The thoughtful investor is always clear in his own mind about what he seeks from investment. Although he has only three choices, the distinctions between them are important and he observes them carefully. Switching objectives in mid-stream can be confusing and costly.

Securities can be categorized as investments for income, for capital appreciation, or for safety of principal. Income means cash dividends. Capital appreciation means an increase in the market price of a stock. Safety means maximum in­surance against loss of the funds invested.

Many securities may seem to mingle these objectives. It is quite possible for an "income stock" to rise in value or to have a high safety factor, and for healthy dividends to be paid by a stock purchased primarily for capital appreciation. It is also not unreasonable to buy one stock for income and another for growth. But one point of view should prevail as to the primary function of any stock held.

The reason is that by declaring his intention in each in­stance the investor has a better basis for judging whether the performance of his securities has been satisfactory. The in­vestor for instance who has settled on income as his main goal may be ill-advised to switch from a steady dividend-payer, which presumably answers his needs, to a fast-climbing growth stock whose flashy performance has caught his eye. It could be that the growth stock is intrinsically a better investment, but in making the switch the investor must be pre­pared to adjust his investment philosophy accordingly. He is now investing for capital appreciation, and must apply cri­teria other than the size and regularity of his dividends in the evaluation of his stock.

There is no argument, of course, against the move that suc­ceeds. The investor who can jump from something good to something better need not worry about the consistency of his investment philosophy. A profit at the end of the year speaks for itself.

For the new investor, however, the advantage of having at least one constant factor in the shifting equation of invest­ment should not be overlooked. Knowing your objective and sticking to it inevitably simplifies many of the choices con­fronting you. These, you may be sure, are numerous and baffling enough. Your own attitude and expectations should not also be matters of guesswork.

What, then, should your objective be? What are the im­plications of the three basic possibilities?

Income: For many people, the ideal stock is one that pays dividends regularly and offers a high yield in proportion to its price. It may not be so glamorous as realizing a fat capital gain from a shrewdly chosen growth stock, it may not be so adventurous as dipping in and out of the market to take ad­vantage of short-term swings, but it can be very satisfying nonetheless. One of life's pleasant experiences is to find a dividend check in the mail every three months, regular as clockwork.

The investor for income is in good company. It is quite likely that more people are in the market for income than for any other reason. And why not? For sixteen consecutive years—from 1942 through 1957—the common-stock divi­dends paid out by companies listed on the New York Stock Exchange showed an increase over the year before. In 1958, owners of these common shares received more than $8.71 billion in dividends, only one per cent less than 1957's record total of $8.79 billion. As 1959 ended, it appeared that common-share owners would receive better than $9 billion, a new high and the largest amount ever distributed. All this, too, has been on the general basis of a pay-out of about 50 per cent of earnings, or somewhat less than United States cor­porations were in the habit of distributing prior to World War II.

Investment for income is generally a long-term proposition. It implies stability. And it makes particularly good sense for people who do not expect to become market experts or secur­ity analysts. In fact, there are respected authorities who state flatly that the investor who seeks anything more than income from securities must be classed as a speculator, a risky role to play for any but the most sure-footed professional.

Long term, it should be noted, does not mean forever. It does not mean buy-and-forget. Whatever your holdings, you should review them several times a year and stay alert for news indicating whether the prospects are good that your companies will continue to maintain their present level of earnings. Unless you have strong reasons for dissatisfaction with an income stock, however, there is little to be gained by switching. Generally speaking, there is not enough difference in the yield, say, from two good-quality utility company stocks to justify the expense of selling one and buying the other. (Although 100 shares of a stock paying $3 would produce $50 more income annually than one paying $2.50, it would take more than a year to rationalize the commissions and taxes paid to sell the latter and buy the former).

Dividends have their own way of accumulating. Given the steady upward trend of stocks in this century, a well-chosen security will reward the investor who holds it patiently. In even five years there can be a dramatic increase in yield. Take, for instance, Central Illinois Public Service—CIP on the ticker tape—a moderately well-rated small utility company serving agricultural, mining, and manufacturing areas of central and southern Illinois. In 1953 it hit a low of 17⅛ which meant a 6.7 per cent return in a $1.20 dividend. In 1955 the dividend was upped to $1.35; in 1956 it went to $1.60; in 1958 to $1.68; and in 1959 to $1.76. It is now $1.92. Meanwhile, its price, reflecting the increased dividend, has more than doubled. At a recent quotation of 44, the yield was a respectable, but not unusual 4.3 per cent. The investor who bought at the 1953 low, however, is now receiving a quite spectacular 10.7 per cent return.

