PART V.
e quoted a wise rule in our third article to the effect that money should never be allowed to lie idle. Put to work on its own account money will make money, and go on growing and growing even whilst the person owning it is asleep or taking holidays.
Of course the wisest thing is to employ it in one’s own business, turning it over and over at a profit, under one’s own management. But such advice is thrown away on those who have no business.
What, then, are those who have money but no business to do? They must entrust it to people who want money for use in some way or other, and are willing to pay interest for the loan. It may be lent, for example, to the British nation or to a foreign government, or to some great railway, or to a bank, or a gas company, or some municipal corporation. Besides these opportunities for investing money profitably, we have shares in joint stock companies of all kinds, some of them safe enough, but not a few of them to be avoided by prudent people.
There are two things essential to a satisfactory investment: First, the principal must be quite safe; and, secondly, there must be a reasonable certainty about the payment of the interest. There is a third point necessary to complete the happiness of the investor: the interest must be the highest possible under the circumstances. We say “under the circumstances,” because in these days really high interest and first-class security never meet.
The safest investment for all who are nervous about losing their money is in the Government Stock—as it is called—of our own country. They thus become creditors of the British nation, than whom no people can be imagined more secure.
What is known as the funded or permanent debt of Great Britain represents debt which the Government is under no obligation to pay off at any fixed time. It includes at present loans distinguished as Consols, Reduced Three per Cents., New Three per Cents., Two and a Half and Two and Three-quarters per Cents., and some other stocks of less consequence. “Consols,” we may add, is an affectionate abbreviation of “Consolidated Three per Cent. Annuities.” This permanent debt at the present time amounts to nearly six hundred and forty millions; the unfunded debt and terminable annuities—the latter being sums paid for a certain number of years and then terminating altogether—amount to over a hundred millions more. It is melancholy to reflect that almost the whole of the large sum represented by those different items has been raised for the prosecution of war, and spent in supplying food for powder, spreading misery and destruction, and making widows and orphans.
The possessors of Government Stock—that is to say, the creditors who hold this debt between them—are changing every day and hour. People can sell their stock with the greatest readiness, and there are always plenty of buyers.
The price which national stock fetches is not always the same. It improves when the prospects of the country improve, and declines in times of difficulty and danger. In the year 1800 war and dear corn, not to speak of other things, made the national bond for £100 sell for only £61, but since then peace, improved prospects, and no lack of money seeking investment, have forced the price up. The average market value of £100 Consols in 1881 was just £100; in 1882 it was £100 10s.; in 1883, £101 3s. 9d.; in 1884, £101; and in 1885 it fell back to £99 2s. 6d.
There are two ways of purchasing Government Stock—to any amount through a stockbroker, and to a limited amount through the Post Office. In the former case you may either write to your banker, who will employ his broker, or you can give the order to your own broker. The commission charged by brokers either for buying or selling is very moderate. For transactions in either British or foreign funds the rate is usually 2s. 6d. for every £100 of stock.
To get payment of dividends on Government Stock you may either go yourself to the Bank of England or sign what is called a power of attorney for your banker or broker or someone you can trust to receive the dividends for you. “In order to protect you from fraud,” says the author of a “Guide to the Unprotected,” “the power of attorney should be made out for dividends only. That is to say, it should authorise the person who is to act on your behalf only to receive dividends and not to sell the stock.” After a power of attorney has been obtained no new power for dividends is requisite by reason of your increasing or lessening the amount of your holding in the same description of stock. Besides payment personally at the Bank of England, stockholders can have their dividends transmitted by post at their own risk, and under certain regulations.
In selling stock you can manage the transaction, just as you effected the purchase, either through your banker or your own broker.
We mentioned that Government Stock to a limited amount could be bought through the Post Office. When this is done the Post Office relieves you of all trouble in purchasing and in collecting dividends. The amount invested must not be less than £10, and not more than £100 of stock can be credited to an account in any one year ending the 31st of December, and when you have bought through the Post Office £300 of stock in all you can invest no more in this way, but must go to a regular broker.
Suppose you wish through the Post Office to buy £50 worth of “Consols,” you fill up a form of application to be had at any post office, and hand over the necessary amount to the postmaster. Of course the latter part of the performance will be unnecessary if you have the sum already lying at your credit in the Savings Bank. You then forward the form of application, together with your deposit book, to the head office.
