Name: Simple Principles of Investment
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Simple Principles of Investment Introductions:

If a wise man works for wages, he naturally demands the highest return obtainable in his particular field of endeavor. If he embarks upon a business venture of his own, he examines with care the various probabilities and possibilities of the proposed enterprise and reflects upon the drawbacks and perplexities which may arise. Money, being exchangeable for all other commodities, is looked upon as the most important of material possessions. Yet the owner of surplus money does not always display the same amount of care, foresight, and intelligence in directing the employment of his funds as in marketing his physical or mental services.

He allows his capital to work for. long periods at lower than standard wages, or, per contra, he sells its services to incompetent or dishonest employers at very high wages, frequently losing either wages or capital, or both. He engages it in gambling ventures which he calls speculation, and, after it is lost, he designates all speculation as gambling. The contention is frequently heard that by buying only the highest grade securities, resting content with the income derived therefrom, and disregarding all changes in market price, one may escape the annoyances and worries attendant upon continual changes in the form of investment.

It is unfortunately the case that this view is fostered by bankers for selfish purposes, by brokers who are anxious to save themselves the trouble of investigations, by advisors who artfully figure that they can make no indefensible error through such advice, and by a host of well-meaning but incompetent nuisances who are willing to give advice on any subject whatsoever. As a matter of fact, this popular fallacy is a most dangerous and pernicious one and results in much loss. It may be set down as an axiom which will bear the test of any analysis that the greatest essential of all investments is constant change.

It is not alone the possibility of serious alteration in the status of an individual security, for which one must be constantly on the alert. The greater drawback lies in changes in the fundamental influences which raise or lower the wages of money and which put a premium or a discount on the employment of funds in certain directions. For the purposes of this work, the word “speculate”, or its derivatives, whenever employed, will be understood to mean any form of transaction which contemplates, in addition to income return, a further return through accretion of principal.

It may be added that comparatively few purchases of securities are ever made which do not contemplate such a profit. Rothschild’s celebrated prescription for getting rich: “Buy cheap and sell dear” could not possibly be followed without involving the highest form of intelligent speculation. Convertible bonds, which have been issued by many corporations in recent years, are more popular than the ordinary form of bonds, simply because they carry speculative possibilities. But it is not necessary to multiply illustrations or prolong argument on a point which can admit of no successful contravention.