At this point, day-to-day dips and rises in Central Illinois Public Service mean little to the investor of seven years' stand­ing. By now the dividend would have to be cut more than a third before he found himself where he started, and 64 per cent—to 70 cents—before he reached the 4 per cent return of the man who bought at 40. These drastic cuts are not inconceivable. But the cushion for the investor who bought in 1953 is considerable. There would have to be some quite violent reversals in the price and prospects of CIP before he would be moved to sell out.

The problem of stability is a beguiling one. For many in­vestors it represents the compromise between safety and risk. Safety, as we will see, offers a discouragingly low return. Risk is the privilege of those who can afford it—exhilarating when one has dared and won, but painfully, most truly felt by the loser. Somewhere in between, most investors decide, there must be a sensible course, commensurately rewarding.

And so there seems to be. Stability is the touchstone. The gauges of stability are many. The one hazard is that they are inevitably based on past performance. No one can say for sure when the downhill slide will begin, when the earnings will diminish, when the seemingly unshakable dividend will be cut or passed.

One gauge, nonetheless, is the consistency and longevity of a company's dividend payments. A company that has re­warded its shareholders through fair weather and foul must not only be considered strong, but reasonably proud of its performance and eager to maintain public confidence in it. These records are easy to check. Any broker, for instance, can supply you with a list of the 50 companies with the long­est records for consecutive annual dividend payments. It is an impressive group, headed by the Pennsylvania Railroad, which has managed to pay a dividend every year since 1848.* True, it has had periods of tough sledding when the payment was no more than a token, but so far, nonetheless, the record holds.

Longest Records for Consecutive Annual Dividend Payment

Cash
Divs.
Paid
Ea. Yr.
Begin'g

1848   Pennsylvania  Railroad
1852   Washington Gas Light
1853   Cincinnati Gas & Elec.
1853   Continental Insurance
1856   Scovill Manufacturing

1863    Pennsalt Chemicals
1864    American News Co.
1867    Pullman Inc.
1875    Link-Belt Co.
1875    Westinghouse Air Brake

1878    Parke, Davis & Co.
1881    American Tel. & Tel.
1881    Corning Glass Works
1881    White (S.S.) Dental Mfg.
1882    Diamond National Corp

1882    Carter Products, Inc.
1885    Consol. Edison of N.Y.
1885    United Gas Improvement
1886    Hackensack Water Co.

* Bank stocks, which are not listed on the New York Stock Ex­change but are traded over-the-counter, include a number of issues that top even the Pennsylvania for non-stop dividend pay­ments. Chemical Bank New York Trust Co. has an unbroken string since 1838, the Pennsylvania Company for Banking since 1814 and the First National City Bank since 1813. The First Na­tional Bank of Boston, the granddaddy of them all, has not missed an annual dividend since 1784.

1889   Ruberoid Co.
1890   Boston Edison
1890   Cannon Mills
1890   Commonwealth Edison
1891   Proctor & Gamble

1891   Riegel Paper Corp.
1892   West Va. Pulp & Paper
1893   Coca-Cola   Co.
1894   Chain Belt Co.

1894   Standard  Oil   (Indiana)
1895   Burroughs  Corp.
1895   Colgate-Palmolive Co.
1895   Raybestos-Manhattan

1896    City Products Corp.
1896    U.S. Playing Card

1898    General   Mills
1898    "Shell" Transport & Trading
1899     Borden  Company
1899     General Electric
1899     National Biscuit

1899     Pittsburgh Plate Glass
1899     Standard Brands
1899     Standard Oil (N. J.)
1899     United Fruit Co.
1899     Washington Water Pwr.

