n the vocabulary of well and good. For speculation
investment, "speculation" can be extremely hazardous,
is a nasty word. particularly for the new
It suggests gambling, insecurity, investor, which means in most
long shots, luck, and similar cases the person who can least
improprieties. For old afford it. And certainly
campaigners it stirs up memories speculation, as it involves
of the 1929 unpleasantness, as cheap, shadowy gold-mining or
damp weather tweaks the rheumatic uranium stocks, is little better
joint. And, worst of all, it than throwing dice or picking
seems synonymous with money lost. horses.
For every speculator who pulls a
But speculation is a term of
coup, we hear, there are 99 who many dimensions, and it is useful
live to rue their recklessness, for investors to understand them,
to bemoan the hard-earned dollars rather than simply bow to the
foolishly and irretrievably cast taboo
down the drain.
By the more conservative
The New York Stock Exchange canons of Wall Street, for
labors long and hard to encourage instance, investment in anything
a sober, sensible attitude in except the highest grade bonds is
investors. Conscientious brokers speculation. This is strict
steer their customers away from interpretation of the dictionary
situations bearing a speculative definition of the word as an
tinge. The literature of undertaking in which a large risk
investment inveighs against is borne in the hope of a large
empty-headed avarice, blind profit. In this sense, almost any
faith, and other vagrant impulses common stock, dependent as it is
that lead the innocent into on net earnings, entails some
ill-starred ventures.
risk, some speculation.
If fear breeds caution, all
This is fairly rigid doctrine,
however. It is a premise of this H-bomb—dynamite. They should be
article that with care and understood—and avoided.
attention the investor can find
Buying on Margin
satisfactory common stocks as
Perhaps the most familiar
free of risk as any other form of speculative technique is buying
property in an uncertain world. on margin, which is utilizing
It then comes down to a question credit, in the form of a loan, to
of the investor's objective.
acquire more stock than your
The investor, by and large, is cash-in-hand will purchase. Let's
in for the long pull. The say, for instance, that you have
speculator, characteristically, $4,500 and are interested in a
is a short-term, quick-turnover stock selling at $50. Ordinarily,
man. He is interested in of course, the most you could buy
speculative situations and makes would be 90 shares.
use of speculative
Through margin buying,
techniques.
however, you could borrow an
Many of them are commonplace. additional $500 from your broker
All of them are legal. But they and get 100 shares.
usually require more capital than
Is this good? Well, it's not
the new investor can bring to a bad. The 10 extra shares give you
transaction and they invariably an increased equity, 10 more
demand shrewd judgment, complete shares on which to realize a
familiarity with market market gain. You will also get
procedures, and considerable perhaps $20 or $30 in additional
nicety of touch in the timing of yearly dividends.
purchases and sales. In expert
You have saved $20.50 in fees
hands, they are useful tools for and commissions, since the cost
the creation of wealth. In the of a round lot is only $44, while
hands of the novice, they are—as a 90-share odd lot is $64.50—$42
Samuel Goldwyn said of the for the broker and $22.50
(¼-point or $.25 a share) to the acts as a brake on speculative or
odd-lot dealer. And, finally, inflationary tendencies. At the
your $500 is obtained on a lower end, it represents a
call-loan basis, which means 4- loosening of credit and acts as a
to 6-per cent interest (depending spur and an encouragement to
on how big and active your investment when money is
account is) and no particular scarce.
payoff date. Even at 6 per cent,
The lowest rate ever permitted
your interest charge would be by the Board was 40 per cent,
only $30 a year, an amount quite which was in effect between 1937
possibly covered by the dividends and 1945. Here, of course, was a
received on the extra shares period that began with two
acquired.
recession years, picked up
The advantages of margin briefly, and then was arrested by
buying, while interesting, are World War II. Taxes rose, capital
not in this instance impressive. was elusive, and profits were
This is because the so-called restricted. To coax money into
"margin requirement"—the amount the market place, a low cash
of cash the buyer must put up—is requirement and a high borrowing
determined by the Federal Reserve capacity were allowed.
Board and at present is pegged at
By 1946, however, conditions
90 per cent. In other words, you had changed. The postwar boom was
can borrow from your broker no beginning. Money was plentiful,
more than 10 per cent of the goods were scarce, and the
dollars involved in any single inflationary pressures were
transaction. The margin rate is building. For thirteen months,
variable, and is used by the from January, 1946, to February,
Board to help maintain the 1947, the Board held the margin
stability of the market. At the requirement at 100 per cent.
higher end of the scale, margin
At lower rates, margin buying
becomes quite attractive. If you has had virtually a free
had had your $4,500 to invest ride.
during the 40-per cent period,
Forex is quite speculative as
you could have borrowed the other well, but to help you avoid heavy
60 per cent— $6,750—and acquired losses and maximize your gains it
225 shares of $50 stock, instead is well worth downloading some of
of 90. On a $2 return, your the excellent Forex software that
dividends would be $450 a year, is available.
rather than $180. But more
important, if there were a
10-point rise in the stock to 60,
your 225 shares would bring type="text/javascript">
