Of course, no man or company could purchase one hundred shares of stock without the risk of a loss. That is to say, no man should make a purchase of this kind unless he is in a position to buy again and again many times over and still hold all that he has previously purchased.
Buying a certain quantity of stock in one corporation is very much like an insurance company insuring the life of one man. But when you buy thousands of shares of stock in various corporations, some stocks going up and some going down, the law of average is an absolute protection and the statistics of stock fluctuations for the past twenty-five years show beyond the possibility of doubt that this is true.
The fluctuations in the prices of good, dividend paying stocks are something remarkable. Some active stocks show a fluctuation of five thousand times their value in a year, thus offering a continual opportunity for money making.
These are the stocks which are constantly speculated upon, the stocks on which so much money is lost and upon which the cool headed and careful operators make so much.
The Western Union Telegraph Company's shares have always paid 5% dividend, and the average market price has been about 90, making the income about 5½. Now, suppose it is purchased in ten-share blocks on every one per cent. decline and none sold above the average price, it will show an income of more than 43% per annum, besides some dividends.
Suppose the very worst were to happen and there was a 20 point decline in Western Union, then we would have
| 10 | shares at | 90 | $900 | |
| 10 | " | " | 89 | 890 |
| 10 | " | " | 88 | 880 |
| 10 | " | " | 87 | 870 |
| 10 | " | " | 86 | 860 |
| 10 | " | " | 85 | 850 |
| 10 | " | " | 84 | 840 |
| 10 | " | " | 83 | 830 |
| 10 | " | " | 82 | 820 |
| 10 | " | " | 81 | 810 |
| 10 | " | " | 80 | 800 |
| 10 | " | " | 79 | 790 |
| 10 | " | " | 78 | 780 |
| 10 | " | " | 77 | 770 |
| 10 | " | " | 76 | 760 |
| 10 | " | " | 75 | 750 |
| 10 | " | " | 74 | 740 |
| 10 | " | " | 73 | 730 |
| 10 | " | " | 72 | 720 |
| 10 | " | " | 71 | 710 |
| 10 | " | " | 70 | 700 |
| Total Investment | $16,800 | |||
It will be seen that $16,800 will handle a ten-share lot of Western Union Telegraph through a regular "Black Friday" panic, with a resulting investment as stated above. It must be borne in mind that the average prices of these purchases is 80, giving a dividend of 6% on the investment, but when the market has resumed its normal condition (90), the profits will be $2,100, exclusive of dividends.
If lots of 100 shares each were purchased, there would be profits of $21,000 exclusive of dividends.
The shares of the American Sugar Refining Company fluctuate 4,900 times their par value every year, and our method applied to them will give a profit of from 200 to 300% per annum, exclusive of dividends.