1899     Yale & Towne
1900     Bristol-Meyers Co
1900     Cleveland Electric Illuminating
1900     Cream of Wheat
1900     Harshaw Chemical
1900     Union Pacific Railroa

The list is a fascinating panorama of American industry. Before and just after the Civil War, it was dominated by utilities, insurance companies, and railroads and their sup­pliers, such as Pullman and Westinghouse Ah" Brake, which were, in fact, the principal stock-issuing agencies of those days. In the Eighties and Nineties, however, appear—one by one—the giant concerns that are national bywords today. American Tel & Tel and Corning Glass began their unbroken string of dividend payments in 1881, Allied Chemical and Dye in 1887. Coca-Cola began in 1893, Standard Oil (In­diana) in 1894. In 1899 five of industry's biggest names paid their first dividends: the Borden Company, General Electric, National Biscuit, Pittsburgh Plate Glass, and Standard Oil (New Jersey). An investor would have to look far to find steadier income producers than these.

Another list contains the names of 330 stocks which have paid at least one cash dividend every single quarter for a min­imum of 20 years and a maximum of 95 years. Another list tabulates 885 common stocks which have paid dividends for the past 20 years or more.

It all depends on how exacting you wish to be in selecting for steadiness of income. With the country having enjoyed the greatest bull market in history between 1942 and 1960, it is not difficult for even a mildly energetic and successful company to have been a dividend-payer for 20 years. On the other hand, considering the five wars and the slumps, setbacks, and depressions of various magnitudes that we have experienced since 1848, the performance of the Pennsylvania Railroad is truly remarkable.

Yet consistent payments are not in themselves a sufficient answer for the investor contemplating a purchase. Even the list of the 50 marathon payers represents a wide range of values by today's standards. Changing times, changing tastes, changing markets—and more than these, subtle changes in the corporate heartbeat and metabolism—have placed some of these patriarchs in the backwaters of American industry. Some of them are one-product companies with a steady, pre­dictable, but limited market. Others service geographic areas that have been developed to the saturation point and are unlikely to expand further. Others are losing ground to com­peting companies or industries or technologies.

A case in point is Westinghouse Air Brake, a company in transition. Incorporated in 1869, and a steady dividend payer since 1875, it was for years the leading manufacturer of rail­road air brakes, signal systems, and other safety devices stemming from the inventive genius of George Westinghouse. Like any supplier of accessories, however, the company was dependent on the fortunes of the industry it served. When the railroads slumped, WK suffered.

In recent years, however, management has diversified the company's interests and products. It is now manufacturing air compressors, pneumatic tools, earth-moving equipment, and portable drilling rigs for the oil and mining industries. Its reliance on the railroads is no longer total; its chances of remaining on the list of 50 long-payers are vastly improved. In short, stability resulting essentially from momentum is less dependable than that derived from inventiveness, adapt­ability, and responsiveness to new conditions.
Another gauge that impresses investors is the list of com­panies tending to pay progressively higher dividends over the years. This would indicate a demonstrated earning capacity and a willingness to share liberally with stockholders—an ideal combination for the income-seeker.

In the first 50, here, are such stalwarts as Eastman Kodak, American Electric Power, IBM, Sun Oil, and Winn-Dixie Stores, which have upped their dividends on ten occasions since 1949.

Finally, of course, there are the stocks most favored by institutional investors—insurance companies, investment trusts, endowment and pension funds. The implication here is that these institutions cannot afford to take chances and must count on substantial income to meet their commitments. And the stocks in which they invest are indeed Blue Chips. On the other hand, it must be remembered that these institutions are managed by professionals, with a keen, bright eye on the market. Despite their size, they can move in a hurry, and get in and out of the market to take advantage of ups and downs.

They are also protected to some extent by the diversity of their holdings, which permits losses in one category to be off­set by gains in another. The small investor trying to decide between Goodrich and Firestone hardly has the same flexibility as a trust holding 5,000 shares each of Goodrich, Firestone, Goodyear and U. S. Rubber. By reason of diversity, too, a trust can afford to deal in some stocks more volatile than those the investor-for-income would find most suitable.

Lists, guides, and gauges such as these are grist for the investor's mill, but they provide no certain answers in the search for the appropriate income-producing stock. The con­ditions under which others buy, and the reasons for which they buy, are not necessarily relevant to your situation or your neighbor's.

