Moody' s Magazine
THE NATIONAL INVESTORS' MONTHLY
investor in securities. In its pages are discussed, monthly, the fundamental
causes of market movements and the principles of safe investment. It does
not disseminate tips nor does it encourage speculation in the ordinary sense of
that word. Its aim is to safeguard the investor and to teach him to think for
himself. Moody s Magazine contains, every month:
An editorial review of current events in which a careful, unbiased and inter-
esting analysis of current investment and general conditions is made in such a
way that the average man is always able to comprehend them.
Special articles of well-known financial experts and economists on such topics
as the Tariff, the Currency, Railroad Rate Regulation, Gold Depreciation,
questions which vitally affect the securities markets.
Educational articles on the various phases of bonds, stocks, mortgages and
other forms of investment; on Wall Street and its methods and on other sub-
jects interesting to the investor.
Regular departments covering life insurance, public accounting, legal
decisions affecting investments, financial diary of the month, stock record of
the month, monthly letters from Washington, London and Montreal and a sec-
tion devoted to answers to subscribers' questions on specific investments.
Subscription price, $3.00 a year.
35 Nassau Street New York City
NOTICE TO READERS
READERS of the Book may arrange with Roger
W. Babson, Wellesley Hills, Mass.,to be sup-
plied each week with the latest figures on Railroad
Earnings, Foreign Commerce, Crops, Domestic
Trade, Political Conditions, Money Supply, Gold
Movements, and eighteen other subjects of vital
interest to investors. Only by receiving these figures
regularly and systematically, tabulated in form for
practical use, can the great principles herein outlined
by Mr. Hall be of direct and immediate profit.
"How Money is Made in Security Investments"
\\ 7HILE books like " HOW MONEY IS MADE IN SECURITY
YY INVESTMENTS" have done much toward educating the
public with regard to the proper times and seasons when
to buy and when to sell stocks, yet an extensive correspondence shows
the awful mistakes which are being constantly made by people in
private life in buying securities at the wrong time or buying the wrong
things or both.
The author is constantly in receipt of inquiries from those who
have done him the honor to buy his book, concerning (1) slocks and
bonds in which they have invested ; (2) other securities, which would
ensure safety of principal and afford the best chances of appreciation
in value; and (3) the author's opinion of the stock market at the
time being, and whether it is best either to buy or sell in order to
take advantage of the great swings in prices as outlined in the book.
So great has become the number of these inquiries, and so large
have been the profits of men who have followed the author's advice,
that it now seems proper to make a moderate charge for the author's
services in these matters.
For $10 the undersigned agrees to make a careful report upon the
holdings of stocks or bonds of any individual or institution, pointing
out those which should be held for coming appreciation in value and
those which ought to be sold, either because they are too high or for
other reasons; and, further, to make suggestions concerning other
stocks and bonds which can safely be bought both for income and
for large profits. In addition, the trend and present position of the
financial markets will be explained.
Correspondence is invited. Send me a list of the securities you
are carrying, for my criticisms and comments.
MACKAY & CO.
Members, New York and Boston Stock
Exchanges. Dealers in Government Bonds
and other Investment Securities. Interest
allowed on deposits : : : : :
NASSAU AND PINE STREETS, NEW YORK
13 Congress St. 421 Chestnut St.
HOW MONEY IS MADE IN
A FORTUNE AT FIFTY-FIVE
Copyright, 1909, by
THE DEVINNE PRESS
A NATION OF INVESTORS 3
How AN INVESTOR MAKES MONEY 11
BATE OP INTEREST ON INVESTMENTS 21
CYCLES OF PROSPERITY AND DEPRESSION ....... 55
NORMAL YEARLY MOVEMENTS OF PRICES 105
COURSE OF THE STOCK MARKET SINCE 1860 ,114
POINTS TO BE WATCHED 119
TURNING POINTS IN THE MARKET 139
DULL DAYS IN STOCKS 154
WHEN TO BUY SECURITIES 160
WHEN TO SELL SECURITIES 169
MAXIMS OF WALL STREET 177
FINANCIAL TERMS AND PHRASES 182
RANGE OF LEADING STOCKS SINCE 1890 193
INTEREST BATES AND SURPLUS DEPOSITS SINCE 1890 . . 210
INDEX . 231
A NUMBER of text books have been written to explain the
character of the securities, which are sold through the
banking and brokerage houses of the United States. They
treat of stocks, bonds, notes and mortgages and describe
the peculiarities of each. Other books have been published
to define the meaning of the technical terms in vogue in
the financial world. They all serve a useful purpose.
