Show Value of Investment Trust And Insurance Stocks Topic of Roger er Babson Economist Special Dispatch BABSON PARK Mass Sept 9 Roger w w. Babson Dabson today in his Ills week week- weekly weekly ly y Interview comments on Investment trusts which have become so popular In the past few years In this Inter Inter- Interview view he ho shows Just what they are and comments on their ther advantages and disadvantages Ills His complete state staLe statement statement ment IDent is as follows WHAT IS INVESTMENT J TRUST Many American e Investors had not heard of investment trusts trust until a few years ago as they have only recently been Introduced on this thus side of the Atlantic Investment trusts have been in vogue ogue in tn England g d and on the continent f for r one or o more r genera genera- When i h I 1 first st began to go to Fn s 's s 5 years vears sea affo a o. o I 1 found a very ery large investment ent trust in existence known as the Investment Registry Ltd which held securities in every cery country in the world orld These securities securities ties were apportioned in I accordance with a theory that different nations I have hae their depressions at different times Umes The officials of this company y therefore diversified as to national national- nationalities nationalities nationalities rather than as to hen industries They Invested on the theory that although different nations have hae their ups and downs the world as a a a. whole is continually getting gelting richer By this theory they believed that the securities securities ties of or the Ute investment trust would slowly lowly but surely Increase in value varue irrespective of what took place In any anyone nn anyone one ono country This company had n a ns atry s cry try rapid growth and it was followed by many man similar ones in England France Switzerland and other coun coun- tries tri In the United States Slates and Canada the investment In trust has been devel devel- developed developed along other lines partly because b use the World war caused the Ute English theory to be in disrepute and partly because American investors do not care so much for foreign securities The American Am Investment trusts be began be- be began began gan by specializing in certain indus indus- tries For instance an investment trust was made up of all aU the leading chain store stocks another invest invest- investment investment ment trust purchased public utility tocks stocks exclusively while another con con- conil il fled ild d its purchases to rails I believe that this American theory Is superior to the English theory theor Without doubt It is safer to own the stock of a chain store investment t 1St honestly operated than it is isto Isto isto to buy the stock of any Individual chain store company Furthermore en nn investor In can get almost ideal di diversification dl- dl versification by buying stocks in half halfa a Po dozen investment In trusts each rep rep- representing representing rep rep- representing resenting one of the tho great basic in tn- tn Recently certain in general gen ral investment trusts have hate been organ organ- organized or organized in the United States Slates designed to include all industries with a deed of trust designating as an illustration that 40 per pcr cent shall be invested in rails ralls 30 SO per cent in industrials 20 per cent in public utilities and 10 per cent in mining and miscellaneous securities Sometimes th thc e a deeds of trust specify that hat only dividend pay- pay payIng paying paying Ing stocks shat be purchased In other words today there th re are almost as many different kinds of Investment trusts as there are securities and these include both good and bad Hence investors should take great care in making thel selections DI ION TION VS PS 5 PRICE I believe that investment estment trusts have come to stay It will viii not be long before the stocks of the leading in investment tn- tn investment vestment trusts trust will be bo listed in the New York stock exchange as are other securities The diversification idea is sound Although possible profits are reduced if not limited by diversi diversi- diversification yet et safety is proportionally increased Investment trusts honest honest- honestly ly operated are a a. leal real safeguard to email investors in m 1 I have hae In mind both those secured by stocks and those til secured by bonds Those These secured exclusively by bonds should be about tho tb th safest for an In Investment In- In Investment vestment estment procurable considering the interest paid Investment In trusts are arc area arca area a very satisfactory means of securing with little trouble that safety which comes from diversification I believe strongly in the general genral principle but urge great Teat care In the selection of an Investment trust Although the th investment trust Is s a success in providing diversification it has by no means solved soled the they problem of developing a stable price Amer Amer- American AmerIcan ican bankers have hn no more discovered an investment which will continually con y ygo go up In puke price than did their the English brethren a n generation ago If 11 during g the nt n panic panle chain store stocks should decline 40 per cent then the stock of an Investment trust made up of chain store stocks will likewise de de- decline decline de- de cline dine 40 per cent This Is a n very im Im- important Important important point to remember because thus far during the e development of A A. investment trusts their promoters pro pro- promoters moUrs have ha been aided by a con con- constantly constantly tt y rising market As the stock market has gone up the Investment trusts have been cen compelled to pay more securities and hence nonce been obliged to mark up constantly the price at which new t tock stock in the trust was offered for sale Hence pur pur- purchasers purchasers purchasers chasers of