In a few days your book will be returned and you will find yourself debited with the cost of the stock at the market price. Suppose “Consols” are selling at £102, then your fifty pounds worth will cost you a half of that, and there will be an entry in your book as a “withdrawal” of “Investment £50 Consols, £51,” and besides that will be entered “Commission, 1s. 3d.”
The book will be accompanied by a “Certificate of investment in Government Stock,” as follows:—
“This is to certify that £50 Consolidated £3 per Cent. Bank Annuities has been placed on the Savings Banks Investment Account of the National Debt Commissioners, that the same has been credited in the Government Stock Register of the Post Office Savings Bank to ______ of ______, and that her deposit account has been charged with the sum of £51 and 1s. 3d., being the price of the said stock at £102 per cent., and commission respectively.”
This certificate, which is signed by the Controller, must be forwarded with the deposit book and application whenever the depositor wishes to sell the whole or a portion of her stock. When stock is sold the sale is effected at the current price—the price in the open market on the day of sale—and a warrant is sent to the depositor for the amount realised, less the commission.
All dividends on the stock standing in a depositor’s name are credited to her deposit account when they become due. Dividends on Consols are due half-yearly, on the 5th of January and the 5th of July; those on what are known as Reduced and New Three per Cents. on the 5th of April and the 5th of October. There are other Government Stocks—Two and Three-quarters and Two and a Half per Cent.—on which the dividends are paid quarterly.
The commission charged by the Post Office on investment is as follows:—
| s. | d. | |
| On stock not exceeding £25 | 0 | 9 |
| On stock exceeding £25 and not exceeding £50 | 1 | 3 |
| On stock exceeding £50 and not exceeding £75 | 1 | 9 |
| On stock exceeding £75 and not exceeding £100 | 2 | 3 |
Not satisfied with working at these low rates, the Post Office takes all the trouble of receiving the dividends, and charges nothing for it.
The commission on the sale of stock up to £100 is the same as for the purchase. For the sale of stock exceeding £100 and not exceeding £200, the charge is 2s. 9d.; exceeding £200 and not exceeding £300, 3s. 3d.
But those who have money to lend have wider scope for its employment than the Public Funds. And here we may insert the following handy table showing the better class of investments, and the dividends to be expected from them. We are indebted for it to the ever-useful Almanack of Mr. Whitaker.
The following are Trust Investments, permitted by the Court of Chancery:—
Three per Cent. “Consols” and “New Annuities,” which at the present market price yield barely 5 per cent.
Bank of England, Metropolitan Board of Works 3½ per cent., and Indian Government 4 per cent. stocks, which gives £3 2s. 6d. to £3 10s. per cent.
Canadian 4 per Cent. “Guaranteed” Loan, giving £3 15s. per cent.
Turkish 4 per Cent. “Guaranteed” Loan, giving £3 17s. 6d. per cent.
Bank of Ireland Stock, giving £3 10s. per cent.
Then you have 4 to 5 per cent. investments, quite secure:—
Governments.—Colonial Government Securities: Dutch, Belgian, French, and United States.
Railways.—British Railway Debenture Stocks, Indian Railway Debenture Stocks, British Railway Preference Stocks, Indian Railway Ordinary Stocks—these are guaranteed by the Indian Government—British Railway “Preferred” Ordinary Stocks, British Railway Ordinary Stocks.
Docks.
Last come 5 to 6 per cent. investments, which may be classed as moderately good:—
Governments.—Austrian, Brazilian, Chilian, Italian, Japanese, Portuguese and Russian.
Railways.—United States Railway Bonds (on lines paying dividends on the ordinary capital); Canadian Railway Bonds.
Gas Companies.
Banks.—Joint Stock Banks, limited.
Above 6 per cent. there are no investments that can safely be recommended.
Some foreign governments pay very irregularly, and we may lay it down as a wholesome rule that investments made without the bounds of our own country should be made with double caution. It is not so long since we met a lady who had invested a considerable sum with a republic which shall be nameless, and which has since declined to pay any portion back, or even to remember that some fraction of interest might be acceptable to its creditors.