It seems to the writer, however, that there is imperative
need of another work, which shall go beyond elementary
facts, and, in the matter of advice, shall do more than
dwell upon the simple truism that an investor, before all
other things, should pay attention to the safety of his
capital and the regularity of his income. An investor
needs to know how he can actually accomplish those ob-
jects, and farther, not only how he can avoid the loss of
part or all of his money, but also how to make money in
securities. This book is devoted to the broad principle,
that, unless there is a fair assurance that money can be
made on stocks and bonds, it is almost certain that money
will be lost on them or so locked up as not to be available
for other uses for a period of years. If securities are
going no higher, if the times do not promise greater profits
and larger dividends, then all classes of securities are go-
ing lower, at a date not far distant.
A vast amount of money is either badly employed or
wasted, every year, by investors, and great opportunities
viii PREFATORY EXPLANATION
are lost, in consequence of inattention to cautionary sig-
nals, which are easily recognized by men experienced in
finance but are entirely overlooked by others.
Coming danger and coming prosperity are always fore-
shadowed in various ways. An investor sometimes buys
stocks or bonds, when it is of dominating importance that
he should sell everything he has, both with a view to
harvest the profit he has on them and to reinvest later
selling in times of bullish enthusiasm being the step the
average investor is usually the most reluctant to take.
Conversely, an investor only too often sells, when every
financial consideration demands that he should buy. To
guide him in buying and selling, and to urge him to take
his profits on investments at certain critical periods, are
the objects of this book.
History repeats itself in Wall Street with unfailing
regularity, as in all other fields of human activity. A
diligent study of Wall Street methods and the financial
history of the past fifty years will reveal to any intelligent
man considerations of great importance; and the, fruits
of such a study are here laid before the public in the belief
that they will conserve the interests of actual investors.
Attention will be called especially to the remarkable
changes in prices of all securities, brought about by alter-
nating periods of prosperity and depression, and to the
smaller but also noteworthy fluctuations at certain sea-
sons in each year, all of which will be utilized by a care-
It may be well to say that this book is not written for
the information of men of large fortunes. The man of
millions needs no guidance from a work of this sort. He
has private information not at all at the service of the
PREFATORY EXPLANATION ix
generality, and he can proceed with the purchase and sale
of securities, with a confidence which is denied to men
less well informed. The subject of security investments,
and how to make money in them, is here discussed to meet
the requirements of many thousand Americans, who have
moderate amounts of money, say from $500 to $5,000,
which they desire to add to their permanent capital, and
from which they wish to derive as large a revenue as is
consistent with safety, and from the investment of which
they can also gain an actual increment to their principal.
This work will not encourage the belief that a man can
make himself rapidly rich by trading in Wall Street with
a few thousand dollars of capital. The achievement is
possible to men who have been trained to the business,
but it is foreign to the purpose in view. The object will
be to show that security investments can be handled in
such a shrewd and conservative manner, that the princi-
pal will be safe and the income sure, and that when this is
accomplished, a desirable increment can be added to prin-
cipal in a perfectly legitimate way a policy which will
ensure a fortune possibly in a series of years and certainly,
in a life-time.
NEW YORK, April 29, 1909.
IN presenting the fourth edition of this book to the public,
the author calls attention to the remarkable fact that a
large proportion of the business world appears to have
been taken entirely by surprise by the panic in stocks and
recession in business of 1907.