investment trust stocks during the past few years ears have had the satisfaction of seeing their pur pur- purchases purchases purchases chases constantly const marked up in price As a a. result these purchasers have lauded investment trusts to their I friends and the whole industry has Jus benefited by this endless chain or snow ban U growth I What the reaction will be on In Investors In- In investors in investment In trusts when the market turns t and declines i for two or three years only the future can tell If history repeats itself this country must sometime experience experience experience ence a long declining bear market and when this time comes will wilt not the stocks of Investment trusts frosts go down with all the rest Nevertheless let me repeat that I believe in investment trusts and believe that they have ha a brilliant future INSURANCE STOCKS Investors should not Dot think that It ItIs ItIs itis Is necessary necess ry to purchase the securities securities securities ties of investment trusts exclusively in td get the advantage of diversi diversi- diversified diversified diversified fied holdings The assets ass ts of many corporations consist largely of a di diversified di- di diversified versified lits of stocks bonds mort mort- mortgages mortgages gages g etc For instance the assets I BROWNER t s Y A Av v t A t a Irving above is said by the New York police to have confessed participating in the drowning of or Benjamin Goldstein so EO than at accomplice accompli a might collect A Insurance f on Golds- Golds sn's life lire He was pushed off a rowboat into New York harbor by Rubin- Rubin sail zahl it is alleged of Insurance companies are made up almost entirely by such holdings A purchaser of Insurance stock secures all aU the the- advantages of Investment trust Really the old line lint fire Insurance com com- companies companies companies are the oldest Investment trusts while the modem life Insurance insurance Insurance ance companies not only have the advantage of having purchased their securities when they were very low but today they have ha records connections connections connections and experience very ery valuable for investment purposes For this rea rea- reason reason reason son many conservative bankers are recommending Insurance tacks stocks to their clients who wish to buy into a safe and seasoned investment trust Insurance company stocks not only have the advantage of experience and diversification but also have the ad advantage ad- ad advantage advantage vantage of an operating profit making business Such a business is quite im Im- important Important important to pay overhead expenses take t. care of inevitable losses and pro pro- provide provide provide vide a reserve to Insure dividends to stockholders during lean years Fur Fur- Furthermore statistics show clearly that Insurance is becoming more and more popular while the risks ks of the business are gradually decreasing Hence In Independently In- In Independently independently dependently of or the tile diversification value val val- value value ue of the insurance stocks they should be a n good Investment based merely merelyn on n the L are also under state su supervision su- su and this provides another safeguard for Investors The market for insurance stocks is also fairly ac active ac- ac acUe active tive Ue thus enabling one to liquidate quickly when he desires to sell Frank Frank- Frankly Frankly ly I am very ery partial to Insurance stocks although these should be se se- se selected selected with great discretion ABOUT A OUT BANK STOCKS The same general principles noted above in connection with insurance stocks apply likewise to bank stocks Banks Danks have the advantage e of diversi diversified led fled assets and an income producing business governmental super super- vision The records of nf the lunk nf of the United and Canada have been very cry good especially those lo located lo- lo located in large L' cities Banks are not affected as much by changing money rates as one would naturally suppose Banks naturally make more money per dollar of deposits when Interest rates are high hl but when interest rates are high deposits are arc low High in In- In Interest interest terest rates and small deposits go to together to- to together together gether while loW loy interest rates and large go together One situ situ- situation situation situation therefore tends to balance the other Moreover as banks receive less lesson lesson lesson on their loans they reduce the a. paid on deposits deposits Hence bank stocks may well be classed class d as a good form of Investment trust stocks en E insurance stocks and bank I stocks arc affected by general business conditions as indicated d by the Babs Baba Bab- Bab s. s s hart As general business declines even cen these corporations suffer losses which are arc reflected list flat in their earn earn- earnings rn- rn I ings and later in the market prIce of or stocks In Ill fact in a bear be r mar mar- market market ket all securities decline In price good and bad bad although although the decline in the better grade investment stocks stacks sl cl is very cry much less than then the lower grade speculative stocks stacks Speaking of business conditions it is encouraging to th note that business has picked up from Its Just r rural condition the past two weeks to about 2 per cent above e normal although the volume of I business conducted is still sUll running a little below belot f sat of last Jast year ear It is very Cry important that bankers busl 1 business ness men and Investors carefully bUSI 1 I watch the trend of business during the next few months Let us all so EO direct our lives and our dally daily work that prosperity may continue for honest industry and the right de de- de sires of the people have more to do with good business than have bank and trade balances Copyright 1927 Publishers Financial Bureau Dureau |