There is every probability that the average investor never heard
of a proper "amortization charge" in the management of a mine.
Until he shall have heard of it, until he shall have learned
something of the terms of life annuities, he ought never to
invest a cent in any mining stock. After he actually has learned
the theory of amortization, he will observe that ALMOST EVERY
MINING STOCK LISTED IN PUBLIC PRINTS IS SELLING AT AN INFLATED
VALUE. That is to say, even the best and most stable of mines are
overrated, not to mention the purely wildcat ventures. Some mines
may naturally be long-lived, others short-lived; yet, if either
pays a good, stiff dividend, THE PUBLIC MAKES NO DISTINCTION
BETWEEN THE TWO and will buy the stock of either. In this
investing, the public has no protection on the part of the
government, on the part of honest publicity, or on the part of
its own careful education.
In the MAJORITY of cases, a mine ought to pay annually perhaps
twenty per cent. of the investment, to be profitable. That is to
say, the actual value of any mine is rarely over five times
actual dividends paid after expenses of operation. How many mines
are capitalized on any such real basis as that? The answer lies
in our own ignorance, and in the shrewdness of the men who sell
us mining stocks. Stocks that are the best dividend-payers often
sell at TEN or TWELVE times the face of the annual dividends. Let
the mine hit a brief streak of bonanza, and the stocks will climb
yet higher. We buy such stocks, or worse; but even a fundamental
acquaintance with the theory of mines would show us that such an
investment is usually a bad one. In a mortgage we do not look to
the interest to pay us back our principal; in a mine we MUST look
to DIVIDENDS to pay us back our PRINCIPAL AND INTEREST also. When
the mine is done, our principal is gone. But how many mining
investors ever thought of that? And how many, when offered a ten
per cent. "guaranteed dividend" for five years on their money,
ever stop to reflect that, for instance, I could take your money
and put it in a cracker box, and myself make money by paying it
back to you, ten per cent. a year for nine years--and then
explaining what had happened to the cracker box! Now, most of us
are just such cracker-box investors. We pay out millions and
millions annually, just that foolishly. And our nation, our
states, allow us to do it. They even--as recent legal proceedings
prove--allow the "inside" operating stockholders to borrow money
to pay dividends to the "outsiders." That keeps up the "values"
in the market. It does not enhance the real value in the mine.