Railroad Bonds and Stocks

1. Q.-As a subscriber to NEW SUCCESS, I am writing you for information about investments. Of course, we all know, that Government bonds represent the highest grade investments, closely followed by municipal bonds. But, what do you think of railroad bonds and stocks at the present time? Is it not possible to select securities of these two classes which are safe and which at the same time offer opportunities for appreciation in the near future. Kindly let me have your advice with some specific suggestions.

A. We are glad to note your discrimination as to Government and municipal bonds, assuming of course that you have reference to United States Government, and domestic municipal issues. It is, indeed, among these two classes that the most conservative investments are to be found investments which not only return good yields of income at current prices (from 5 to 6 per cent) but also possess special advantages in respect of tax-exemption.

But on the other hand, there are undoubtedly a good many safe, conservative investments in the category of railroad bonds and stocks. It is our judgment, moreover, that the present is a good time to buy such securities in the expectation that they will eventually show a good deal of growth in underlying strength and value. Fundamentally, their positions, as compared with the last few years, were fortified substantially by the new schedule of railroad rates and changed operating conditions provided under the Transportation Act passed by the last session of Congress (the so-called Cummins-Esch Bill), although relatively few of the benefits that are expected confidently to secure from this constructive legislation, have yet begun to be reflected in net earnings.

Market prices of railroad securities have declined considerably of late as an incident to the general economic readjustment which has been in progress. They will probably react propor

tionately to the more wholesome situation that will exist when this readjustment shall have been completed.

The following bonds illustrate a fairly wide range of choice in respect to both quality and yield: Atchison, Topeka & Santa Fe general mortgage 4%, due in 1995, selling to yield about 5.25 per cent; Union Pacific first mortgage 4%, due 1947, selling to yield about 5.35 per cent; Oregon-Washington Railroad & Navigation first refunding 4%, due 1961, selling to yield about 5.90 per cent; Illinois Central collateral trust 4%. due 1953, selling to yield about 6.30 per cent, Wisconsin Central first and refunding 4% due; 1959, selling to yield about 7.30 per cent.

Among the standard well established dividend paying railroad stocks we think the following are representative of the best to buy for investment purposes:

Safe Bond and Stock Investments

2. Q-May I please have your advice in regard to safe and profitable stock and bond investments?

A. It is extremely difficult for us to give intelligent advice in matters of this kind to correspondents who fail to tell us more specifically what they have in mind, and what their circumstances are. One of the most important things we have to consider in connection with investments is their adaptability. They vary widely in quality and in fundamental characteristicsin what might, in fact, be called structural de

sign. They are in some respects like clothes in that they ought always to be selected with a view to their fitness for the purchaser. Stocks or bonds that may quite properly be recommended for one person are very often entirely unsuited to another.

IF

In a very general way, however, we might say that we feel the present is a time when a more or less cautious attitude ought to be taken towards industrial stocks. Investments in this class of securities ought at least, to be made with great care and discrimination. Standard, dividend paying railroad stocks -those having long established dividend records, can, in our opinion, be safely bought for income. There are also a good many public utility stocks,-preferred issues in particular, which appear not only to be well assured income producers, but also to be selling greatly out of line with their real merit.

As the term "debenture" implies, the New Haven 4's of 1922 are not secured by mortgage. They are a direct credit obligation of the company, however, and the indenture under which they are issued provides that in the event of any mortgage being placed on the New Haven property these bonds must be equally and ratably secured by such mortgage.

The New York, New Haven and Hartford is a fine railroad property. It became involved in financial difficulties a few years ago, however,

Bonds might be ranked as follows in order of their relative investment merits:

U. S. Government Bonds,
Domestic Municipal Bonds,
Railroad Bonds,

Public Utility Bonds,
Industrial Bonds.

There are attractive opportunities for investment among foreign government and municipal bonds, but such securities are surrounded by conditions so different from those surrounding our own domestic issues that we think perhaps they ought to be discussed apart.

New Haven Bonds

3. Q.-I wish to avail myself of the service announced in the November issue of THE NEW SUCCESS, and ask for information about New York, New Haven and Hartford 4% debenture bonds maturing April 1, 1922. These bonds are offered at a price to yield 16% on the investment. Do you consider them A-1 to hold to maturity?

A. These bonds represent what was originally a foreign loan made by the New Haven in 1907. They were first issued, we believe only in francs and sterling, but shortly after the outbreak of the war they were returned to the United States market and converted into dollar bonds. The total issue amounts to approximately $28,000,000 par value, and the price at which the bonds were originally placed appears to have been 98

through what appears to have been ill-advised policies of management, and has been undergoing reorganization, without resort to receivership. Its affairs are now in such shape as to offer a good deal of encouragement for the future of both the bonds and stock, but they are still surrounded by many uncertainties, in view of which we do not believe the securities can be recommended for conservative investment.

If you compare the bonds in question with other railroad bonds of even second grade standing, it will become apparent that they would in all probability not be selling at a price to yield as much as 16 per cent, if there was definite assurance that they would be paid off at par upon maturity. No, we think there is a considerable element of business risk in these bonds.

Kingdom of Norway Bonds

4. Q.-I will appreciate it very much if you will give me information about the Kingdom of Norway 8% bonds lately issued here, and advise me regarding their safety?

A. These bonds represent a loan of $20,000,000 repayable principal, premium and interest in United States gold coin, without deduction for any Norwegian taxes present or future. They are due October 1, 1940, but are subject to the operation of a sinking fund of $1,000,000 annually, payable in quarterly installments, to be applied as follows:

Prior to August 1, 1930, to the purchase of bonds in the open market, if obtainable, at not more than 110.

Commencing April 1, 1921, and semi-annually thereafter, to the redemption of bonds by lot at 1072.

This issue is callable in its entirety on any interest day at 110 from October 1st, 1925 to October 1, 1930 inclusive and at 1071⁄2 from April 1, 1920 to maturity.

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As far as the records show no default has ever occurred on & Norwegian National Government loan. The thrifty character of the Norwegian people, their excellent record for meeting their obligations and the conservative financial policies of their government justifies the high credit standing of the nation and seem to us to entitle these bonds to a good investment rating.

Sinclair Consolidated Notes

5. Q.-Let me know if the five years 72 per cent convertible gold notes of the Sinclair Consolidated Oil Corporation are a safe investment?

A. They are in our opinion. Their characteristics, and their status, are such, however, that we do not believe they can properly be recommended for all kinds of investment. They appear to be protected now by a wide margin of assets and earnings, but the nature of the enterprise upon which they are based is such as to subject it to many hazards, which naturally reflect themselves in the company's securities. At the time of writing these notes are selling in the open market at about 91 to yield over 10 per cent to maturity.

Lloyd George at Close Range SITTING watching David Lloyd George on many

occasions I have tried to find out the one quality that endears him to those who agree with him and gains the respect of those who disagree with him. In my judgment, it is his great heart. He is a human man. He understands every phase of human emotion. He is a master psychologist, not from an academic point of view, but in practice. He knows the wants, trials and tribulations of every phase of society. He loves his fellow-man. He wants to see peace and good will reign on earth, and I believe he will live to see his great work justified.-C. F. Higham, M. P.