This section is from the "Everybody's Guide to Money Matters" book, by William Cotton. With a description of the various investments chiefly dealt in on the stock exchange, and the mode of dealing therein. Some account of the pitfalls prepared for the unwary, and suggestions to the cautious investor.
Any sums of money may be invested in, or any particular amount of stock purchased of, the Government Funds, through a broker or banker, and there is practically no limit to the quantity that may be held. In the books of the Bank of England an account is opened, and the name, address, and description of the investor carefully registered. A memorandum is given of the transaction, but it is of value only as such, not being in the nature of a certificate or receipt, and it is not required to be given up or produced in the event of a sale or transfer of the stock or any portion of it. Accounts may be opened in one, two, three, or four names, but not more, and four different accounts may be open at the same time in the same name or names, but they must be distinguished as accounts A, B, C, and D.
In order to sell stock the holder may attend at the Bank of England himself accompanied by his broker, and then and there have the transfer made and the money paid. But this would be unusual and held to imply mistrust, without perhaps occasion for it. The safest plan is for the holder to instruct his bankers to carry out the transaction, and give them a Power of Attorney to enable them to do so. A special form of power is provided by the Bank of England, the cost of which is 11s. 6d. The Inscribed or Registered Stocks of most of the Colonial Governments are dealt with in the same way, as well as Indian stocks and the stocks of many of our larger towns. The account of an investor may be added to or diminished at any time without difficulty or delay.
The stocks and shares of railway and other companies may be purchased through a broker or banker, and the holder passes them over to a buyer by a formal deed of transfer. The purchaser's name, address, and description are carefully registered in the books of the company, and he has then accepted all the responsibilities that may attach to the shares. For instance, the shares he has bought may be only partly paid up. The shares in railway companies are usually paid up in full, but it may so happen in an issue of new shares that they are paid up by periodical instalments; in which case what has already been paid is known as "scrip," and retains that name until developed into fully-paid shares. A company formed of £20 shares may have called up only £5 on each, and with no intention of demanding more, yet the holder is liable for £15 on every share he holds, and before he invests his money he should be careful to ascertain the full extent of his liability. Some little time after the transfer of the stock or shares has been completed, a certificate will be issued by the company, giving full particulars of the holding, and this certificate must be carefully preserved, as it will be required to be given up before all or any portion of the property can be sold. The Colonial, foreign, and other bonds payable to the bearer, which have been previously described, are purchasable through a broker or banker, and handed over without any transfer or other formality. Bonds of this description should be left in the safe custody of a banker, who would cut off and collect the interest coupons attached, as they became due.
As an example of the hazard incurred by keeping securities of this kind in one's own house, the writer remembers a case where a gentleman was examining in a room of his house, by the light of a candle, some bonds which he afterwards locked up in an iron safe. It was dark outside and the blind was drawn up, so that any one from the garden could see all that was going on in the room. Next morning the empty safe was found in the grounds and the contents had been carried off. All the particulars of the bonds were at once telegraphed to the Stock Exchange, the London banks, and the Police authorities. Some months afterwards the bonds turned up in the hands of a banker in London, who had received them from an agent abroad. An action was brought by the original owner for their recovery, but it was of no avail, as the securities had come into the hands of the banker in the course of regular business, and so the loser could get no redress and, moreover, had to pay a large amount in costs.
The broker, who is a member of the Stock Exchange, from the precautions taken on his admission, should be a responsible person, whom it would be safe to entrust with any business which might be put into his hands. His dealings, however, are chiefly on behalf of the bankers and outside brokers, acting for themselves and the public. There are numerous outside brokers (that is, brokers who are not members of the Stock Exchange) in London and all over the country. In every profession there are some doubtful members, and stockbroking has its fair share, but with ordinary vigilance on the part of their customers, wellestablished brokers will carry out their commissions faithfully and reasonably. As to the advice, however, a broker may have to offer in the way of investments, it must be remembered that he is no more than mortal, and would at times be prone to submit such securities as he himself, on behalf of a client, would most desire to dispose of. In this way, too, the country broker is liable to be pressed by his London agent to get rid of particular stocks or shares which hang heavy on hand. However, bearing this well in mind, an investor may gain much useful information from his broker, although for sound advice his banker is to be preferred.
Members of the Stock Exchange are not allowed to advertise themselves or their firms, but most of the daily newspapers in London have an agent in the house, either a jobber or broker, who furnishes to his principal for publication a daily report of the state of the markets and the current prices of the day, which in that way reach the eye of the public. It may be assumed that in the better class of journals the information thus afforded is perfectly trustworthy, although some years since one of the leading newspapers was imposed upon by its agent, who took advantage of his position to manipulate certain matters for his own ends. Less scrupulous publications, however, are freely made use of to influence the public, to cry up or prejudice the markets and particular concerns. The provincial broker, as a rule, limits his advertisement to the name and address of his firm, with a quotation of the prices of a few of the stocks mostly dealt in, and monthly, or quarterly, sends an extended list to his customers. The outside broker who advertises himself freely in the newspapers, as well as by pamphlets and circulars, is to be avoided. He will invite you to participate in his system -- always an infallible one -- of operating. He will suggest "options," "put and call," the "cover" system, and other devices by which the inexperienced may be mystified and beguiled into losing their money. However astute a man may consider himself, experience proves that, with amateurs, this kind of gambling is sure to result in loss.