Enduring investments, by Roger W. Babson

Preface

This little book is made up largely from notes which the writer jotted down from time to time after experiences of one sort or another. Some of the paragraphs are purely memoranda which he wrote at different periods for his own guidance, — in the form of a diary. Therefore, the reader can pardon the preaching appearance of the book by remembering that the author is preaching to himself.

He also desires to acknowledge indebtedness to Clarence N. Stone, George E. Macllwain, Charles W. Wallour, Melvin L. Morse, and other of his associates for help in the preparation of the book. These men are all experts of the Babson Statistical Organization, and in a way the book is a composite

opinion of us all.

R. W. B.

Wellesley Hills, Mass.

May, 1921.

TABLE OF CONTENTS PART I

CHAPTER PAGE

I Habit and the Accumulation of

Money i

II When Money Ceases to be of Value 16

III Riches Are Not Wrong 26

IV Riches Are Dangerous 36

V Men versus Goods 45

VI Getting Something for Nothing . . 56

VII Retiring from Business 67

PART II VIII Methods of Piling up Profits ... 85

IX Society's Right to Our Wealth . . 100

X Profit Sharing versus Benevolences 109

XI What Shall We Do? 119

XII Developing a Prosperity Which Endures 130

XIII Need of Educational Reform . . . 150

XIV A Personal Confession 178

PART I

This is an economic discussion of the sources, uses, abuses, and dangers of wealth.

Different forms of stock and bond investments are considered with their relative degree of endurance.

ENDURING INVESTMENTS CHAPTER I

Hard work, honesty, good judgment, initiative, and other qualities are, of course, essential in the accumulation of wealth. Money may be secured without these essential characteristics, but men who do not have them either lose or spend their money after securing it. They seldom die rich. Statistics on failures illustrate this point most conclusively.

The getting of money is comparatively simple, but the accumulation of money is a very difficult thing. A great many business men make money in their own industry, but lose much in outside ventures and in what they consider investments. It is the accumulation of money, which includes the saving and the safe investing thereof, as well as the earning, which is to be considered in this

little book.

The following table shows the percentage of

failures for four typical years, classified according

to their principal causes. The table speaks for

itself :

Number of Failures

Failures of others 1.0% 1.8% 1.9% 1.3%

Extravagance 6% .9% .8% .7%

Liabilities Involved

Extravagance 6% .6% .6% .9%

IMPORTANCE OF THRIFT

Notwithstanding hard work, honesty, good judgment, and initiative, the habit of thrift is the basis of invested capital. Few people realize the great importance of thrift. Not only is it essential in the accumulation of money, but it largely determines whether a man is to be an employer or a wage worker. Let me illustrate what is meant by this statement:

A man who is naturally thrifty gradually accumulates money and is able to "take a chance" and go into business for himself when the opportunity opens. It may be to have a small store or to operate a great industry, but in either case he is his own boss, and an employer of men. If the statement is true that 5% of the people of this country are employers and 95% are working for others, this probably likewise means that only 5% have the habit of thrift. The man who instinctively saves, by spending less than he earns, however small his earnings may be, has the habit of thrift. Opportunities to go into business for oneself come to everyone sometime. Whether or not they can be accepted, depends on whether one has a little money laid aside which he can put into the enterprise and whether he has enough to stake the family while the enterprise is getting on its feet.

The man who is constantly spending all he earns must always work for others. As the man who is instinctively thrifty automatically becomes an employer of others, so he who is instinctively not thrifty automatically remains a wage worker. When the opportunity comes for him to enter business for himself, he has no capital to invest, he has no savings laid aside to support his family during the unproductive period of the enterprise, and so he must let the opportunity slip by. Yes, the habit of thrift is the first step toward enjoying enduring investments. Furthermore, the habit of thrift is a "good" habit.

BASIS OF MOST FORTUNES

Systematic saving is the basis of most large fortunes. By laying aside a small amount of money each week or each month and investing it in amounts of $100, $500, $1,000, every man may build up a comfortable fortune. For example,

$10 a week, put by regularly and invested every ten weeks, so as to return 6 per cent, interest, will amount to $20,000 in a little over twenty years.

