The Investor's Opportunity
‘CIVILIZATION is advancing. Business and industry are growing and expanding, certainly, but not steadily. We go ahead swiftly for a while and then we seem to go backward. All financial and industrial history appears to have occurred in distinct cycles which have consisted of four more or less distinct periods. These are the periods of prosperity, decline, depression. and improvement. They do not roll around regularly like the seasons, and their length or intensity cannot be measured or foretold. However, they do occur uniformly in the order named, and it is usually possible to know what particular period is at hand.’
The above paragraph, written eight years ago, states only what every economist and financier knows. At that time the United States was just entering the improvement stage or spring season of the industrial cycle. Investors who recognized this, who were in position to act and who had the courage and did act, were rewarded by one of the most profitable opportunities which have occurred in our history.
THE time for completing one swing around the sun places some limitation upon the cycle of seasons of the earth, but at that, our seasons follow the calendar only irregularly. There is no calendar for the industrial seasons. One can judge what stage of the cycle we are experiencing only by observation of conditions. One must always be on the alert for irregularities. A ’spell of Indian summer’ may occur in December. To-day we clearly are in neither the prosperity nor the improvement stage of industry. We are possibly in the decline, probably in the depression stage, or possibly in the transition from decline to depression or from depression to improvement.
At worst, there can be but one stage between us and improvement. Now or soon, therefore, opportunity will be knocking at our door. The investor who will now take the trouble to analyze conditions, who will develop a sound plan for the use of his capital, and who will use ordinary good judgment in executing his plan, that investor within two to five years will find himself enjoying a reward commensurate with his skill and courage. What are some of the outstanding present conditions which should receive the consideration of investors?
THE world, not our country alone, is suffering from overproduction of goods — or, from another angle, underconsumption. Technically, the balance between production and consumption is out of adjustment. We are producing too much or not buying enough wheat, coffee, rubber, oil, cotton, lumber, coal, copper, sugar; producing too many or buying too few automobiles, aeroplanes, apartment houses, radios, refrigerators, office buildings, razors, cigar lighters, books, and shoes.
As a consequence, world competition has been steadily forcing down the price level to its approximate low for a decade. The limit may not be in sight. A cut in wholesale prices is only gradually passed on to the consumer. Prices fell during practically all of the last quarter of the nineteenth century. Money rates likewise have been falling. Capital does not rent for as much as it did, cannot be employed as profitably. Until consumption picks up, the return on capital bids fair to remain low. Other factors, such as the trade balance, foreign loans, politics foreign and domestic, stock and commodity speculation, are also affected by maladjustment of production and consumption. Such factors also deserve consideration. Chiefly, however, the causes of and the cures for this maladjustment deserve study so that progress can be recognized when it occurs and action taken according to plan.
The subject can only be touched upon in this space. To look at our country alone, we have here 120,000,000 people, by far the greater proportion of whom still want most of the luxuries and even many of the necessities of life. There is here a great unfilled reservoir of wants, and yet our surplus production cannot be poured into it because these people have not the purchasing power wherewith to satisfy their wants. The problem before us is how to translate want into effective demand.
In large degree our country owes its prosperity to the comparatively equitable distribution of its great purchasing power among all of its inhabitants. We furnish the best example in the world to-day, if not in all history, of a well-distributed purchasing power. As a people we are good workers and good spenders. We have maintained a sound balance between saving and spending. That this is essential is easily seen.
A certain amount of newly created capital may wisely be saved and invested in mills and mill wheels, just as a certain amount of a wheat crop should be saved for seed. But if mill wheels are to turn after they are built, the great bulk of each new crop of capital must be used for buying the product of the wheels just as the great bulk of any wheat crop must ultimately be ground for food. It is the buying done by the great middle and lower classes of our country which keeps the mill wheels turning. Somehow or other, buying power must come into the hands of these people, together with a willingness to exercise this power, before prosperity will return to our country. I do not know what will start the ball rolling. It may be the business programme of the Government, it may be a movement for doubling our highway capacity, it may be a discovery in chemistry, it may be the inevitable invention which will enable the aeroplane to land safely, which will again satisfactorily adjust the relation between production and consumption. Capital is now lying in wait for something just around the corner on which it will be willing to take a big risk for a possible future reward commensurate with that risk. Cheap capital will take greater risks than dear capital, and great risks intelligently taken lead to great discoveries. It may be, however, that we are to go through a period of good old-fashioned saving before we can again consume at a prosperous rate.
REGARDLESS of how or when the desired adjustment is consummated, there can be little doubt that many an investor will soon have before him one of those rare opportunities to adjust his capital structure so as to secure a safe profit in addition to a reasonable income over the next five years. This is the time for planning. Civilization still advances.