THE SHIFTING OF SPECULATION FROM THE HIGHER TO THE LOWER CLASSES OF
SECURITIES.
[Sidenote: SPECULATION IN CONSOLS AS A HEDGE.]
Compared with what there used to be in bygone years there is now next to
no speculation in Consols at all. Merchants and bankers once upon a time
used to speculate in the Funds[43] as a hedge. But things have changed,
and such a method of providing against a mercantile loss, which might be
brought about by the same cause that would depress Consols, has gone out
of fashion, doubtless owing in some degree to there being other modes of
protecting themselves against risks which both merchants and bankers must
for all time incur.
The maxim which is adopted by all prudent speculators in the markets,
by which we mean the dealers in the Stock Exchange, who in the nature
of their business must to some extent speculate, or they would lose
business, is to sell when things are dear, and buy when they are cheap,
and pay no attention at all to reports. Men who have had years of
experience, know how to estimate at their just value the _on dits_ that
are for ever floating about their ears. Right or wrong, there is no
money in them in the long run, and it is with the long run that operators
should have to do.
[Sidenote: SPECULATION HAS CHANGED ITS VENUE.]
[Sidenote: INCREASE OF THE INDEBTEDNESS OF THE STATES OF THE WORLD.]
[Sidenote: THE FLUCTUATIONS IN THE PRICE OF GOVERNMENT STOCKS.]
One reason why speculation in Consols has been reduced to a minimum
is, that speculation has of late years changed its venue. The stock
markets now are the field of operations for dealers in the stocks of all
nations and all climes. There are a few countries whose names are still
withheld from Wetenhall’s list, among which China may be mentioned, but
they are few. The extent to which the world has been borrowing within
the last quarter of a century may be judged of from the fact that the
indebtedness of the States of the world has increased from 1851 to
1873 by £2,218,000,000, the proportion of which belonging to Europe is
£1,500,000,000. People have become used to making larger profits, by
which we mean that all the world lives better and makes larger incomes
than they used to. Consequently they do not care to speculate in stocks
unless the fluctuations are somewhat considerable and frequent. The
quieter attitude of England towards foreign states for many years past,
and the absence of any internal disturbances worth mentioning, has
produced much more steadiness in Government securities than was the case
earlier in the century. There is not much exaggeration in the remark that
a fluctuation of two per cent. in a day in Consols is now witnessed once
in a life-time. The process of getting in and getting out of a stock, as
a speculation, cannot be profitable when the fluctuations are so small
and infrequent. Speculation consequently has shifted from the Consol
market, and from the market where the highest class of securities is
dealt in, to departments of the Stock Exchange where a bull or a bear
stands to make something in a reasonable period, if he chance to be
operating the right way. It may be supposed that speculation for this
reason has decreased in extent. The contrary is the fact, speculators
having simply taken up new ground, as they found it useless for any
purpose to speculate in stocks in which the fluctuations were so small.
[Sidenote: HIGH CLASS STOCKS MORE FIRMLY HELD THAN FORMERLY.]
One of the reasons why speculation in high-class securities has more or
less ceased is obviously because Consols and such like stocks are more
firmly held than they used to be when the country was oftener engaged
in wars, or disturbed by semi-revolutionary agitations. Then again,
the very fact of high-class stocks remaining at a uniformly high level
of price, causes a certain class of investors to buy them for simply
absolute security’s sake. There are numbers of people who hold Consols
because they are perfectly certain their £3 odd per cent. per annum will
always be paid. They never trouble themselves about the price of the
stock, and continue entirely apathetic whether the price rises to 120 or
falls to 50. It stands to reason that, as the country grows in wealth,
so do the holders of these high-class stocks increase in number, and as
such securities are purchased largely for permanent holding, and purely
as a means of providing income, so is steadiness imparted to the price,
which tends consequently to be less and less disturbed in the absence
of exceptionally adverse influences. There are always large numbers of
persons in a country like England who are retiring from active life to
live on an income, derived through the medium of public securities of one
form or another, which is hereafter to be a purchasing power dependent
upon the labour of others. One man does his share of work in the world,
and in the process he provides for his future wants through the medium of
saved capital. There can be no doubt that if the English national debt
were to be paid off there would be a considerable commotion among those
holders of Consols who would be satisfied with nothing else half as well.
While the times in which we live therefore, continue quiet, the credit
of the Government is firmly maintained, and the savings of the people
are large, there will be always more buyers than sellers of high-class
securities while the return for the money is not less than about 3
per cent. Buyers would in most cases probably prefer to look in other
directions than pay anything over par for Consols. The fluctuations under
such circumstances are consequently very small, and there is nothing
literally but a bare bone for a speculator to pick, which is not worth
the commission, and he migrates into other markets.