The History of Corporate Finance: Developments of Anglo-American Securities Markets, Financial Practices, Theories and Laws Vol 4

Robert E Wright, Richard Sylla

• Publisher: Routledge
• Year: 2020
• Topic: Business
• eBook ISBN:
  9781000161991
• Subtopic: Finance
• Index: Business

This work contains primary research texts regarding two centuries of the development of corporate finance in the US and Great Britain. It is designed to help scholars, financial managers, and public policymakers to investigate the historical background of issues in contemporary corporate finance.

A TREATISE ON INVESTMENTS: BEING A POPULAR EXPOSITION OF THE ADVANTAGES AND DISADVANTAGES OF
EACH KIND OF INVESTMENT*

Robert Arthur Ward, of Maidenhead, Berkshire, solicitor.
A Treatise on Investments: Being a Popular Exposition of the Advantages and Disadvantages of Each Kind of Investment, and of its Liability to Depreciation and Loss
2nd edn (London: Effingham Wilson, 1852)

*This text contains cross-references to original page numbers. See p. 461 for conversions to Pickering & Chatto page numbers.

A TREATISE

ON

INVESTMENTS:

BEING A

POPULAR EXPOSITION

OF THE

ADVANTAGES AND DISADVANTAGES OF EACH KIND OF

INVESTMENT,

AND OF ITS LIABILITY TO DEPRECIATION AND LOSS.

BY

ROBERT ARTHUR WARD,

SOLICITOR,

MAIDENHEAD, BERKSHIRE.

___________

SECOND EDITION, GREATLY ENLARGED

___________

London:

EFFINGHAM WILSON, 11, ROYAL EXCHANGE;
AND SIMPKIN, MARSHALL, AND CO.

1852.

INVESTMENTS,

&c.

___________

INTRODUCTION.

THE object of this work is to give to capitalists such information of the advantages and disadvantages of each kind of investment, as will enable them to place out their money in the manner they may deem most desirable.

Many persons prefer security of capital to a large annual return for their investment; to such, the following pages will, it is hoped, show what kind of investment they must seek, and what avoid: with others, the chief object is the power of turning their investment into cash without delay; this work is intended to show them where to place their capital: others, again, may desire to invest their money, so as to return a greater annual rate of interest than that usually paid on first-rate securities, without wishing to enter into wild speculations; to such, these pages will, it is hoped, convey an idea of the risks to which all investments offering a large rate of interest are subject,

I propose, in these pages, to put the capitalist in possession of such information, as will enable him to judge for himself the value of any investment that may be offered to him, and to give him knowledge, through which he may, perhaps, be enabled to save his property from depreciation, or, it may be, from entire loss.

It seems strange that no class of persons are professionally engaged in giving advice on the very important subject of investments. Solicitors can state the legal bearings of the subject; but they, generally speaking, know nothing of the value of many kinds of pro-perty: the knowledge of brokers and others is confined to those transactions with which they are professionally connected. The Law Students Magazine, in reviewing this work, has thus well written on the subject:— “Amongst the numerous matters, upon which clients consult their legal advisers, the expediency of this or that kind of investment is, though of frequent occurrence, not the least difficult of a solicitor’s duties. Perhaps, in strictness, such a topic is not within their duties; and, in support of this remark, we have referred to our book-shelves and law catalogues, and do not find that any lawyer has treated upon the subject. We consider this almost conclusive; for what law books do not teach him, a solicitor cannot be legally expected to know. This, however, will not satisfy a client; and no sooner does the relation between him and his solicitor ripen into esteem (which, we venture to say, is always the case with honourable men), than the client appeals to his solicitor on the investment of every valuable consideration. Now, such being the state of things, the necessity for a solicitor making himself acquainted with the subjects of prudent investment, and the snares for trapping the unwary in such matters, is very evident. He cannot hope to obtain or keep clients, unless he can show himself alive to what is passing in the money world, and able to give, at least, general information on the various topics of money investment We think, that in no matter is a client acting more prudently than in consulting his solicitor previously to laying out his capital; and we most sincerely pity those clients whoso desire to act under good counsel is not responded to or assisted. We have known instances where thousands have been utterly lost through fear of expending a few pounds in a solicitor’s bill, for an investigation into some glittering scheme; but while we abstain from sympathising with the pound-foolish or self-wise capitalist, wc feel the more favourably for the prudent man, whose sagacity is shown by seeking the advice of a shrewd lawyer.”

No person is able to judge of the eligibility of investments generally without some knowledge of the law; he must also make himself acquainted with the non-legal advantages and disadvantages of each species of property; and then he is in a position to give advice, which will be sought for and appreciated.

I am aware, that every solicitor who understands his profession, will be enabled to give to the client who comes to him to place out money with the least possible risk, the legal information which this work is intended to convey: he can, indeed, say, that a first mortgage on ample real property is unquestionably one of the safest investments that can be had; but if his client is unwilling to wait until such an investment offers, or, not caring to run a little risk, is desirous of receiving more than the rate of interest usually paid on unexceptionable mortgage securities, the solicitor cannot, on the spur of the moment, make him acquainted with every disadvantage of insecure investment generally: he cannot measure the risk his client is willing to run, and therefore he is not able, with satisfaction, to recommend him any investment accompanied by liability.