It is alleged that thousands of active business men lost,
in one year, the profits of the previous ten, and virtually
were forced to begin life anew.
x PREFATORY EXPLANATION
The aftermath of a panic is practically the same in all
cases. The losses are always grievous. The poor suffer
to some extent; the rich suffer the most. That was cer-
tainly the case, in 1907, when the securities listed on the
New York Stock Exchange fell more than $4,000,000,000
in value. While the panic of 1907 resembled 1893 in some
respects, 1896 in others, and 1903 in yet others, the general
result has been the same so far as wide-spread losses to
prosperous individuals is concerned.
But it is remarkable that intelligent and well read men,
attentive to the conditions on which prosperity -and sol-
vency rest, should have been taken by surprise by the
panic of 1907. As early as December, 1906, the signs of
a coming crisis were unmistakable. The enormous excess
of loans over deposits in New York, almost unprece-
dented in history, a condition paralleled to some extent in
the country banks, was alone sufficient to foreshadow the
course of events in 1907. The panic was, in fact, predicted
by the author in correspondence with authorities in Wash-
ington, as early as January, 1907.
This volume was perhaps the first to point out the vital
influence of an excess of loans over deposits upon the
course of the stock market. The events of 1907 have vin-
dicated its position on this subject.
The rebound in stocks and bonds from the low level
of the Fall of 1907 has been vigorous, as is usual in the
second year after a panic; and various good stocks have,
in 1909, reached the highest prices at which they have
ever been sold. The immediate future now rests upon the
action of Congress in revising the tariff, the decision of
the United States Supreme Court on the "commodity
clause" suit, and the currency legislation of the present
HOW MONEY IS MADE
HOW MONEY IS MADE
A NATION OF INVESTORS
OLD TIMES IN AMERICA, COMPARED WITH THE PRESENT. AMERICAN
SECURITIES ONCE OWNED MAINLY ABROAD. THE CHANGE SINCE 1825
PEOPLE were strong, healthy and happy in the
' l good old times ' ' of the forefathers of the republic,
but they were not rich. The skies were as blue as now,
the grass as green, the streams were full of fish and the
forests of game, the soil was fertile, and it was not difficult
to make a living; but scarcely any one owned securities
and the commonalty knew little about them.
Several millions of people occupied the thirteen colo-
nies. They were courageous, industrious and thrifty.
But in the simple occupations of the pioneer settlers of
a new continent, no great amount of surplus wealth could
be accumulated. Lands and plantations, stage coaches,
toll roads, sailing vessels, petty manufactures for local
sale, retail and auction stores and inns all existed and
were the forerunners of lines of business, in which for-
tunes have since been made. At the time, they merely
afforded a subsistence to the energetic men, who devoted
their lives to them. Millionaires were almost unknown,
while men worth several hundred thousand were extremely
rare. General Washington was probably the only man on
this continent in his day, who could have been rated as
: MONEY is MADE
Securities were not unknown of course ; but there were
only a few joint stock companies and almost no corpora-
tions 7 and from the very nature of the case, stocks and
bonds had little more than an academic interest to per-
sons who had no money with which to buy them. Owners
of securities were found only among a limited number of
merchants and bankers in the larger cities and the pro-
prietors of landed estates, North and South.
Stocks and bonds came into vogue, gradually, after the
War for Independence, as wealth increased and the trade
and natural resources of the country were developed.
Before many years had passed, the necessity had arisen
for enterprises, which could be set on foot only through
the aid of the united funds of many different persons or
the resources of the State. Bonds were issued by the
public authorities for the payment of debts to the soldiers
and others and for the construction of roads. New ven-
tures outside of the province of Government were carried
out by organizing joint stock companies and corporations ;
and as foreign trade had brought a great deal of money
into the country, it was possible to secure the capital for
the early modest enterprises mainly through leading men
of the different localities, who took the stocks and bonds
of new companies, largely from motives of public spirit
and not because they were seeking desirable forms of in-
vestment for surplus funds. The first great stock com-
pany came into being in 1791, when Congress chartered
the original United States Bank. Local banks were
formed in the leading cities, followed later by fire and
marine insurance companies. During the twenty years
next after Independence, Americans had become familiar
with the idea of devoting a part of their surplus capital
to the purchase of securities.
