INVESTING FOR PROFIT

Sun (Auckland), Volume II, Issue 413, 23 July 1928, Page 12

INVESTING FOR PROFIT

DEVELOPING AN INCOME SAVING AND CAUTION Each year the number of small investors in this country increases. More and more interest is being taken in the movements of the market for stock and shares. A steady income can be developed from savings wisely invested. The risks of loss to the uninitiated, however, are great. Safety first should always be the dominating factor in the mind of the investor. Almost without exception enterprises from which high returns are expected are speculative, and expose the money invested to abnormal risks. Speculative purchases should always be left to those who are in the position, either by command of capital or by surplus earnings, to take the knocks that the speculator almost invariably receives sooner or later. The small man who touches this class of scrip is looking for trouble. Failure to appreciate the fact that the business of investing, like any other form of enterprise, is governed by simple basic principles has been the cause of losses, frequently disastrous, because complete losses of savings, and sometimes insolvency, have been incurred by placing too great faith in the impossible being achieved by investments.

Spread Your Risks Complete immunity from loss cannot be guaranteed in any investment plan, unless investments are confined to gilt-edged securities such as Government bonds. The fact that risks cannot be avoided emphasises one of the most important points to be applied when investing. The widest possible spread of investments should be secured. With small amounts it is, of course, not possible to secure a diversity of holdings of shares to minimise the risks should one section not come up to expectations. It is thus more necessary for the man of small means to investigate the safety of the investment into which he proposes to buy with the greatest care. Results Take Time The ranks of the genuine investors who can confidently hope to develop a steady income have no room for the would-be ‘‘Get-Rich-Quick Wallingfords.” The new investor should not expect to become rich quickly by purchasing shares. The process of developing capital and investment income is generally slow. Many of the soundest and qiost profitable investment holdings to-day, however, are those that have developed from original selections among high-class divisions of shares, steady capital improvement and income building greater than anticipated, when the shares were bought having accompanied the progress of the companies. A Safe and Policy The safe and sure policy for the small investor to adhere to is to seek employment for -his savings in betterclass investments, and supplement them periodically by the interest they produce and by any surpluses derived from regular income. Reference to any interest table will show the possibilities. For example, £SO saved each year, and earning only 5 per cent., will produce £626 in 10 years, and £1,635 in 20 years. Deselecting shares with care, yields higher than 5 per cent, can be obtained, and if the businesses are progressive, substantial appreciation of the capital values may be confidently expected.

Seeking the Right Advice The selection of suitable shares is one of the big problems for the inexperienced investor. He should confine his purchases, without exception, to stocks recommended as sound by those competent to give advice. The new investor should buy only through registered brokers operating on ’Change and, unless he, himself, is in a favoured position to know facts, all rumours of impending big benefits accruing from purchases should be discounted. “Inside information” is to be had on every street corner. Advantages of Listed Securities Purchases should be restricted to securities listed on ’Change, for only in this way is the scrip readily converted into cash at a fair value should it become necessary to dispose of holdings. Again, in such companies the investor has additional protection in the fact that rules of ’Change require all listed companies to produce annual balancesheets and, disguised as they may he, these always give a certain idea of the company’s position. Danger of the Hawker

The share hawker, who so frequently w-ill exaggerate the prospects of a newenterprise to secure his commission, should be religiously avoided. Examination of his propositions will generally reveal the fact that similar established concerns do not return such handsome profits, and even if they do, are associated with abnormal risks. In any case if the prospects were as bright as painted, there would be no need to hawk the shares. They would be snapped up by those who know a good thing when they see it.

Lastly, the new investor should purchase shares only in a concern in whose management he has complete confidence. Having bought he should take a keen innterest in the company’s affairs, noting points of strength and weakness to guide him in his future policy.