General Movement In Value Of Money. People's Spending Power Controls The Realisable Values Of Stocks

"If, for example, Japanese Government Securities have risen five points, that means that Japanese Government Docks and Waterworks are likely to rise to a similar extent; or if the general rate of discount in Brazil has gone back, then local investments have gone up in value"; on the ground, I presume, as he elsewhere expresses it, that "the spending power of the people of a country is the dominating force which controls the realisable values of all stocks principally held in any one country." And he instances, in this connection, the case of the Taff Vale Railway, "whose dividends steadily increased, while the price of its stock declined."

Foreign Stocks More Stable Than British

So much, then, for the relative yield of different stocks. As for their relative width of fluctuation, he says that "in England few stocks are stable; but in France, Germany, Holland, Sweden, Norway, and even the United States, there are many. The fluctuation of first-class stocks in England ranges between twenty-five and forty points, in the other countries only between five and ten." This is important, and personally, on this ground, I should prefer to see more stocks invested in the European division perhaps than Mr. Lowenfeld is disposed to allow; but it is questionable whether they would not follow too closely the general European trade influence to get the advantage of an Insurance average, and whether the income from them would be sufficiently large, in spite of their otherwise greater security, to justify it. Incidentally, he remarks, apropos of the effect of different Money Markets on the price of stock, that a 4 per cent Debenture in

England Would Yield 5 Per Cent In Africa On The Same Security

On the other hand, as an example of the effect of different Trade movements on the price of stocks, he points out that Canada and India are unlike Australia (although they are all alike dominated by the same British Money Market); and that Belgium and Switzerland are also unlike, although they lie so close together.

Causes Of Stocks Rising Too High To Be Secure

Again, as bearing on his advice to sell out any stock when its price has risen too high for security, he says that there are two causes for a rise in stocks. The first is their improved intrinsic merits : this is a legitimate cause; but another cause equally potent is when some individual or group of individuals of great financial influence and authority announce that the future of the stock is bright: this is an illegitimate cause, and is the reason why many stocks go up too high for security.

Internal And External Causes Of Stock Affection

As for downright bad stocks, he says that "the loss through them would pay the National Debt in four years, in spite of the work given to builders and their workmen, which cannot compensate to any degree for the loss of the capital involved." He makes also a very necessary distinction between the internal causes that affect a stock and the external ones; and he affirms that of all the internal causes, which consist either of competition, mismanagement, or bad organisation (and which are four times as strong as the external causes in all old well-tried investments), the holders of the stock get ample warning. It is only in new ventures that the alterations in capital safety, in management, and in dividend-earning power, have a great influence on a stock; but even then, after the stock has settled down, the internal influences, he repeats, again prevail.

Advice To Converts To Geographical Distribution Of Capital

I might extend these remarks of Mr. Lowen-feld indefinitely had I the space, but enough will have been given to send the reader to his various books on Investment themselves. But I may perhaps add, before closing, that Mr. Lowenfeld asks the investors who have accepted his scheme to "carry it into effect by spreading out the map of the World before them and putting a pin in at 1, London; 2, San Francisco; 3, Tokio; 4, Cape Town; 5, Melbourne; 6, Mid-Atlantic (for shipping insurance, cables, etc.); 7, Europe (Italy, say); 8, North America; 9, South America (Buenos Ayres); 10, Europe North and South, with a pin at Berlin; 11, Central America (with the pin in the centre of Mexico)/' He then advises them "if the stock of the Italy pin, say, is above cost price the investor should sell it out and put it in an Austrian stock instead, if that country has credit below the normal. Or if the stock of Buenos Ayres is too high he should put it into that of Valparaiso, Rio Janeiro, or Para. But if not, then look out for a geographical division as far removed from these as possible."

Advice To The Investors Who Prefer Home Securities

On the other hand, to those investors who are still afraid of risking their capital in foreign countries, and will only consent to invest in their own, he has two pieces of advice to give. The first is that they can invest entirely in their own country "(1) if they will watch the variations of exports and imports; (2) the gold market; (3) the Board of Trade Returns; and (4) if they will realise their holdings during each cycle of prosperity, and wait for the cycle of depression to reinvest." His second piece of advice is addressed to the solid investor who makes the security of his capital his main object. He declares that the best substitute for Geographical Distribution is "(1) careful choice of varied local enterprises, with no two companies identical in their objects or trade interests; (2) all of them as far as possible removed from general trade fluctuations; (3) where the business is for the general population, and not for a few chosen individuals with whom the company does business."

With the above excellent advice we may now close our consideration of Mr. Lowenfeld's scheme of investment by the Geographical Distribution of Capital - a scheme which I can commend to the reader for its financial insight, penetration, originality, and, as I believe, essential truth. If not absolutely complete, other financial observers have now only to improve on it; but as a first and already well-tried scheme, and as developing, as Professor Bramer says, the "principles of a new science, Comparative Trade Statistics," it is beyond all praise.

I have neither experience nor authority to speak of the correctness or otherwise of its statistical details, but I agree entirely with its principles, and that frankly, because they run in harmony with my own system of Political Economy as embodied in my Wheel of Wealth.