the more ordinary of these categories comprising Government, Municipal, Railway, Shipping, Banks, and Industrial, the latter including in general terms not only Manufacturing Industries, but also Gas and Water Stocks, Harbour Trusts, Telegraphs and Telephones, etc.; the sixth, that each individual stock should offer good security in itself; and the seventh, that the past history of the stocks selected should show that the fluctuations of the individual securities have all kept approximately within the same limits of width of variation. And his conclusion is that "if all these conditions be fulfilled, whilst no guarantee can be given for the future of any particular stock, it is fairly certain that if some prove bad bargains, others will increase in value, and that the law of averages will assure a far more reliable collective result than any likely to be attained by the most careful selection of securities, based solely on apparent respective individual worth."

Law Of Averages And Geographical Distribution Of Capital

To these first principles of Sir Edward Law I can only add - what indeed must be evident from all I have already said on my own account - that I unhesitatingly subscribe. In the next chapter we will consider Mr. Lowenfeld's scheme.