A NATION OF INVESTORS 5
For many years, however, it was practically impossible
to float large issues of securities in the United States.
The projectors of every important enterprise looked to
Europe for a considerable part of the funds required.
One of the interesting items of news in "Niles's Register "
and other public prints, a century ago, was the quotations
of American bank shares and State bonds in London,
printed here about a month late as a rule.
An illustration of the inability of rich Americans, a
century ago, to absorb a large issue of even the most gilt
edged security is "afforded by the experience of the first
United States Bank, an institution of which the country
was extremely proud. Measured by the times, the bank
was a gigantic concern. It had a capital of $10,000,000,
of which the Government took $2,000,000, the public
$8,000,000. In modern times, it is on record that one man
has supplied $8,000,000 for a single enterprise. , In 1791,
the sum was too large for the whole of the infant republic.
While it is true, as reported by President Washington,
that the entire capital stock of the Bank was subscribed
for in one day, the fact remains that those who thus be-
came partners in the Bank took the stock in most cases
as a speculation, not as an investment; and, as was ex-
pected, the bulk of it speedily found its way abroad. In
1809, after the Government had sold its interest in the
Bank, an official report stated the rather surprising fact
that only 7,000 shares (of $400 each) were owned by Amer-
icans. The remaining 18,000 shares were held in Europe,
mostly in London.
How little the ownership of securities interested our
people in the early days is farther shown by the entire
absence of special facilities for dealing in them. Bonds
and stocks were bought and sold principally at the stores
6 HOW MONEY IS MADE
of leading merchants and auctioneers. Not until 1792,
a year after the organization of the United States Bank,
were steps taken which tended toward the creation
of a specific market-place for securities. In that year, a
start was made in New York, by an agreement between a
few jobbers of stocks and bonds as to rates of commission.
This was the germ of the New York Stock Exchange. In
later years, dealers in securities in other cities started
stock exchanges of their own.
After the dawn of railroad construction in 1826, invest-
ment in stocks and bonds began to play a distinct part in
financial affairs. Wealth had continued to accumulate;
and many persons were found in the cities, who had man-
aged to save, through frugality and their talents as busi-
ness men, dollar by dollar, sums of money not required
in the prosecution of private business. This class of
persons became considerable buyers of the securities of
the pioneer railroad lines and public utility corporations,
which sprang up in the '30s and '40s. Some of these in-
vestments were profitable, with the consequence that men
of means turned more and more in the direction of cor-
porate securities as a proper and safe employment of sur-
plus capital. Each decade of progress added to the vol-
ume of stocks and bonds afloat and the number of buyers
of them. The process was a gradual one, however, and
more than one generation of active business men had
crossed the stage of affairs and disappeared, before there
was any striking increase in the transactions in securities
or the roll of stockholders in corporations.
From Edmund C. Stedman's " History of the New
York Stock Exchange" it appears that in 1827, trading at
New York was confined to forty-two descriptions of secur-
ity issues, as follows:
A NATION OF INVESTORS 7
Twelve bank stocks.
Eight public bonds.
Nineteen fire and marine insurance companies.
Delaware & Hudson Canal stock.
New York Gas Light stock.
Merchants' Exchange stock.
In 1837, a day's trading sometimes amounted only to
about 4,000 shares. Even as late as the outbreak of the
Civil War, in 1861, in spite of the enormous advance in
wealth and enterprise, only twenty-two stocks were dealt
in on the New York Stock Exchange, in more than frac-
tional lots, sixteen of them being railroad shares.
How remarkable is the change which has since taken
place will appear from the fact, that in 1906, sales of
stocks on that Exchange amounted to 289,425,000 shares,
having a par value of $28,942,500,000, while bonds were
sold in 1905 to the value of over $1,000,000,000. More
than 250 descriptions of stocks were dealt in, and more
than four hundred and fifty varieties of bonds.