The following table vividly shows how small sums mount up into large ones in this way :

No. of years

$5 a week

$10 a week

$25 a week

[3%

816.92

1,633.84

4,077.62

3 «

4%

827.26

1,656.51

4,138.62

6%

842.81

1,691.96

4,230.57

'3%

1,403.51

2,825.83

7,005.58

5 ■

4%

1,432.50

2,87539

7,183.86

6%

2,998.74

7,498.36

'3%

2,351.58

4,723.94

",737-71

4%

4,894.66

12,228.81

6%

2,626.91

5,271.05

13,182.44

'3%

3,032.34

6,086.55

15,13571

3,190.22

6,380.47

15,940.95

6%

3,505-30

7,025.91

17,572.96

'3%

4,922.66

9,870.67

24,571.15

15 '

4%

5,378.75

10,757.50

26,615.80

6%

6,208.20

12,440.13

31,112.45

'3%

7,116.46

14,262.37

35,521.38 tt

8,009.30

16,018.60

39,628.37

6%

9,839.12

19,717.06

49,309-87

ARE GOOD HABITS ALWAYS GOOD?

Psychologists tell us, however, that it is very difficult to make an absolute dividing line between good habits and bad habits. What is food for one is poison for another and vice versa. Furthermore, what is a good habit at one time of life may be a bad habit at another time of life.

This especially applies to the habit of thrift. The habit of thrift is necessary for the upbuilding of an individual, industry, or nation, but like other good habits, it can be overdone. When the habit controls the man instead of the man the habit, it is a dangerous condition. The successful person is he or she who has a true perspective of life and who gives the proper amount of time, thought, and energy to the various factors in life proportional to their importance. He who overdevelops any one of the features making up life does wrong and suffers thereby. Does not this especially apply to those who have over-developed the habit of thrift?

Every young person should be thrifty. No young person should depend on inherited wealth. Every one should earn his own living and accumulate his own wealth and not in any way depend on parents or friends. On the other hand, one should not be controlled by the desire for money. Unfortunately this is not the case with many. The average man who has accumulated money through thrift is so controlled by the habit of thrift, that when he reaches the point where additional money is simply a care, he is helpless. He cannot throw off that habit of thrift and accumulation. It has bound him and riveted him to the earth. He is like a prisoner, held in the clutches of this habit of thrift and accumulation. What was a good habit for him as a boy and a young man, often becomes a curse. Although he dies wealthy according to Dun and Bradstreet, yet he dies poor in the sight of God and his friends.

DETERMINATION NOT TO BE BEATEN

Thrift is not the only good habit to which many men owe their wealth. Another habit is the determination on the part of some not to be beaten and not to have advantage taken of them. This likewise is a good habit, so long as the man controls the habit. When, however, the habit gets the better of the man, then it becomes a source of danger rather than of protection.

I have traveled considerably with very wealthy men. I have traveled with them to examine great enterprises, mills, factories, mines, forests, water powers, and railroads. It has been interesting to note how these men will carelessly give away thousands, yes, millions of dollars and yet will make themselves sick arguing about an overcharge on a hotel or carriage bill.

I once was traveling in Europe with the late J. P. Morgan, — a very generous and wonderful man. I remember his arguing for one-half an hour with a guide over a charge of a few dollars. It practically ruined Mr. Morgan's day and sent him to bed with a bad headache. Mr. Morgan insisted that a vital principle was involved and that it was up to him to fight it out. This is very true. An important principle was involved, but many other important principles were involved in very much larger transactions that Mr. Morgan did not feel called upon to fight. The truth was that he had formed from early youth the habit of insisting upon his rights and he could not break himself of the habit in his later years. The habit controlled him.

Every self-respecting man would rather give away a thousand dollars than be "done" out of one dollar. It is a good habit to "count the change," so to speak, and make sure that no carpenter, plumber, painter, or taxi driver takes advantage of us. But when we get obsessed by this habit and are made irritable or almost sick by having some one take advantage of us, then the habit ceases to be a good habit.

Some men are very easy with their children, while others are very severe. Some men are very easy with those who wrong them, while others are very severe. Both are actuated by habits rather than by principles. Personally, I am inclined to be severe and expect in others the same discipline to which I was subjected by my parents and employers. I sometimes wonder, however, if when coming to die, I shall be prouder of the times that I have forced others to settle against their will, or prouder of the times when they have got the better of me. This is not answering the question, but simply asking it. Every reader may answer it for himself.

The point is, we should realize that everything ought to be used with moderation. Everything has its uses and abuses. Every rule has its exceptions. Habits must be within our control and they must not control us. Yes, the determination not to be taken advantage of is quite essential in

IO ENDURING INVESTMENTS

the accumulation of wealth, but it is not essential in the accumulation of happiness. Quite the reverse is probably true. This is a psychological fact which should be most carefully considered in connection with the study of enduring investments.

