HINTS TO INVESTORS

Waipa Post, Volume 43, Issue 3392, 24 December 1931, Page 6

HINTS TO INVESTORS

INVESTMENT IS A SCIENCE. (By " Croesus " in the Financial : , Times.) Investment is a science—a little.inown science, it is true, and only :nowbeginning to be recognised as a sciencfe. Economics have long been regarded as a science, although not an exact science. Medical science, however, is not an exact science, nor is Relativity, nor the Fourth Dimension, nor the Einstein Theory. There are, however, so-called laws of economics, and, in the same way, finance and/investment have similar rules -and regulations. Everything changes, andiinthe same way that Sir Ernest Rutherford finally proved to science ''••''that nitrogen was not an element, but /a/chemical combination of hydrogen and helium, so are many myths and . fallacies exploded in the field of in- < .vestment. Financial experts complain that :. English investors do not understand the A IB C of investment. Unfortunately, New Zealand investors know ; even less. It is no wonder, then, that investors in New Zealand have in their locked boxes securities with a ': face value of hundreds of pounds ' : wiich are worthless pieces of paper—mute tributes to the gullibility and ■ ; - fallibility of human nature; ; •';[ Bernard : McFadden, the British . T»B.j ;proved that it was a sin not to | 'be healthy. There were laws of J health, such as sunshine, fresh air, and exercise, proper food, 'and sleep, : and that any ordinary person could ;' Jbe;healthy, vigorous, andfree of dis- ;/ ease who took the trouble to look after himself and keep fit: His VsicalfeJDuittire" magazine /made him*

,: ''=i^aW^ lonaire * ' Herbert N. Casson, the great Brit^ wish efficiency expert, demonstrated to 56 the world that anybody but a fool could make money if he took the trouble. He has been laying down ; the simpleelementary rules of money ; making for years, and has .made himself own rules. ' billiards, or anything else isia matter.of training and practice. Health, or the art of making money, is no more difficult than study uz a university. Money-making requires 'only -application.-,and study to make the student an adept. .MONEY KEEPING;: . : "Money keeping,' 'or investment, is the hardest of all. Practically everybody makes money. Insurance;, statistics show that if we could assemble a hundred able-bodied young men of 25 years, 95 of them would have made money oyer and above ling needs before they -were of age. If the attempt could to re-assemble them at the 65 years it would be found were dead, 58 would be deupon charity (either orgaich as a pension, or unorganised, suoh as relatives and friends),

broker for their own folly in buying "Commercial Banks" at 335, or some equally foolish purchase. A stockbroker is purely a person licensed to deal in stocks and shares, and the best are almost invariably members of a Stock Exchange, which gives them unrivalled facilities. A stockbroker is not paid to give advice. He is there to receive buying and selling instructions from his clients, and if he faithfully carries out their commissions, stamps the transfer, gets it registered, and accounts for the money he has done everything that can be reasonably required of him. If he has obtained the utermost farthing that can be extracted I from the market, or haggled like a fish-wife to purchase at the lowest penny that your shares could be bought, then he is a good stockbroker and a treasure. If he is doing his job he has no time to act as a financial adviser. He knows the market tips and rumours, but these are only second-hand, and unless they can be tracked to their source for authenticity they are, as often as not, inspired propaganda and misleading. The investor who blames his broker is a moral coward or is very ignorant of what a stockbroker really is. Can he charge for his advice ? If he knew the good things and what was going up nearly 50 per cent, like Union Banks have just done, he would not be accepting fiddling commissions for a pound or two. A good, reliable stockbroker is an indispensable adjunct to sound investment, and a bad or lazy stockbroker who " jobs" shares offered for sale because he thinks he can get some of his clients to buy before settlement is due, and then frantically recommends them to buy Jas the scrip is falling, and he will be caught with shares bought too high that he has not really .the money to buyjis not a stockbroker-at all.

THE SCIENCE Op IN-;:-VESTMENT. The science of investment requires a knowledge of human p'sychology|-a knowledge of how people with money will react to certain information. Capital is cautious and easily frightened. As often as not investors "are the victims of their own fear or folly. "Don't follow:#e; crowd "is a good maxim in investment. If a man cries'. ""'JFire ! " in a crowded theatre there will be a rush for the exits, and several killed in the stampede, irrespective of whether there is a firepr'not.' Always cash in on mob psychology. For instance, if Labour Was returned in: the Australian, elec'tibns, or had;.-been■•; at this election, 'fCroesus" would be a buyer, but with a Conservative victory " Croeb*us" is selling in order to buy in cheaper next July, in the depths of winter, when things are blackest. : THE "ELIMINATION OF RISK. Risk is the bugbear which can never be eliminated even from life itself, hence life insurance. Every investment involves a risk, even cash in hand. Investment psychology runs in cycles. Bankers, investors, and business men, even consumers, seek profits and: fear losses and re-act %o those influences. The normal course of a business cycle is set but briefly by Angas as follows: , 1. Healthy conditions breed good confidence* ; ..-/' : "---v ; ...".„ p ,'''.-•■■-..».' p"-> :; ' ; ; : --' ■■'■'''-' ' 2. Good confidence encourages borrowing from the hanks and expansion. 3. This leads to increased-produc-Ition and to an expansion in industrial \ incomes' which are largely paid out j 'before any neW; production is complete. 4. This' results' in increased consumption and a lowering of dealers' stocks. Additional orders are therefore given to makers. M#(Bp!bnditions.of prosperity are gradually created. 6. Prosperity, however, breeds elation, and elation normally breeds over-rspeculation in commodities and J a rise in their prices, or, alternativesuch an expansion in productive Jpfcmt.that, the extra output can no longer be'sold at the old level of prices, or be managed by the quantity of/currency and bank credit avail7. The banking position thus beLcomes partly ( because there are usually large withdrawals of legal tender from the banks for additional f wage-paying, pocket money, and till I money purposes, ithep becomes dear, and p^^roJy^COiitracted. 9." Middlemen try to let stocks run are given to therefore pay out 12.•VcWn•«■, income rapidly .declines I i - the shops simultaner '.. i sjsei • . - • 13.-Trade i'm •-■ becomes

structure, because the price of securities would have been forced below what the banks have advanced on overdraft. To prop up share prices, all dealings are for cash, and " bear " operations are entirely suspended. Shares will fall and keep falling in waves until free market operations under stable currency are a feature. If " bears " have to be debarred from backing their judgment that they can make money from the market by selling shares to-day for delivery in three months, then the stock market is in a very bod way. " Bears " hope to buy the shares at a lower figure before due date than the price at which they sold. When a market is so weak that it has to be propped up by legal restrictions, then it is only fit for short-term investors. " Liquiditis" is the financial disease which affects investors in a slump. In its worst form the disease becomes a financial paranoia which sends wealthy men to lunatic asylums suffering from the delusion that they have no money. In its minor form investors get a mania for liquid cash and, foolishly, will not invest in anything at any price. This is the first stage of "liquiditis." Money starts piling up in the banks on fixed deposit. Money withdrawn from circulation and investment channels causes share prices to fall. The banks call in overdrafts still further.