Long-run stability is probably the most important single factor in acquiring and holding an income stock, but this is a quality that must be carefully defined. It should be noted that certain categories of industry are traditionally viewed as more stable than others. The utilities companies ("Everybody needs gas and electricity"), the food processors like General Foods, General Mills, National Biscuit, and National Dairy Products ("Everybody has to eat"), and retail trade—Allied Stores, Sears, Marshall Field—("Everybody uses department stores") are all involved in basic products for which there is a demand regardless of the economic weather, and stocks of this sort are frequently found on recommended lists "for income."

It can be argued, of course, that General Motors and U.S. Steel and Douglas Aircraft are also stable. And indeed they are. They are huge, powerful, and dominant in their fields. If the time should ever come when they are considered shaky and unsafe, there would not be much point in looking for stability anywhere in the economy. Nevertheless, each is subject to fat and lean periods that make them less than ideal in  terms  of  stability  as  it is  being  delimited  here.

Trend of Dividends Progressively Higher Over the Past 10 Years

No. Years Cash Divs Increased Since 1949	Common Stocks  Whose  Dividend   Payments Trended Progressively Higher  Over  The Calendar Past Ten Years	Cash   Dividends* (Including  Extras) Year 1949       1959
10	Amer.   Electric   Power	$1.71	$0.67
8	Amer.   Home  Products	4.00	0.85
8	Amer. Machine & Foundry	1.07½	0.33
8	American   Natural   Gas	2.48	1.09
8	Atlantic   City   Electric	1.00	0.51
7	Baltimore  Gas   &  Elec	0.92½	0.60
8	Central Hudson G. & E	0.83	0.52
9	Cincinnati Gas & Elec	1.50	0.62
8	Columbia Broadcasting	1.21	0.40
7	Corn  Products	2.00	1.14
7	Delaware Power & Light	2.10	1.20
8	Dow   Chemical	1.18	0.35
7	Duquesne  Light	1.10	0.72
10	Eastman  Kodak	1.56	0.57
8	Federated Dept. Stores	1.95	0.83
8	Firestone Tire & Rubber	2.55	0.94
7	Freeport Sulphur	1.20	0.44
8	Genl. Amer. Transportation	1.95	0.75
7	Gillette	2.50	0.81
9	Household Finance	1.14	0.62
7	Idaho   Power	1.67½	0.90
9	Indianapolis Power & Light	1.55	0.79
10	Int'l  Business  Machines	2.03	0.64
7	Kansas  Gas  &  Electric	1.52	0.97½
8	Lily-Tulip  Cup	0.97½	0.19

No. Years Cash Divs Increased Since 1949	Common Stocks  Whose  Dividend   Payments Trended Progressively Higher  Over  The Calendar Past Ten Years	Cash   Dividends* (Including  Extras) Year 1949       1959
7	Marine   Midland	1.00	0.50
8	Marquette Cement Mfg	1.70	0.48
7	Merck	1.60	0.60
7	Minnesota Mining & Mfg	1.50	0.32½
8	National  Dairy  Products	1.95	1.10
7	National Fuel  Gas	1.15	0.60
8	National  Lead	3.25	0.74
9	Oklahoma Gas & Elec	1.00	0.60
9	Pfizer (Chas.)	0.80	0.31
7	Philadelphia Electric	2.24	1.20
7	Phillips Petroleum	1.70	0.75
7	Pitney-Bowes	0.58	0.25
8	Public Service of Colo	1.88	1.00
9	Scott   Paper	2.05	0.66
9	Smith  Kline  &  French	1.20	0.14
7	Standard Oil of Calif	2.00	0.86
8	Standard  Oil   (N.J.)	2.25	0.66
7	Storer  Broadcasting	1.80	0.17
10	Sun   Oil	0.95	0.40
8	Talcott   (James)	1.39	0.65
7	United Gas Improvement	2.35	1.30
8	Upjohn	0.64	0.25
7	Virginia Elec. & Power	1.10	0.60
9	Washington Water Power	2.00	0.71
10	Winn-Dixie Stores	1.14	0.16

*Adjusted where necessary for splits and stock dividends.

Automobiles are a basic but highly competitive commodity; the industry's prosperity depends on selling far more cars than actually are needed to replace those taken off the road each year. Sales resistance in any year can cut drastically into profits and make an automobile stock an uncertain investment for income.

