Page:Hints About Investments (1926).pdf/264

 owner of the assets of the company, in so far as they exceed its debts, to the extent of his holding.

It was shown that the great majority of successful companies habitually distribute in dividend less than they earn in revenue, so that as long as they are technically successful their ordinary stocks and shares, having compound interest in their favour, can be relied on to enjoy an expanding income and consequently to show a growing capital value.

But in all industrial ventures that question of technical success is a more or less dangerous risk, and the difficulty of selection is greatly increased by the impossibility, so often insisted on above, of drawing any valid inference from the balance-sheet and accounts presented by industrial companies. The technical risk applies, in varying degrees, to the debts—bonds and debentures—and preference issues and is not monopolized by the ordinary stockholder. Holders of debt and preference issues take less risks but get no increase in income (except in rare cases when participating rights are attached) from increased prosperity; and in view of the expansive possibilities attached to ordinary shares, there seems to be some ground for the argument that the greater security attached to debts has caused them to