National Geographic : 1911 Dec
The Margin of Safety in Investments The wise investment of money is not simply a question of safety ; nor, on the other hand, is it merely a matter of income. It is in reality a combination of the two. While safety should be the fundamental consideration, it can be carried to such an extreme as to unnecessarily limit the earning power of the invested capital. In the case of the average individual, the margin of safety in what is usually regarded as a "gilt-edge" bond, yielding around 4 per cent, is often far beyond the dictates of conservatism. While it is impossible to present any fixed rule, it is generally laid down by experts as an axiom that when a bond issue represents from one-half to one-third the true value of a property mortgaged, then the margin of security is ample. If, moreover, the income applicable to interest charges on a given issue of bonds is from two to three times the annual require ment, then the margin ofearnings is ample. If, in addition, the bonds yield approximately 5 per cent. and have a reasonably broad market, then they combine: 1. Safety as to principal. 2. Liberality of income. 3. Convertibility into cash. 4. Opportunity for profit. Write for our Bond Circular No. 439, " Investment Securities." Spencer Trask & Co. Investment Bankers Albany, N. Y., State and James Streets 43 Exchange Place, New York Boston, Mass., 50 Congress Street Chicago, 111.,72 West Adams Street Members New York Stock Exchange "Geographic readers may depend upon the integrity of our advertisers."