DESIRE FOR POWER AND INFLUENCE

Nobody accumulates money for money itself. Money is of value only as it will give men what they desire. First, man desires a home and enough money to raise a family, to properly feed, clothe, house, and educate this family. Secondly, man desires to accumulate money so that when the opportunity comes to go into business for himself, he can grasp the opportunity. Most wealthy men, however, pass these two stages in the early part of their career. During the latter part of their career these men are actuated by the desire for power, influence, and those other intangible qualities that money gives.

When I was a boy, the church put a decided ban upon three things; namely, drinking, card playing, and dancing. I thought it was very foolish at the time, but have since found that there was an economic reason for this ; namely, because it is impossible for a man to be satisfied through drink, gambling, or yielding to the sex impulse. The more he has of these three things, the more he wants; the more he has, the less he is satisfied, until finally the ruling impulse of his entire life is whiskey, gambling, or women. The church said, "Let these things alone; beware of temptation; and do not let in the thinnest edge of the wedge." The church was right as far as it went, but it should have added one more thing; namely, the love of money. Money fails to satisfy, and the more one has the more one wants.

It is honorable for all of us to desire power, influence, and those other intangible assets which money gives, but they must not control us. After we get a certain amount, should not we begin fighting the habit instead of feeding it? God did not put us in the world to rule others. We can be just as selfish in our desire for power, influence, and fame as in more common and brutal ways. The desire for these things is legitimate up to a certain point, but beyond that point it is wrong. These factors of power, influence, and fame which we so much crave, are often killing us instead of helping us and making us worth-while men and women. Certainly these factors are not the basis of enduring investments.

MONEY TO DO GOOD WITH

The fact that so many successful men are the sons of ministers is very interesting to the statistician. This is especially significant when one considers that there are fewer ministers than any other class of workers. There are many reasons why ministers' sons turn out so well. Probably the primary reason is that such boys inherit certain visionary qualities from the father and certain qualities of thrift and industry from the mother. Furthermore, such boys are brought up in a religious atmosphere which develops these and other fundamentals of success.

There, however, is a secondary reason for the success of ministers' sons which is quite important. Although they have been brought up in straightened circumstances, yet tastes have been created within them for the finer things of life. They have associated with the best children of the community. Many of the boys with whom the minister's son plays go away to school or college, most of them having more than he has. He also usually goes to college. He visits his classmates at vacation time and sees them living in luxury, with servants to help in satisfying every want. At the end of his visit, the boy goes back to the little parsonage in which he was brought up and sees his mother struggling, making her own clothes, patching his and his father's trousers, working in every possible way to make both ends meet. Then and there he determines to go out into the business world and "make money" so that "mother" and his wife and his children will not have to struggle in a similar way. This is a worthy ambition and a great factor in the accumulation of money.

Many men start out to accumulate wealth with the idea of helping their families, endowing hospitals, sending young people through college, and doing other worthy deeds. These likewise are good aspirations so long as the aspiration is controlled by the individual. When, however, the tables are turned and the man is so absorbed in the accumulating of wealth that he has no time to give to its distribution, then even this worthy object becomes annulled. No amount of money can take the place of a human soul, and this is what Jesus meant when He asked, "What shall it profit a man if he gain the whole world and lose his own soul?"

Jesus never criticized the accumulation of money for enduring investments. What Jesus criticized was the accumulation of money for oneself, "Lay not up for yourselves treasures on earth," said Jesus. He did not speak against laying up treasures. Jesus knew that the accumulation of money was essential for the providing of capital to build railroads, erect buildings, clear forests, and open up mines. He knew that as some men are naturally gifted in music, medicine, art, or literature, so other men are naturally gifted to accumulate money and become great bankers, manufacturers, and merchants.

Jesus never said that it is wrong to be a banker, manufacturer, or merchant provided one is in a business for the good of the community and not for oneself alone. "Lay not up for yourselves treasures," Jesus continually said. "Be thrifty and accumulate, but do it in the best interests of your family, your friends, your neighbors, your community, your countrymen, and the entire world, that all may be healthier, happier, and more prosperous," is what He would recommend. By so doing one would make enduring investments which moths and rust would not corrupt and which thieves would not steal.

Chapter II

Although not the founder of the Christian religion, a man to whom it owes much was that great traveler, lecturer, and writer named Paul of Tarsus. While other inspired teachers spread the gospel message in those early days, it was that hard-headed philosopher, Paul of Tarsus, who interpreted it in a practical way.

