Sec. 333. To buy when prices are low, and to sell when prices are high, is most consistent with reason; but the temptation is to speculate in high prices with the expectation of their rising still higher. While there is often large gains in speculating at high prices, there is also great risk, and the property or article must be disposed of speedily. The last purchaser will be unable to sell or must sell at a loss.

Sec. 334. The speculator has little to fear from competition, for "he who has the folly of mankind for an inheritance has a plentiful estate." The great object of speculation is to substitute sagacity for toil and foresight for stupidity, and there are only a few men who are fitted by nature and training for the role of the speculator.

Sec. 335. (Part of the foregoing is adapted from a paper by a merchant of Boston, quoted in Freedley's Treatise on Business.)

Sec. 336. The word speculation, as generally used, means the investing of money at the risk of loss, on a chance of unusual gain, and is characterized by a strenuous endeavor to penetrate the riddle of chance and to discover some clew by which to read the future. An absolute distinction cannot be made between speculation and gambling, although the latter has only the evils and none of the virtues of speculation. Gambling throws patient industry to the winds, fascinates those who engage in it by an unending series of shallow uncertainties and thoughtless surprises fit to tickle the feeble wits of savages and degenerate types of the human family.

Sec. 337. The speculator rarely realizes the full extent of his anticipations. The future is uncertain, and his beliefs in regard to what it holds in store for him are likely to be formed according to his most favorable desires. The most brilliant good fortune which may result from the operations of a speculator generally fall below his anticipations, when the operations are reduced to figures. It appears that the imagination gets, as it were, diseased by feeding on the contemplation of very rapid gains; and that whatever may be the reality of a hypothetical gain, the mind gets bewildered and fails to estimate, as an element of loss, the surrounding husks in which the fruit is enclosed. (Jones' Economic Crises, and Cramp's Theory of Stock Exchange Speculation.)

Sec. 338. The four chief causes contributing to the present prevailing mania for riches are set down by Prof. Taussig as the following: Love of comfort, desire for distinction, the impulse to continue in active life, and the passion for power.

Sec. 339. Some one may inquire: "What is value, and how am I to get acquainted with 'good values ?' " Value is the desirability, worth or utility of anything. The president of a bank, when asked by a young clerk how to distinguish bad bills from good ones, said: "Get acquainted with good bills and you will recognize the bad ones at sight." And so the investor, in buying, should study what elements constitute good values and he will instinctively avoid bad values. A person who is termed a shrewd buyer is one who really knows values - whose buying instinct or ability has been developed by a careful study of the real estate market.

Sec. 340. There is no better investment than real property in growing cities. The arguments in favor of business property as an investment are well set forth in a booklet issued by the Trustee Company of Los Angeles, as follows: The best investment should possess the following elements, viz:

1. It should be safe.

2. It should have a satisfactory earning power.

3. It should have an increasing value.

4. It should not be subject to depreciation in earning power.

5. It should be easily convertible into cash.

6. It should be free from care and expense.

Every investment should be tested in the light of the above elements, to determine whether or not it is the best. No investment possesses so many of these elements as business property, because:

1. In a growing city, investments in centrally located business property are absolutely safe.

2. The earning power is larger than in any other safe investment.

3. There is a very large increasing value in business property.

4. Well located business property, properly improved, in a live city, is not subject to depreciation. Any depreciation of permanent buildings is small, and is more than balanced by the large appreciation of the ground value. In such investments the earning power increases yearly.

5. In large cities there is a standard of values in the business section, which enables an owner to convert business property into cash at its reasonable market value. However, it requires a considerable length of time to find a purchaser, on account of the magnitude of such transactions and the large amount of capital required to handle them.

6. Business property is subject to the usual care, trouble and expense incident to the management of all real property, in dealing with tenants, paying taxes, providing insurance, making repairs, etc.

Sec. 341. To enable an investor, whether his capital be large or small, to invest in business property, a new method has been devised whereby a corporation purchases a piece of business property, improves it, leases it, and divides the cost of the ground and building into a definite number of units, which are represented by an equal number of certified investment bonds. These bonds are secured by a deed of trust on the property, and the owners of the bonds receive interest on their investment at the rate of say 5 per cent per annum, payable quarterly or semi-annually, and also two-thirds of the surplus net earnings, the remaining one-third of the net surplus being retained by the company as compensation for its services in caring for the property. These investment bonds are not subject to taxation, and can be registered, transferred at will, and used as collateral security. The company assumes all care and trouble incident to the management of the property.

Sec. 342. Syndicating properties, as the phrase is commonly understood with reference to real estate deals, is done by agents obtaining options for a certain length of time on certain properties and then unloading such properties at a higher figure, before the options expire, on to an aggregation of individuals called a syndicate. Agents work the syndicate proposition in this way: Having secured options from some of their friends, probably without consideration, on property in a district in which great improvements in the building line are to be made by somebody in the near future, they go to others of their acquaintance who are inclined to speculate in real estate, and state that they are forming a syndicate to take over the properties at a certain figure (generally at a price that will allow the agent a handsome commission) and descant on the profits that can be made when the proposed improvements materialize. This might be very well if the agents would make and maintain the same price to all of the members of the proposed syndicate; but unfortunately, like a stock proposition, there are ground-floor, basement and sub-basement prices, and the man who has the hardest head and the most money gets the sub-basement price, and the fellow with the least money gets the ground-floor price, and he is told that he is getting a good run (but not to the sub-basement) for his money. Eventually, the man who doesn't get the "square deal" finds it out, and he has less faith than ever in human nature and none at all in syndicates.

Sec. 343. Usually, there are half a dozen or more persons in the syndicate, and it is not feasible to take the title to the syndicate properties in the names of all of them; neither is it advisable to have the properties conveyed to a third person in trust for the members of the syndicate; the best plan is to have the properties conveyed at once to a trust corporation, authorized to execute trusts of the kind, by a deed to be executed by the owners, and which will show that the properties are conveyed in trust to the trust company for the syndicate, naming them. The trust company then issues a written instrument, over its name and seal, to each of the members of the syndicate, setting forth the terms on which the trust is held. Generally, the syndicate members agree upon the minimum price at which they will sell, and this is inserted in the last-named instrument. If an individual held the properties as trustee, and should die or become incapacitated, or if one of the members of the syndicate should die, the properties might become so tied up that they could not be handled to advantage within the time in which it was desired to dispose of them. Every member of a syndicate should insist that these matters be all worked out correctly from a legal standpoint and that the papers are ready for execution before he puts up his money. Some suggestions in this regard may be found in Form No. 155, wherein provision is made for a syndicate to take over options and place a tract on the market. The executive committee therein provided for places a check on the dictatorial and sometimes unprofitable management of the undertaking by one individual.

Sec. 344. Oftentimes another syndicate is formed to purchase the properties of the first syndicate at a considerable advance. Where fancy profits are thus made by one set of men at the expense of another, there is great danger that properties will be forced to a price far beyond their real value, and the last purchasers will have to charge a part of the purchase price to unwarranted enthusiasm, and simply wait until the march of events restores the properties to their true value. Whenever any property has reached a price where, if improved, it will not return the owner a fair rate of interest on the amount invested, it has an inflated value.

Sec. 345. Syndicates operating in large cities and offering to the public investment certificates or bonds based on land and buildings owned or controlled by such syndicates, are in reality borrowing money from the public for the carrying on of their business, the control and management of the business being entirely in the hands of the syndicate.