Few industries are more basic than steel, yet it, too, is highly sensitive to fluctuations in consumer demand—including that of the auto industry, perhaps its largest single customer. Despite the premier ratings given to some of its stock, steel has been traditionally regarded as a "prince or pauper" in­dustry.
Aircraft companies are so heavily dependent on Govern­ment defense contracts that they, too, cannot be relied upon for consistent prosperity.

Stability, therefore, would seem to require a basic product, or service, manufactured or distributed by an established company in established markets. The ideal is an all-weather product, not subject to seasonal slumps, to changing fashions, or to family budget limitations when money is tight. It should not be past its prime, like coal, leather, or wool, but should not be in an experimental phase, like electronics, atomic energy, and rare earths and metals. It should not require such enormous investments for research and dev­elopment that per-share earnings will not permit a steady, handsome dividend.

The next crucial question, of course, is "How much is good?" And the answer is one that applies to every stock purchase at any time for any purpose: the dividend and yield are good if the stock is soundly priced in the prevailing market. At the end of 1957, a composite of all 992 dividend-paying stocks on the New York Stock Exchange had a market price of $42.02 and a dividend of $2.56, resulting in a (median) yield of 6.1 per cent. As a rule of thumb, a stock purchased for income in such a market could be expected to yield at least 5 per cent, or perhaps a bit more, say, 5.5 per cent. It must be remembered that the prosperity of 1957 was somewhat inflationary, and that part of the reason for common-stock investment is to acquire extra dollars at a time when money value is depreciating. Anything less than a 5 per cent return for the investor interested in income in 1957 would seem to be trailing the market and failing to justify the relative risk of stock investment as opposed, say, to the 3.25 per cent interest obtainable from a savings bank.

In 1958, when the median return was 4.1 per cent, an inves-tor-for-income would have to revise his values and perhaps decide to run ahead of the market by shopping for a 5 per cent yield. Or, if he could not find a satisfactory stock at that level, he might simply decide to defer buying until prices, generally, dropped a bit and yields improved. For a 5 per cent return does not automatically make a stock a sound purchase any more than one over the 6.1 per cent median is automatically risky. (In 1959, as prices soared, the median return of N.Y.S.E. dividend payers dropped to 3.8 per cent. It was fruitless to look for 5 per cent or better from market leaders.)

In 1948, by contrast, the median yield was a whopping 7.8 per cent, in which case an investor could reasonably expect to do no worse than 6 or 6.5 per cent. He might even do considerably better. A median yield of 7.8 per cent means that there were as many stocks paying above that figure as there were below. This being the case, some good stocks would have to be yielding 9, 10, and even 12 per cent to strike the average. As always, only a close examination of a particular issue can determine whether its price—and return—are justified. At the upper percentage limits, it pays to be careful. No stock is wildly out of line with the market without a reason. Very often a high percentage return is achieved through an extra dividend; make certain that the extra represents earnings, and not the sale of productive assets which may reduce earning power in the months ahead. Often, too, a dividend figure represents the amount "paid last year" although the prevailing price, responsive to storm signals ahead, has already retreated, thus suggesting a phe­nomenal—and quite unlikely—yield in the future.

There is no need to be greedy. As the old saying goes, "A bull or a bear can make money in the market, but a hog never can." In even a moderately profitable period, the stock bought at a good price soon provides quite satisfactory dividends. Buyers at the 1948 lows have, of course, been receiving luxurious returns. Such a sterling stock as Con­solidated Edison, which yielded 7.6 per cent on a $1.60 dividend at its low of 21 in 1948, has subsequently upped its dividend to $3.00. For the current purchaser at around 62, the yield is 4.8 per cent. For the 1948 buyer, it is over 14 per cent.

It is easy to show how rich we all would be if all the opportunities presented us had been recognized and seized. But, as must be said every so often, the market also goes down. People who bought near the top in 1957 or 1959 may not have such happy tales to tell in the years ahead.

The factors entering into price analysis will be discussed further on. The comments here are simply to indicate that the investor-for-income—generally speaking—can aim for a return of no less than 5 per cent if he is operating within a certain range of stability and is willing to undergo a period of watchful waiting to see whether the motion of the market does not accommodate his desire for generous but relatively safe return.

