from Putnam's Investment Handbook
Bonds Are Certainly Bonds
The interest rate on Liberty bonds is low, of course, but it is sure, and we have all read the fable of the tortoise and the hare. Before anyone becomes impatient with the small return of between four and five per cent, and turns away from this chapter in disappointment, I urge them to read what Ellis Parker Butler, author of Pigs is Pigs, has to say on the subject of "Bonds are Bonds."
BONDS ARE CERTAINLY BONDS
There are times when it is all right to "let George do it," and there are times when George should be headed off before he "does it."
The George I have in mind was young George, the son of Henry William, who was the son of Ebenezer J. Henry W. was a bookkeeper and living in an apartment in New York, and George was still living with the old folks, although he had a mind to marry Dorothy soon, and have a home of his own, George was not a bookkeeper, he was merely a clerk, but he was earning almost as much as his father and, with the $200 bonus the firm had handed him at Christmas, he had $1000 in the bank.
He came home one evening in quite a glow of excitement. This was only a couple of days ago, in March, 1918. He hung up his hat and threw his coat on the couch in the hall, and hurried into the "parlor" where his father was reading the evening paper.
"Well, dad," he said, "I've got things coming my way at last!"
"Got another raise, George?" his father asked.
"No, better than that! I'm going to buy some stocks. I've run across the greatest little chance in the world. You know Roddy, the fellow I had up here the other evening? Well, Roddy has hooked up with an oil company and, believe me! it is the greatest chance in the world. It is a million dollar company, two hundred thousand shares at $5 par, but old Roddy is going to let me in on the ground floor. He is going to let me have five hundred shares at $2 apiece, and the stock is dead sure to go up to $10 or even $100 the minute they strike oil!"
"Yes?" said his father sadly.
"Why do you say it that way?" asked George. "I tell you, dad, it is a sure thing! Even if the stock don't go up to $100 a share it will pay 10 per cent at the very lowest--"
"Yes?" said his father still more sadly.
"There you go again!" said George disgustedly. "I thought you would be as pleased as I am. What--"
"I thought you had decided to buy Liberty bonds, George," said Henry William wearily.
"Liberty bonds? That only pay 4 1/4% when I can get stock in the Rosy Dream Oil Wells Company that will pay 10%? Father, what was the highest the United States Spanish War bonds went to?"
"They went to 112, I think, after peace was declared," said Henry William.
"Yes, that's all. They cost 100 and went to 112, and Roddy says this stock that costs $2 may go to $10 or $100 -- maybe to $1000 -- nobody knows!"
"That's it," said Henry William. "Nobody knows!"
"Well?" queried George.
"George," said Henry William, "stocks may be stocks, but they may turn out to be worthless scraps of paper, but bonds certainly are bonds!"
"You say that, father, but -- I don't mean any disrespect -- although it sounds wise, you can't say you have been much of a financier. You are sixty now, and you have to work just as you always worked."
"That is what I mean when I say bonds are certainly bonds," said Henry William. "George, will you hand me that little black book in the second pigeonhole of my desk? Thank you! Do you know what this book is?"
"I never saw it before, dad."
"This is your grandfather's diary -- my father's diary. There is his portrait on the wall. George -- an enlarged photograph, he could never afford to be painted in oils. Neither could I. He stopped keeping this diary in 1870, and he began it in 1840, when he was twenty, just your age. I found it in his desk in 1880, George, after his death, and I began jotting things down in it. I was just twenty then, and that was thirty-eight years ago. It is a record of two generations and there are still many blank pages in the book. I am going to give it to you. You can write in it from now on."
Henry William turned the pages of the book.
"Here is his first entry, George," he said, and he read it aloud:
"Today I am twenty years old and by great economy I have saved the sum of $1000. Saving is slow and tedious work but by good luck I learned of an excellent opportunity for Investment today and I have put my $1000 into shares in the Royal Wealth Quarries Company.'"
"There are other entries, dealing with his life and his love for your grandmother, but here, three years later, he records the fact that he has quite given up hope of ever getting back a cent of the money he put into the Royal Wealth Quarries Company, which had failed ignominiously to live up to promise.
"Seven years later I find another entry. He has saved $3000 and his friend Roger Hopeful is forming a stock company. He writes:
"'There seems not the slightest chance of this venture being anything but most successful. The Golden Hope Gold Mining Company owns an entire mountain in California and Roger tells me it is said to be almost solid gold.'
"That was in 1850. The following years tell a story of hope deferred, with a final entry acknowledging that his investment was a total loss. He invested no more until 1860. It was hard for him to save money but he managed to scrape together $2000 by that time and there is an entry as follows:
"'My old friend James P. Eager was East this month and offered to let me participate in a new company he is forming to raise hogs in Louisiana. I have invested $2000.'
"A year later is this entry:
"'Eager writes me that the cholera has carried off all the hogs owned by the Eager Hog-Raising Company and that the concern is insolvent. He asks me to send him money to get back to New York.'
"There are few entries after that but my mother often said that she believed that unfortunate venture worried him until it caused his death."
George said nothing and his father turned the pages of the old diary.