In taking shares in a joint-stock company, there is a caution to be observed that cannot be too strongly insisted upon. A joint-stock company is an association of a number of people for the purpose of carrying on a trade or some useful enterprise capable of yielding a profit. Now, if ever you take shares in one, whether it be a bank, or an insurance office, or a mine or anything else, make sure that it is established under the “Limited Liability Act.” If the company be not a Limited Liability concern, should it happen to fail, you and every other shareholder are liable to lose every penny you possess. In a Limited Liability Company, however, you can only lose the amount of the shares which you hold. This is a great advantage: you know just what you are liable for. It is worth remarking that all Joint Stock Companies with limited liability formed for the purpose of gain, are obliged by law to use the word “Limited” as the last word of their title.
When people have a good deal of money to invest, and have a taste for limited companies, in preference to the more solid security of the public funds, it is wise not to put it all into one concern. “Put it,” says one writer, “into several. Then if one falls in value, another probably rises, and so your income will keep more equal. If one of your investments turns out a failure, you lose only a part and not the whole of your fortune.” And “when you think,” adds the same authority, “you have placed your money in the safest way you can, do not alter its investment without some good reason. Every change costs money, and is attended with trouble and anxiety.”
Those who know little about business are often tempted by the prospect of a high dividend, never thinking anything about the risk they run. The great thing is security, however, and a small return will never be grumbled at by sensible people if it is accounted for by the investment being a really safe one. It is anything but a pleasant sensation when, instead of an expected brilliant percentage, one receives a letter to the effect that “the directors have thought it right to suspend the business of the —— Company, and close the share register,” and that “after most carefully and anxiously weighing all the circumstances of the case, they are convinced that the only course is to have the company wound up.”
In almost every newspaper we meet with advertisements addressed to the unwary offering shares in companies of which the worthless character is at once recognised by the experienced. It requires some knowledge of the world not to be led away by emphatic representations of “extraordinary success,” “magnificent results,” “handsome profits,” and “unprecedented opportunities.”
By way of warning, we may quote an anecdote told by the author of “A Guide to the Inexperienced.” “I heard it,” she says, “from a person who had been almost persuaded by a friend who knew nothing of business to take some shares in a company which promised extremely good interest.
“He went to the office, which was in the City, to make inquiries. The manager tried hard to persuade him to invest, assuring him of the safety of the concern. While C—— was hesitating, a man rushed in and said, in an eager tone—
“‘Pray, sir, have you any more shares on sale? I have an order for fifty more. They are in such great request that I am afraid of their being all sold before I can get enough.’
“His manner and words opened C——’s eyes, who suspected that this was a plan to entrap him to invest, and he quietly walked off. The company failed in a very short time afterwards.”
We have spoken of investments in shares, but shares are often bought, not as a matter of investment, but as a speculation, the buyer purchasing them with the expectation that they will rise higher, and that he will then be able to dispose of them at a profit. This is, as a general rule, little better than gambling, and a wise woman will keep out of it.
Every transaction in the stock market, whether it be in Government stock, or in railway shares, or in any other securities, must be effected through the medium of a broker, who is thus not only an adviser but an indispensable agent in the transaction. Be sure to employ a broker of good standing, and, having found a trustworthy man, be rather guided by his advice than by your own notions as to what purchases are safe and what imprudent.
All documents connected with investments should be carefully preserved, and dividends, when they fall due, should be looked after. It seems unnecessary to say so, but it is a curious fact that, to speak of the public funds alone, a large sum is added every year to the revenue from unclaimed dividends. No stock is reckoned unclaimed till ten years have elapsed without the holder in any way giving token of his or her existence; and yet in 1879 the amount credited to the item of “unclaimed dividends” for the year ending 3rd January, 1880, was no less than £3,411,228!
The principal reason for this, no doubt, is carelessness; but Mr. Walter M. Playford, in his “Hints for Investors,” gives several other reasons which are likely enough. Dividends are often unclaimed through the misconception of people who have sold stock. They think they have sold with it a dividend, or a portion of a dividend, to which they were themselves entitled. Then, executors and administrators are often unable to claim stock, because those they represent have kept their investments secret from their nearest friends. And a good deal of money is not unfrequently lost through the objectionable practice of investing under a false name.