Two final points to ponder: To obtain a significant return from investment for income does require a fairly sizable commitment of funds. To get $250 a year in dividends from a $50 stock yielding 5 per cent requires a holding of 100 shares costing $5,000.

Income from dividends, despite a small forgiveness feature, is taxed at normal rates. Depending on the investor's tax bracket, a 5 per cent stock yield can be reduced to the return on a bond, savings account, or tax-exempt municipal security, all of which must be regarded as safer investments.

Capital Appreciation:

The investor in this category is not interested in dividends but in seeing the market price of his stock increase. He likes to buy a stock at $30 and sell it at $60, more or less.

There are three advantages to this kind of operation. First, if your judgment has been good, you make more money faster than by relying on dividends. For example, the man who buys 100 shares at $30 and sells even at a 10-point profit has $1,000 (less commissions) to show for his year's work. This represents nearly seven years' worth of dividends from the $30 stock yielding a conventional 5 per cent.

Secondly, if you hold your investment for more than six months, your profit is considered a long-term capital gain, taxable at a maximum 25 per cent rate—for many people, a saving over straight-income rates.

Finally, if your stock doesn't go up as anticipated, there is always the chance that it will at least be a decent income-producer. This is something of a rationalization, of course. There is no use pretending to be in the capital-appreciation business if a little mess of dividends is all you have to show for your efforts. The more consistent course is to drop the non-producing stock (losses, if any, are tax deductible) and shop around for a winner. This, to be sure, takes guts. There's nothing like a couple of growth stocks that don't grow to take the steam out of a capital-appreciation man. On the other hand, the gloriously rising market since World War II has simplified the task of discovering and getting aboard a company with promising prospects. And, as noted, an investor could wait five years for his 10-point gain and still be ahead of the plugger piling up dividends.

Capital appreciation, it should be noted, is an omnibus term covering any change or advance in a company's position which might be reflected in the market price. It may mean the emergence of a new company in a new industry, the coming of age of a speculative youngster of a decade or two ago, or even new evidence of vitality in an established veteran.

In the past year or so, for instance, the stock of Ampex, Inc., a bright little California company manufacturing top-notch equipment for the booming tape-recorder industry, has more than doubled in value. Dozens of small companies dealing in electronics, precision equipment, and other fruits of current scientific research (Tracerlab, National Research, Beckman Instruments, etc.) are similarly attracting attention and consequent jumps in price. Somewhat more established and riding crests of speculative interest are such stocks as General Dynamics, builder of atomic submarines and Convair airplanes; Owens-Corning Fiberglas, manufacturer of insu­lation, filters and textiles, and glass-fiber boats, and Bendix Aviation, no infant, but investing heavily in diversification and new-product development. Dow and Minnesota Mining might also be grouped here, although possibly by now they should be included among the older companies—Corning Glass, Goodrich, Union Carbide, Westinghouse, National Lead, Minneapolis Honeywell, Eastman Kodak—whose youthful spirit and astonishing technological resources have kept them in the forefront of American industry for years.

All of these examples would qualify as growth stocks, as the kind of investment that would tempt the investor seeking capital appreciation.

But appreciation can also follow from subtle and com­plicated changes in a company's structure. In these cases, appreciation may have nothing to do with a new product or even with the company's prospects within its industry. Rather it is the anticipated result of a merger, a spin-off (distribution of assets), a reorganization, or any one of a number of procedures available to the complex institution known as a corporation. Talk of a merger between Bethlehem Steel and Youngstown Sheet & Tube made both stocks in­teresting possibilities. U.S. Foil "B" (American Stock Ex­change), representing about 48 per cent control of Reynolds Aluminum; duPont, which is having to divest itself of 63 million shares of General Motors stock; Northern Pacific Railway, which has important oil interests in the booming Williston Basin of North Dakota; El Paso Natural Gas, which has formed a subsidiary, Rare Metals Corp., for uranium exploration and processing; and many others are examples of stocks with potential capital-gains features. It is not possible to say exactly how—or if—the gains will be realized. Mergers require an adjustment of the stock prices of the participants which may benefit one or the other; or public interest in the prospects of the combined company may cause the stock to spurt. An as yet undeveloped asset, such as Northern Pacific's oil, or Inland Steel's Steep Rock iron interest in Ontario, might mean an eventual bonanza which would be reflected in stock prices or a capital dis­tribution of cash or stock. Several years back, Andes Copper, an Anaconda subsidiary operating in Chile, made a capital distribution of $6 per share at a time when the stock's market price was hovering between $12 and $15.