"Here," said his father, "is the first entry I made in the book:
"'May 6, 1880. Bought $2000 Magic Wizard Silver Mine Stock.'
"That was money thrown away, George. For several years there were hopeful reports from the mine in Colorado and then the company simply faded away. There were no dividends and the stock was worthless. It taught me to be wary, but not to be wary enough. Here is another of my entries:
"'August 14, 1890. Wife and I bought today $3000 of the stock of the Glad Tidings Patent Medicine Co., of which my old friend O. B. Glad is to be president.'
"He was indeed president, George, at a nice fat salary. I liked Glad, so I should be thankful that someone got something out of the company; I never did -- not a cent. It was a hard blow to your mother and to me. We had counted on that $3000 for our old age. But I scraped and saved, and in 1900 I was able to write this:
"'Everyone is making fortunes in copper these days and why not I? At any rate I mean to have my chance, and I have investigated carefully and have invested $1000 -- all I have in the world -- in Castle-in-Spain Copper stock.'
"I think you have heard me speak of that stock, George, but not with mad delight. It is not worth the paper it is printed on and it never will be. That $1000 was thrown away.
"Altogether, George, your grandfather and I have 'invested' only $6000 each. It was not much, but it was all we had, and it is gone. There are good stocks, but all stocks are not good. Those that promise most brilliantly are often the most worthless. But that is not what I wanted to tell you, George. That is not all I wanted to tell you.
"You have scoffed at United States Government bonds that only pay 4 1/4% interest, but the fine fact is that they do pay it. Twice each year, when the interest is due it is ready for you. You get the money and not an explanation of why you do not get it.
"Suppose, George, your grandfather had not been so eager for magic. Suppose he had been able, in 1840 to buy United States Liberty bonds that paid 4 1/4% and had put his $1000 into them. If he had reinvested his interest at the same rate he would have had, in 1850, $1522.66. A nice increase, George.
"If, in 1850, your grandfather had then invested his $3000 in United States Liberty bonds bearing 4 1/4% interest, instead of in Golden Hope Mining Co. stock, he would have had $4522.66 and in 1860 this, with the interest reinvested, would have amounted to $6886.95. He would have had that much wealth, instead of nothing, as the result of his investments. I wish he had then put his final $2000 into Liberty Loan 4 1/4% instead of into Eager Hog-Raising stock, for then he would have had $13,519.89 to leave me when he died, instead of the nothing he did leave me.
"Yes, George, it is better to have an absolutely safe bond, like the Liberty Loan bonds, than anything doubtful. Imagine the difference it would have made in my life -- and in yours -- if father had invested in Liberty bonds. In 1880, when I was twenty years old the amount of my fortune would have been $21,022.64, plus the $1000 I had saved of my own earnings. My yearly income from father's investments would then have been $893.44. A nice little sum, George.
"But I have been guilty, too. If father had bought Liberty bonds and I had done the same whenever I had money to invest, at the times I have told you of, I would have been worth $35,092.68 in 1890. That is how the 4 1/4% you despise increases when there are no losses of capital. And the United States Government never fails, George. Your bonds never 'go bad.' Not if they are United States Government bonds.
"Have you any idea how a small income from safe bonds increases when it is reinvested regularly, George? Do you know that with the small investments father and I were able to make the income would have been $2039.52 each year by 1895? That is the truth, George! And in 1900 I would have been worth $56,921.91.
"In 1901 I would have been worth $60,359.74.
"In 1904 I would have been worth $70,104.88.
"In 1908 I would have been worth $81,221.81.
"In 1910 I would have been worth $90,225.94.
"In 1913 I would have been worth $100,251.85.
"That is how 4 1/4% interest compounds, George. It is amazing. Do you know what I ought to be worth today, at that rate, if father and I had not thrown our poor little capital into foolish investments? $124,675.31! Yes, George, I ought to be worth $124,675.31 today. My income from our investments would be $5298.70 each year.
"Well, father was not wise, and I was foolish. Some day you will be growing old, as I am now, and you will have a son you love to whom you can leave nothing, because you have nothing. Then you will know how I feel now. You will know how I regret my folly.
"I say this will happen to you, George, because I fear the desire to make foolish investments runs in our family. It seems so to me, since you mean to begin by investing your first savings as I did mine, and as your grandfather did his.
"We did not have much to invest -- father and I -- only $6000 each during the course of each of our lives, and that is what any frugal man can save, but we threw it away. I hoped, George, now that these Liberty Loan bonds gave you a chance to invest in the best there is, that you would take advantage of the opportunity, but I see it is not to be. I am sorry."
For a moment the young man said nothing.
"Dad," he said presently, "you're right! I'm going to buy Liberty bonds." Those stocks may be real stocks, or they may be fake stocks, but -- what was it you said a bit ago?"
"Bonds are certainly bonds," said his father with a smile. "And United States Liberty Loan 4 1/4% bonds, George, are the safest, sanest investment ever offered to an American. Buy them, George; it is time this family's luck turned. It is time we used our common sense. Remember this: stocks may be stocks or they may be scraps of paper, but bonds are certainly bonds!"