Facts Versus Hopes
INVESTORS and prospective investors in the United States have at their disposal first-hand information which will suffice to guide investments aright, provided the investors do not go too far afield. They have at their finger tips facts which professional speculators and brokers would give their eye teeth to get, but which are beyond their reach.
Nearly every American of investing age and ability is engaged in business in some form or another. He would not be connected with any business long if he were not conversant to some extent with its condition and details no matter how humble his position might be. He is, therefore, possessed of valuable information about the business in which he is engaged. Since all business is more or less closely linked, his knowledge usually extends some distance into every affiliated line.
The value of the information thus outlined depends entirely on using it. Many pass this asset over all their financial lives without even realizing that they have it. Investors may look so far afield that they cannot see the opportunities under their own noses or read danger warnings which flash daily before their eyes. It is an old adage that ‘the best hunting is always over the next hill.’ and investors are prone to follow that theory in placing their money.
It should not be inferred that investment solely in the company or industry in which one personally is engaged is advocated. But it cannot but be of advantage if the knowledge concerning one’s own company and industry is turned to account in the investment of surplus capital. It is the appeal of first-hand knowledge of conditions which has made employee ownership of stock so widespread in this country. The volume of worker stockholders in companies like the Pennsylvania Railroad, the American Telephone and Telegraph Company, and the United State’s Steel Corporation, and the attendant profits which have come to the holders therefrom, give adequate testimony as to the value of knowledge as against hope only.
This is how it works. Let us suppose that a man is employed as a core maker in the Chevrolet foundry at Flint, Michigan. He knows that a certain casting goes into the engine of each Chevrolet car and he knows how many castings are being turned out a day. That gives him a good idea of Chevrolet production.
Since the ratio of production to distribution under General Motors policy is fixed, he knows approximately how many Chevrolet cars are being sold a day. He also knows, or has some idea of, the margin of profit from each, and if he keeps his ears and eyes open and his mouth shut he will have a pretty good general idea (better than that of any broker) of what other General Motors units are doing. Few brokers or investors can imagine much more valuable information than to know in advance about what General Motors’ quarterly earnings report will show. Such knowledge properly applied within the last two years would have yielded thousands of dollars for a few hundreds.
Moreover, any automobile factory worker must have a fair line of information from the orders of his own company about the affairs of concerns in the accessory field. This might guide him in ventures in accessory company securities. With automobile factories consuming more copper than any other single factor in the world, he has a line from auto production on the demand and probable trend of copper prices. When it is remembered that every cent advance in copper metal prices means more than a dollar a share more earnings for Kennecott Copper and some other producers, his knowledge is not to be despised in investing in the nonferrous metal field. The same applies, in a degree, to the rubber and tire stocks, to the securities of companies making machine tools, batteries, and electrical equipment, and those producing steel automobile sheets.
The same thing may be said of practically every other industry. The keeper of a garage or gasoline station, whether he knows it or not, has his finger on the pulse of the oil industry. So has every investor in an oil-producing district. They can tell just how sick the oil industry is, if they just stop to count the beats, and perhaps they can foresee its recovery with tremendous profits to themselves.
Department-store clerks are not too unimportant to have a mighty fine line of information on what the company they work for and its competitors are doing, how the trend of sales of the chain stores and mail-order houses is going, and what the margin of profit and the demand are among producers of kitchen ware, carpets, clothing, textiles, and sporting goods. If a cloth proves a best seller, they can visualize quite closely from their own observation how the stock of the company making it will be affected.
It is inferred that farmers are constitutionally opposed to investments in stocks, but such is not always the case by any means. The farmer in close touch with the grain, dairy, and live-stock situation can tell better than any broker what the trend is likely to be in the milling stocks, affected by the price of wheat, in the packing-house stocks, in sugar, in fruit, in the canning industry, and in the business of the makers of containers, binder twine, and farm equipment.
Every man in the building trades, whether he be skilled artisan or unskilled worker, can judge pretty well from the ease or difficulty with which men in his own line get jobs just how the building-construction industry is running and how its condition is likely to affect the securities of building-materials concerns and steel mills.
Is it not reasonable to believe that a section foreman on the Kansas City Southern, who knows what traffic does to fiis road bed and who counts the cars of the freights that rumble past his gang daily, knows in advance what the month’s earnings figures will show before they are made public from the ’front office’? If he knows what the Kansas City Southern is doing, he also must know something of what its connecting roads are handling and the trend of their earnings.
And he knows it long before the broker or the market speculator, and sometimes before the heads of his own system. How many employees of the Erie Railroad, for example, do you suppose knew when that road had turned the corner, compared with the number who failed to take advantage of that knowledge? An investment based on that information would have yielded $50 a share at least by the middle of the present year.
This information at first hand flashes warning signals as well as gives the ‘go ahead. Few employees engaged in the textile trades but could have read for themselves the signs of depression in the cotton-goods industry of New England and done so in time to avert loss from any previous commitment. The employees of American Woolen must have known in what shape that company was placing itself, yet some still are hanging on to the stock with a big loss dragging at their grip.
The professional man is in the poorest position to secure first-hand investment information. Perhaps that is why the bucket-shop operators seek lists of prospects among the doctors, ministers, and dentists. But even these classes can have first-hand information as to the public utilities in the communities where they reside. Schoolteachers, stenographers, taxi drivers, actors, authors, artists, and waiters all have opportunity for acquiring valuable investment information, and the office boy is by no means to be overlooked, either.
The information is easy to get. The results come from using it. The old saw that a little knowledge is a dangerous thing is outworn. It is far more dangerous not to use what knowledge one can acquire. One who uses information and stays near home, not geographically but industrially, is far less likely to trip and lose his financial feet than one who substitutes hopes for facts.