Paul continually insisted that theology, so far as it meant correct thinking, was all right; but it must not take the place of helping the widows and fatherless and keeping oneself unspotted from the world. Paul had a large number of parishes and different groups of people in different sections. Some were poor, some were rich, some were learned, some were ignorant. To no two groups did he interpret the gospel in the same way. He told the poor that the gospel meant

that they should wake up and get busy; while to the rich he said that the gospel meant to give up and help some one else get busy.

One of the most trying parishes which Paul had was his group at Corinth. Corinth was one of the chief commercial cities of that time. He had many wealthy, learned, and very devoted adherents at Corinth. These people were called the Corinthians, and Paul wrote a series of letters to them. These letters may be found in the Bible and are called First and Second Epistles to the Corinthians. These letters are worthy of the reading of any man, especially those who have accumulated wealth. One section of them, however, I am especially desirous of including in this little book. It is found in the thirteenth chapter of First Corinthians.

Some travelers from Corinth had been to call on Paul when he was staying in another city. They had told him of the devoutness of these Corinthians, how they were willing to give their bodies to be burned; how they were anxious to give all their goods to feed the poor; how they excelled in learning and yet how they seemed to lack the right spirit. They apparently had everything that makes up life, yet they lacked life itself. After the travelers had gone, Paul sat down and wrote these Corinthian merchants, teachers, and church leaders a letter and this is what he said:

"Though I speak with the tongues of men and of angels, and have not love, I am become as sounding brass or tinkling cymbals.

"Though I have the gift of prophecy, and understand all mysteries, and all knowledge; and though I have all faith, so that I could remove mountains, and have not love, I am nothing.

"Though I bestow all my goods to feed the poor, and though I give my body to be burned, and have not love, it profiteth me nothing.

"Love suffereth long, and is kind; love envieth not; love vaunteth not itself, is not puffed up, doth not behave itself unseemly, seeketh not her own, is not easily provoked, thinketh no evil; rejoiceth not in iniquity, but rejoiceth in the truth; beareth all things, believeth all things, hopeth all things, endureth all things.

"Love never faileth; but whether there be prophecies, they shall fail; whether there be tongues, they shall cease ; whether there be knowledge, it shall vanish away.

"For we know in part, and we prophesy in part. But when that which is perfect is come, then that which is in part shall be done away.

"When I was a child, I spake as a child, I understood as a child, I thought as a child; but when I became a man, I put away childish things.

"For now we see through a glass, darkly; but then face to face; now I know in part; but then shall I know even as also I am known. And now abideth faith, hope and love, these three; but the greatest of these is love."

THE END VERSUS THE MEANS

Why is pure human love greater than all things, — courage, gifts, wisdom, sacrifice, fame, power, and property? The reason is that these things are only means to an end and that the end is love. At some time in our lives all of us have known that love was the end and have started out to seek it, but we have become lost in the wilderness. We soon found that in securing love, these material things were more or less necessary, — if not necessary, certainly helpful. Then we began to seek the material things in order to have the where-with-all by which we could express our love. But the race for these material things became so keen that it absorbed all our attention and we ultimately forgot about the love that we were seeking.

A friend of mine was once very much interested in social movements. He preached, taught, and wrote of social problems. He led a simple life and was much interested in having every one lead the same life, with equal opportunities for all. He scored the idle rich, he criticized the waste of money on houses, servants, and equipage. He was truly a John the Baptist, preaching in the twentieth century; but although he talked against luxury, he had never tasted it.

He was a popular speaker and was invited about into the homes of the rich. He filled engagements in the large cities of our country. Alas ! the "flesh pots of Egypt" were too much for him. Every time he returned to his simple cottage from these trips, the little place appealed less and less to him. He continually stayed away from home more and more, living in the gilded hotels of the big cities and being entertained at afternoon teas in the homes of the rich. Finally, he began to spend more and more time in one especial city, and more and more time in one magnificent home in that city. The home was presided over by a wealthy widow who had a most attractive young daughter.

This is no place to give further details of the story, but from then on not only did his simple home no longer attract him, but his good wife and family lost their charms. A divorce was secured and one day in Europe he was married to this young daughter. The strangest part of it all is that he still talks and writes on socialism! In seeking the end he became infatuated with the means, and as a result lost all.