Moreover, what may be a very advantageous investment for one person may not be so for another; and a solicitor cannot advise his client to seek a particular kind of investment in preference to another, without inquiring too minutely into all his circumstances. And again, it frequently happens, that one person agrees to invest money without, in the first instance, consulting his legal adviser on the subject.

For the foregoing reason, and because no persons are by profession engaged in giving advice on investments, it is therefore advisable that a capitalist should be acquainted with the advantages and disadvantages of each kind of investment, in order that he himself may judge of its safety and eligibility, and may be able to discern, whether or not the advice of another is to be relied on.

CHAPTER I.
ON INVESTMENTS GENERALLY.

THE value of investments depends upon several circumstances: whieh are, the liability of the investment to depreeiation in value, or to entire loss; the annual return, in the shape of rent, interest, dividend, or other produce, which is obtained for the sum invested; the facility with which the investment can be turned into ready money; the ease with which the rent, interest, or other income, can be recovered; and the liability incurred by the person investing, beyond the amount of the sum invested: this latter qualification will not enter into any of the investments mentioned in this work, except partnership, and shares in joint stock companies.

A capitalist seeking a permanent investment for his money, should be guided in his choice, in some measure, by the probable effect of circumstances on the different kinds of property: for example, shortly before the repeal of the corn laws, when their continuance was very doubtful, a person would not have sought for an investment in tithe rent-charges, which were sure to fall in value with the price of corn; and, at the present time, the capitalist will consider how the investment, which he proposes to obtain, will probably be affected by circumstances generally, and, especially, by the importation to a large extent of gold, the probable effect of which is discussed in the next chapter.

The chief object of all investments is, to secure the principal, to obtain as large a rate of interest as possible, and invest upon such a security, that the interest may be readily obtained, when it becomes due, and the principal be turned into cash with as little delay and expense as possible.

The rate of interest obtainable upon any security, varies with the state of the money market: a few years since, during the railway mania, money could scarcely be obtained at 5l. per cent interest, on unquestionable landed security. At most times the offer of a good mortgage at 4l. per cent., except for small sums, is immediately accepted. Generally the investment, which pays the least rate of interest, is that of the purchase of land, the annual return being usually about 3l. per cent, per annum. Investments are offered to pay almost any amount of interest; in most instances they vary in security in inverse ratio to the rate of interest which they arc stated to realize. In Chambers’s Edinburgh Journal, for the 24th of August, 1850, there is a very sensible article, advising persons never to take above 5l. per cent, for their money; and unquestionably investments, which offer more, are to be looked upon with great suspicion: it is too much to assert, that more than that rate of interest is never, or even unfrequently, realized: but such an investment cannot be a first-rate security; if a person choose to seek after such, he must, in a greater or less degree, jeopardize his capital.

The tables at the end of this work arc calculated at compound interest, as all calculations ought strictly to be. The difference in value between 3l. a year and 4l. a year, for ten years, is more than 10l.; it is, in fact, at the rate of 4l. per cent, per annum interest, about 12l. If it so happen that the capitalist cannot reinvest the income he receives each year from his investment immediately it becomes payable, and at the rate of interest required, he must make an allowance accordingly, the tables of compound interest being arranged upon the supposition that the incoming interest is reinvested immediately at the rate required. Simple interest is calculated with more facility than compound interest, hut the following remarks respecting the doubling of money, will render the calculation of compound interest in round numbers comparatively easy; they are extracted from Scratchley’s Theorems in Compound Interest, lately edited by Mr. Scratchley, M.A., of the Western Life Office, and show that, when a sum of money increases to double its value by the accumulation of compound interest, the analytical investigations assume a peculiar form, from which the following theorems have been deduced, as bearing on the system of many building societies. For all rates of interest not exceeding 10/. per cent, the number of years in which a single sum will become double in amount by the accumulation of compound interest, may be found in round numbers, by dividing 70 by the rate of interest per cent., and talcing that whole number which is nearest to the quotient obtained. The accuracy of this theorem may be judged of by Table I., and is valuable as furnishing a simple rule, and one easily remembered; thus:

Which agree with the whole numbers given by Table I.

If a sum of money be borrowed for such a time that, if unpaid, it would be doubled by the accumulation of compound interest, then the debtor can liquidate the debt with interest in that time, by an annuity equal to twice one year’s interest on the sum borrowed. If the time be a certain number of years and days, the last payment of the debtor will be a fractional part of the year’s annuity, proportionate to the fractional number of days. Thus, if 60l. be borrowed for fourteen years (which is the time in which money will double at 5l. per cent.), then the debt can be repaid, including principal and interest at 5l. per cent., by an annuity at the rate of 6l. a year, or 10s. a month, since 3l. is the interest on 60l. at 5l. per cent. This explains the principle of building societies for fourteen years.

CHAPTER II.

ON THE CONSEQUENCES OF THE RECENT GOLD DISCOVERIES ON THE VALUE OF THE VARIOUS KINDS OF PROPERTY.

A WORK on investments might well be considered imperfect, if the author did not attempt to show what effect, if any, the recent discoveries of gold in Australia and...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• [George Rae], The Internal Management of a Country Bank: In a Series of Letters (1850)
• Robert Arthur Ward, A Treatise on Investments: Being a Popular Exposition of the Advantages and Disadvantages of Each Kind of Investment (1852)
• Page Conversions