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 process of diversification. It is lessened by diversification, but in these times there is nearly always a good deal of sympathy between one industry and another.

Moreover, excellent as the effects of the reserve fund policy are when successfully carried out, its success, and the power of the directors to carry it out at all, depend on the efficiency with which the industry is conducted on its technical side. If profits are not earned there is nothing to put to reserve; and if the sums put to reserve are invested in expansions of the business that do not pay, they bring no advantage to shareholders, whose dividends have been diminished to provide them. Ordinary shares in a company that is profitably conducted and continually puts part of its profit into expansion are as good an investment as can be found, but profitable operation in any particular industry is evidently a factor that can be relied on with much less confidence when we try to peer into the future than, for example, the total taxable capacity of a great and wealthy people.

With these reservations it seemed to be desirable to make a test of our own, applying the reserve fund policy as a practical guide in the selection of industrial ordinary securities.