Every man of the world has seen similar cases. No one when starting out in business ever expected to let money get the better of him. He looked upon it only as a means of making his family healthy, happy, and independent. He then realized that the end is life and more abundant life, and not things and a great abundance of things. But there is something fascinating in business which tends to make men forget that the end is really love, friends, and other intangible assets. The busy man loses sight of the end through being so absorbed by the means. The true assets, — love, friends, beauty, music, service, peace, and health, — are lost in the race for money, even though the money is sought simply in order to acquire those true assets.

OUR FAMILY NEEDS

Most of us love our children more than anything else in the world. After the final analysis, it is our children that we have most at heart and for whom we, would give up everything else. These children serve to us as an incentive to work and labor, think and struggle in the early years of our business life. We are justified in wanting a certain amount of money to give them the proper education and the proper start, but after accumulating enough money to do this, do we then stop accumulating? No. We become so absorbed in the accumulation of money that we no longer think of our children's need. Many of us, if we thought only of the welfare of our children, would not accumulate another dollar. The average suecessful business man has already accumulated more than enough for his children's good. Additional wealth will simply handicap them and tend to harm them rather than to develop them.

Every successful business man knows that his success is very largely due to the fact that he was obliged to struggle in his early days. This struggle is what developed him and made him the power which he now is. Yet he is doing all he can to make it unnecessary for his own children to struggle. Furthermore, he is surrounding them with temptations which may be their downfall. Many of us, if we had at heart only the welfare of our children, would not necessarily retire from business and stop making money, but we certainly would stop accumulating more money for our families. From now on our profits would either go to others or to the endowment of educational institutions, hospitals, and other community enterprises. In so doing we would not only be making enduring investments; but would be removing from our children something which would surely be a source of great temptation and which possibly might lead to their downfall.

EFFECT ON ONESELF

What is true regarding the good of our families is also true regarding the good of ourselves. A certain amount of money helps a man Ito be thought more of in his community and aids him in securing more friends. A large amount of wealth, however, is a handicap rather than an aid. When a man becomes conspicuously rich in his community he becomes a target of criticism, people become suspicious of him and he is not loved as he was in the old days. In most instances this is very unjust on the part of the community. It should not be so, but we cannot make people over all at once. The world is not so much influenced by logic, wisdom, and statistics as by jealousy, fear, and hate. It is an old saying, "The higher up in the tree the bird builds her nest, the easier it is for the crows to find it."

I was much interested once in attending some taxation hearings in a certain state capital. I went to the hearings with a purpose of speaking in favor of taxing earned income at a lower rate than unearned income. I believe that the self-made man should be taxed lightly, while his children should be taxed heavily on what they inherited at his death. To my great surprise, the predominance of the sentiment was greatly against me. It was the self-made man, the man now alive who had accumulated wealth that most of the people were gunning for. The inoffensive residents of the state who were quietly living on the income of their ancestors, even though producing nothing themselves, were passed by. The few great captains of industry who had really developed the state were the ones that the community were anxious to tax. It was a case of plain jealousy. Yes, the average rich man would have more friends to-day if he had stopped accumulating years ago.

After all, is there any wealth greater than friends? Is not the richest man in the world today truly the man who is most loved? Is not the poorest man in the world he who is most hated? Faith, Courage, and Love are all essential, but the greatest of these is Love. Yes, Love is the most enduring investment even from a coldblooded statistical point of view.

Chapter III

No; riches are not wrong. There is no greater mistake in the world than to denounce capital as something evil in itself. Whiskey is inherently a curse. Smallpox is an unalloyed scourge. These things are intrinsically bad. But capital is merely a neutral instrument that can be used for good or for ill. Capital is like an automobile. It can be employed to facilitate robberies and murders or it can take crippled children for an airing.

Failure to recognize this fact is the trouble with Russia. The Bolshevists made criminal fools of themselves. They started to abolish riches as something reptilian. What happened? They smashed the factories that produced the necessities of life. They wrecked the railroads that transported these necessities. In wiping out capital and capitalists, the Bolshevists wiped out their whole world. They sawed off the branch that

supported them.

CAPITAL MAKES AND MAINTAINS CIVILIZATION

One difference between an animal and a man is that a man uses tools. One difference between savagery, barbarism, and civilization is that civilization uses the tool we call capital. It is this tool that has made our mills, water power developments, farm machinery, automobiles, telephone systems, railroads, buildings, and other essentials. Capital is the world's greatest invention, because it has made possible the application of all other inventions.

Economists have learned from statistics that there is a tendency for population to increase faster than the means of sustenance. Were it not for the power of capital, there would be no hope of supporting the 105,000,000 people now in the United States — and still less hope of supporting the added millions of the future.