Even the expectation of out of the ordinary earnings makes a stock a prospect for capital appreciation. A fat dividend and a high yield which persuades investors that the stock has been undervalued may well create a small stampede that boosts the price and thereby reduces the yield to more conventional levels.

It is also conceivable, however, that one could wait a discouragingly long time for Bethlehem and Youngstown to merge (the Government has frowned on the idea) or for Northern Pacific to make more from oil than from rail­roading. The big problem of the capital-appreciation man is that he is dealing in forecasts and predictions—and on a larger scale than his brother who simply wants to figure the chances that General Foods will continue its $2 dividend.

There are indicators which make the task something more than guesswork, but it is difficult nonetheless. Cor­poration directors are notoriously close-mouthed about any action affecting the fundamental structure of their company; it is most unlikely that the average investor can inform himself and act fast enough to gain an edge in this area of capital gains.

As for growth prospects, the field is wide open. But whether to pick an Ampex, a General Dynamics, or an Eastman Kodak is a puzzlement. Every large and successful company today was once small, and investors who got aboard during the rise profited handsomely. But which of the hun­dreds of small electronics firms will be the General Elec­tric of tomorrow—and which will go by the boards, as did so many promising automobile companies a generation ago? (Anybody got a closing price on Pierce-Arrow?) And what, considering the amazing versatility of our ever-growing large corporations, is Mighty Atom Instruments, Inc., likely to do that Westinghouse can't do better? Even assuming you have picked a winner, have you picked it early enough? The prices of many so-called growth stocks today already reflect the optimism of buyers, possibly beyond the ability of the companies to earn  as anticipated.

Remember, too, that in the rising market we have enjoyed for so many years, the real gain lies not in picking a merely successful company—the woods have been full of them— but one which outruns the market.

It has been done, and can be done again. A bold investor who has studied the market closely can pick up a temporarily depressed or unpopular stock at a good price and reap the benefits of a subsequent rise. Or he may, in fact, sniff out the company due for a banner year. But for the new investor, even the try for capital appreciation is best done on a long-term basis. Satisfy yourself that your stock is not overpriced, then buy and give it a chance to develop.

Safety of Principal:

Essentially, this means bonds. The investor who is willing to forego a lively profit in the form of dividends or capital appreciation can be interested only in conserving the funds he has invested. This, customarily, is done by purchasing bonds which are a debt of the issuing company, not a stake in its earnings. Bonds held to maturity will return their face amount to the holder. And bond in­terest must be paid along the way whether this leaves anything for the stockholders or not. Interest is paid at a fixed rate for a stated period of years; the rate usually is between 2.5 and 4.5 per cent, depending on the difficulty or ease of obtaining money at the time of issuance. Once it nits the market, however, an attractive bond, like a good stock, is frequently bid up to the point where the return is considerably less than if it had been bought at par.

Municipal bonds, issued by towns and cities to finance schools, sewage systems, water lines, and the like; state bonds issued to finance a variety of requirements; and public authority obligations, usually involved in the construction and operation of toll highways or bridges, are a category primarily of interest to the wealthy investor seeking tax relief. "Municipals," as all three are loosely called, are tax-exempt. For the man in the 50 per cent bracket this means as much income from a bond yielding 3 per cent as from stocks earning 6.

Still and all, the new investor interested in bonds will by all odds do best by purchasing United States Savings Bonds, Categories E or F. They are the safest security anyone can buy. They are noncallable; they are not subject to the fluctuations of other securities and other markets. (Corporate bonds are inclined to slump when stock prices are cheap and yields high, inclined to become expensive when stocks are high and yields begin to approach the levels customarily offered by bonds).

Another point: corporate bonds are usually issued in $1,000 denominations, which places a significant holding beyond the reach of any but the wealthy or institutional investor.

If you have picked an objective commensurate with your financial condition, your budget requirements, and your investment experience, you are now ready to talk with a broker.