PROBLEMS DEFYING PRESENT SOLUTION AREBETTER DEFERRED TO THE FUTURE
A matter of present and future importance in connection with many investment and speculative stocks, involving as it does questions on which there is a wide diversity of opinion, is the modern practice of increasingthe outstanding shares of corporations by splitting them up into fractions, or by declaring liberal stock dividends. Many of the large companies have recently doubled and quadrupled their shares, and some have issued as high as nine new shares for one, on somewhat the same principle as the Government will issue ten one dollar notes in exchange for a ten dollar bill. And in several instances the fractional shares have been split a second, and even a third time. In past years when there were only a few listed securities it was possible for any well informed person in financial circles to tell the par value and the approximate book value of all the leading stocks, but the good old-fashioned methods are no longer in vogue; there are now 1,045 stocks listed on the New York Stock Exchange alone, representing almost every imaginable industry, from steam locomotives to lunch counters, and under the new capital readjustment process it takes a professional statistician to keep up with the changes and determine what stocks are actually worth. But whatever their value may be, it is at least certain that there is notenough money in the world to cash them all in at anywhere near their present market price. Nowadays it is not unusual for industrial companies to have from five to ten million or more shares outstanding. The lately devised and much over-worked practice of splitting stocks up into small fractions, avowedly for the convenience of traders, savors strongly of the old worn-out custom of “baiting” the public with low-priced issues, ranging from $1 a share upward. As long as we are riding on the crest of the wave of prosperity there appears to be no imminent danger in such inflation, but when business slackens, as it always has periodically in the past—— However, the optimists contend that these problems are too far in the future to worry about. Furthermore it is not the design of this article to criticise abuses, or to prognosticate future difficulties that seem likely to grow out of them. It is true that some of the companies, notwithstanding the tremendous increase in their capital structures, have not weakened their resources by increasing their cash disbursements. In 1921 the stock of the Standard Oil Company ofNew Jersey was paying $5 a year in dividends and selling at $124.50 per share. In 1922 it was boosted up to $250.50 a share on the report that shareholders were to receive four new shares for one. After this split-up was accomplished and the authorized common stock increased to 25,000,000 shares,—not dollars, butshares!—more than 20,000,000 of which have been issued, in addition to $200,000,000 of preferred stock, the same conservative dividend policy was continued, and the new stock received, and still receives, only one dollar a share annually in dividends. The market price of the new stock went down to a fraction below $31, whence it afterwards recovered to about $46, at which figure it pays a trifle over 2%, or about one half the net return on U. S. Government bonds; and the only visible change in the stockholder’s position is that if he wishes to sell his stock it costs about five times what it did before; in other words, to buy and sell the equivalent of one hundred shares of the old stock it now costs $154 in commission and tax—more than eighteen months’ income on a hundred shares of the present stock. Possibly thereare mathematicians who can figure out some sort of compensating advantage to the stockholder, but I never could.
To sum up the whole situation in a word, those who would make money speculating in the stock market should first understand that it requires as much caution and business acumen as any other money-making enterprise, plus some knowledge of the psychological handicaps; also plus the rare faculty of maintaining a complete mastery over one’s impulses, emotions and ambitions under the most heroic tests of human endurance. All speculations, and even the most conservative investments, have some slight element of risk; all lines of business are more or less a gamble; marriage is a gamble; political preferment is a gamble; in fact nearly everything in life, including our very existence, is an uncertainty; yet people are not thereby discouraged from entering into any and all of these ventures. Those who look only for certainties have far to search and little to find in this world.