In the eighty years or so since the whistle of a locomo-
tive was first heard in the States, a change has been
wrought in the wealth of the people, the volume and
value of securities afloat and the number of investors,
which is one of the marvels of the world's history. It is
good to be an American and to have played some part in
the betterment of conditions, which has brought about
No figures are at hand, at all important, as to the actual
wealth of the population in Washington's day. It is
known, however, that by 1850, wealth had grown to about
$7,000,000,000 and has since expanded to $95,000,000,-
000. In 1907, the country is rich and comfort is general,
at least among the native born. Americans earn more,
8 HOW MONEY IS MADE
live better and save more than their forefathers did.
Thousands are now capable of owning a few shares of
stock or a few bonds, compared with a mere handful in
the year of adoption of the Constitution, and there are
more than 5,000 millionaires. So far as the people at
large are concerned, one needs only to refer to the sav-
ings bank to gain a clue to the general diffusion of wealth
8,635 depositors in 1820, with total deposits of only
$1,139,000, and more than 7,400,000 depositors now, while
the average of accounts is thrice as large.
In every rank of life, one now finds investors in secur-
ities, and the number of them grows, year by year, as the
natural product of the thrift of a busy people, laws which
give equal opportunities to all, an inspiring climate, boun-
tiful harvests from our rich soils, the energy shown in
every branch of trade and manufacture, the discoveries of
coal, oil and metals, the division of estates, and the oppor-
tunities for profitable speculation.
Here, as in older countries, in which there is entire
freedom of thought and action, and which have risen
from primitive conditions to wealth and prosperity, thou-
sands of workmen have passed the stage where they often
lacked bread to eat, and have saved a few thousand dollars
and bought a few bonds or shares of stock. Many a village
blacksmith and smart carpenter and grimy toiler in an
iron mill is thus a capitalist on a small scale. More than
40,000 employes of the United States Steel Corporation
alone are owners of stock in that concern. In New Eng-
land, operatives are taking shares in the cotton mills.
Farmers, who, as a class, formerly struggled under the
most trying conditions for a bare maintenance, are now
recruiting the ranks of buyers of securities. A notable
A NATION OF INVESTORS 9
circumstance is the fact that in the West hundreds of
small banks have been organized in the last ten years, an
appreciable part of whose stock has been subscribed for by
Among the millions who are under salary as managers,
teachers, journalists, officials and clerks, or who conduct
small retail stores, there is now an army of frugal people
who seek a larger return on their modest accumulations
than a savings bank affords and who are receiving from 5
to 7 per cent, from stocks and bonds which they have
A curious instance is known, in which the chambermaids
and serving men of a Southern city became stockholders
in a local shipyard, started for repair of the swarm of
fishing and truck boats owned on Chesapeake Bay.
In the cities, a vast number of people, men and women,
are owners of from five to twenty shares of bank, gas,
or street railroad stock.
There is little need to multiply instances, since it is
within the knowledge of every one, that investors are now
to be found on every side among the ranks of people of
moderate means, as well as among the men of wealth.
Without dwelling further on the point, suffice it to say
that Americans have fully learned the desirability of in-
vestment in securities and the United States has become
a nation of investors.
There are no statistics as to the exact or even approxi-
mate number of investors in America. It is doubtful if
any useful object would be served, if the number could
be known. As long as the assessor and tax collector flour-
ish in the land, insurmountable difficulties will stand in
the way of an accurate census of security owners, although
10 HOW MONEY IS MADE
the facts would be interesting enough. A few of the fore-
most corporations, like the Pennsylvania Eailroad and the
United States Steel concern, have taken pride in publish-
ing the number of their stockholders; but they are
exceptions, and a policy of secrecy prevails among the
majority of other stock companies. A few years ago, one
of the New York mercantile agencies made a strong effort
to compile the total number of stockholders in leading
railroads but was obliged to abandon a task made impos-
sible by official indifference.
HOW AN INVESTOR MAKES MONEY
GREAT EICHES POSSIBLE IN STOCKS. MOST FORTUNES IN AMERICA
ENHANCED BY SECURITY INVESTMENTS. HOW THE THING IS DONE
TO the young man and the uninitiated, one of the most
mysterious of phenomena in the business world is
the accumulation of magnificent fortunes by men who
began life without a dollar. With rare and conspicuous
exceptions, the men of to-day who live in splendid houses