ENED, The difficulty of finding satisfactory investments for our savings increases yeat by year, as the rate of interest procurable continually dwindles. Capital seems to have a way of increasing 50 much faster than the means of employing it that the income derivable from gilt-edged securities in England has been nearly halved in the last' fifty years. On the other hand, the gigantic development of joint-stock companies has made it possible for private persons t put their money in all kinds of industrial undertakings which could have had no existence half a century ago, and the variety of securities now eligible is positively bewildering.
The object of this and the ensuing ar-tides is to indicate the general lines which should guide un investor in choosing any given security and in judging of the desir ability of the various new undertakings which well-worded prospectuses make so attractive.
Whatever the investment may be, it is in the first place obviously desirable for the investor to see that he is likely to preserve his capital intact and to look upon the interest procurable as the second consideration.
Investments may be divided into: (A) Government securities, (B) Joint Stock
gages. Tuking these in order, we will Company, shares and securities, (0) Mort: deal with Government scow 5 A.—If a country has good credit, like England, it borrows on its credit, pure and simple, without offering the lender any security whatever—its loans are, so to speak, on note of hand only, If a country. borrows money in this manner and makes default, as 40 many of the South American republics have done, its creditors can do nothing but protest and take what they can get. Of course national default is not exactly honourable and debars a country from borrowing again except on pretty stiff terms, but, owing to political troubles, it not infrequently occurs. Government arocks uro very generally overrated, There is n dignity and glamour about them which make them attractive, and they are usually very easily realised and consequently use-fol for bankers or insurance companies but they are peculiarly subject to political influences, and the higher the premium at which they stand the more are: they liable to enforced redemption.
A country which does not enjoy good credit has to offer something more than its mere promise to pay. It has to offer something as security, such as its Customs, its tobacco monopoly, its mines, or such ko. For example, the Imperial Customs are devoted to the service of the Chine: loans; the Tobacco Régie to the Turkish Debt; and the revenue from Quicksilver has lately been pledged by Spain to enable her to borrow enough to tid" over the expenses of the American war. The objection to this class of investment is, of course, the difficulty of enforcing aguinst a country compliance with the terms of the loan. If a revolution occurs and the Government which contracted the loan is upset, the new party may repudiate the arrangements of its predecessors, the security may be taken away and the law does not make provision for the sueing of a foreign country. It is generally desirable to note the Purpose, for which country requires loan, European countries generally borrow for war purposes only, or to cover a deficit. Deficit-borrowing is the most per-vicious of all. It begins with small unfunded loans which conveniently tide over a bad year, and then accumulate and are funded, forming part of the National Debt, whereas the money ought to have come out of the year's income and not have been handed down for payment to generations unborn.
The British Colo on the other hand, borrow for productive works. The Col-anies build their own railways, harbours, ete., and develop their natural' resources, borrowing at 3 or 34% and earning con: siderably more from the works upon which the money is expended, thus relieving taxation instead of increasing it. It is hardly necessary to point out that the latter class of borrowing is on a very different footing from the former, and from the investor's point of view is certainly preferable.
B.—Joint Stock Companies' shares and securities are the next consideration. These consist of debentures and shares, with various rights, (1) Debentures form such a convenient way of borrowing money that firms are often converted into Joint Stock Companies simply for the sake of raising loans on debenture issues. Indeed debentures are so well-known that people when buying them hardly ever read the document itself (which generally bristles with conditions) or ascertain the exact rights and remedies they have against the company issuing it. As a matter of fact, as far as the lender is concerned, they differ very much from each other. The Committee of the London Stock Exchange recently brought into notice the question of the description of debentures by declining to grant a quotation to what were called mortgage debentures but were, intact, floating securities, Floating security debentures had become common, owing to the great conveniences they gave to the company issuing them, that the question of the rights of the holders was generally overlooked until a company came to be wound up, and it was pas that the holders of such floating debentures did not get a penny, as all the company's assets had subsequently to the issue of such debentures been lez mortgaged to other: persons, and the de-venture holders were reminded that such mortgages were perfectly Inwful and that their security did not take effect until the company went into liquidation. The investor should therefore see whether debentures are really mortgage debentures or floating securities, The former give s genuine mortgage which is good against all the worl, the latter only give a charge on such of the assets as exist when the company goes into liquidation, and unless specially stipulated to the contrary, do not prevent a company from mortgaging all ite property in priority to them.
A company usually raises by debentures far more than it could if it were a firm borrowing on the same a Tt is quite common to seo on an English prospectus the debenture issue amounting to at least two-thirds of the value of assets consisting largely of lease-holds, stock in trade, trade fixtures, utensils, and such like, while a borrow anything on the same assets, uvate firm would find it very difficult to
Debentures are sometimes made porpetual." This, of course, means that the Debenture holder is entitled to a perpetual anpuity,—the advantage to the holder is that, whatever premium the debentures go to, the company cannot pay them off. Some of the English railway debenture stock stands at a premium of over £100 per cent; so that the company is now paying double the interest it would have to pay if it could only redeem its loans.
(2) The shares which are now issued by companies are of several kinds—there is the old ordinary share, then the preference share, the cumulative preference share, and that latest invention, the founders' share."
The ordinary share needs no comment. Whatever the net profits available are, the ordinary shares take them.
Preference shares are issued for several Ifa company wants more capital ordinary shares stand xt a discount, it is very usual to offer to the public preference shares. Again, there is a class of investors who prefer a certain fixed income and it has been found that the value
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