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
increasing the 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 not enough 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 of New 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,
but _shares_!--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 there are 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.
* * * * *
Transcriber’s Notes:
The one footnote has been moved to the end of its chapter.
Illustrations have been moved to paragraph breaks near related content,
except for the frontispiece.
Variations in spelling and hyphenation were retained as they appear in
the original publication, except that obvious typographical errors have
been corrected.