The current prices of all the more important stocks for sale are chronicled day by day in the newspapers. It is a department never omitted in any well-regulated journal, even though it forms the driest-looking column in the paper. It is full of figures and tables of figures, preceded by a few paragraphs, of a very stereotyped aspect, and written in language peculiar to itself.
We read therein that “the market is easier,” or that “it assumed a more lively appearance,” or that “it showed a falling tendency,” or “great depression,” or that “its tone remained very steady all day.” We also read of “prices hardening a little,” of “heavy stocks being inactive,” of “foreign securities being quiet,” and grow familiar with “Wabash Preferred,” “Nickel Plate Common Stock,” “Spanish Externals,” “Egyptian Unifieds,” and many other things hard to be understood by the uninitiated.
It is a much-studied column, and it is surprising what interest and entertainment can be extracted from these daily reports of the health and spirits of the money market if it only takes the trouble to master the peculiar vocabulary. The principal terms connected with the investment of money we shall set down here, with a few words of explanation for each. A business woman—no matter whether she has money to invest or not—should at least know what they mean.
The Money Market is a more or less figurative expression, covering the whole field for the investment or employment of money, the leading dealers in the market being bankers, bill discounters, and capitalists of all sorts. Money is cheap or dear in the market according as the rates for discount are low or the reverse; and business is brisk or flat, according as the amount of such discounts is large or small.
A stockbroker is a broker who deals in the purchase and sale of stocks or shares for others. What is known as a stockjobber is one who buys and sells stock on his own account on speculation: he is a useful medium between the public and the broker.
There are some dealers on the Stock Exchange—the mart where stocks and shares are bought and sold—who, by a poetic figure, are known as Bulls and Bears. Bulls are dealers who buying stock low have an interest in trying all sorts of devices to raise prices. Bears, on the other hand, try to bring prices down, they being commonly persons who have sold and undertaken to deliver more stock than they are in possession of, and who are therefore under the necessity of buying in at a loss in order to settle their accounts. How they came to be called bulls and bears is doubtful. “They have been connected,” says one writer, “with the animals to which allusion is made by a reference to their respective modes of attack. The bear crushes, or bears down his antagonist, whereas the bull’s method is to toss him up.”
Transfer is the legal operation by which the rights and responsibilities of the people disposing of stock or shares are conveyed to those who buy. When the purchaser, or his or her attorney, signs the transfer in the bank books, that is known as Acceptance of Stock.
The periodical payments of interest made by the Government to the holders of the National Debt and other public funds are known as Dividends. The term dividend is also applied to the sums paid to the shareholders of a company at each periodical division of profits.
Cum-Dividend means that the purchaser of the shares is to receive the dividend then payable or about to be paid. That is to say, the sale is with the dividend.
Ex-Dividend just means the reverse; a sale ex-dividend is without the dividend.
Paid-up shares are shares on which the full subscribed or nominal amount has been paid up. In the case of a limited liability company, for example, the shares may be nominally of £100, with £50 paid-up. Here the purchaser has to consider that she is liable at any time to be called on to subscribe the remaining £50 per share. Should the company come to grief she will not only lose what she paid for the shares, but be liable for £50 as well upon each share.
When the price of securities of any kind is equal to their nominal value, they are said to be at par. Suppose £100 shares in a gas company are selling at £94, they are 6 per cent. below par; if £103 they are 3 per cent. above par.
When you see shares quoted as at a premium—say £1 shares at 5s. premium—that means that for every share you would have to pay 25s., or 5s. more than its nominal value.
Debentures, as commonly understood, are mortgage deeds given by railway companies in acknowledgment of borrowed money. Debenture bonds give the holders the first claim for dividends on the company’s receipts.
Preference Shares are shares on which a dividend is bound to be paid so long as the net income is sufficient, even though there should not be a farthing left for the ordinary shareholders.
A Dividend Warrant is the document which entitles the holder of stock to receive payment of her dividend. Dividend warrants may be lodged with one’s banker in the same way as cheques.
Coupons is a term used for dividend or interest warrants attached to bonds running for a fixed number of years. They are usually printed at the bottom of the bond, there being one for every period at which interest becomes due. They must be cut off and presented at the right time to the appointed banker or agent. Many coupons require a stamp, which must be placed at the back, and have the name of the person to whom the money is due written across it.
(To be continued.)
