Blast From The Past: Investment Advice From The Early 1900’s

Detail of Central Pacific Railroad & Union Pacific Railroad display advertisements carried in The Salt Lake Daily Telegraph the week that two lines' rails were joined at Promontory Summit, Utah, on May 10, 1869, from The Cooper Collection of US Railroad History via Wikimedia CommonsDo you ever wonder about what people thought about financial planning before the industry of financial planning was created?  Well, I have a treat for you.  Here are two blasts from the past, courtesy of Project Gutenberg.*

First we have Successful Stock Speculation by J. J. Butler.  Published in 1922, the book give advice on speculating in socks, recognizing stock manipulations and guidance on storing and stop-loss orders, among other things.  Here’s a great quote on bucket shops:**

“Many laws have been enacted against bucket shops, and we believe some way will be found to get rid of them at some future time; but we do not expect that to happen soon, and we warn our readers not to get into their hands, because if they do not get your money away from you one way they are likely to get it some other way. The man who runs a bucket shop usually has no conscience, and it certainly is an unfortunate thing for anyone to get mixed up with such a man.”

Bucket shops are illegal in the U.S. today, and were made illegal shortly after the publication of this book.

The other book is How to Invest Money by George Garr Henry.  This book was published in 1908 and is an excellent view on the perception of what was and wasn’t investment quality financial products.  Most of the book is focused on the largest bonds of the period, such as railroad, utility, and municipal bonds.  There is only one brief chapter on stocks (Since they were considered perilous to invest in at the time.)  There’s nothing on mutual funds (called pools at the time), since they didn’t exist as we know them.  From the book we get this quote, which is as timely now as it was then:

“For the successful investment of money, however, a good deal more is required than the mere ability to select a safe security. That is only one phase of the problem. Scientific investment demands a clear understanding of the fundamental distinctions between different classes of securities and strict adherence to the two cardinal principles, distribution of risk and selection of securities in accordance with real requirements.”


*  I’m not endorsing the books or any strategies that they contain, I just thought you might be interested in reading them for your general knowledge or edification.  Also, if you’re the type who would read an old investing book on the internet and then do everything that book says, lose money, then blame/sue the person who told you about the book, you should consider developing some good judgement.  Egads.

** Today, if you trade a stock through a broker, your order for stock is executed and you actually own the stock, even if you choose to sell it a few moments later.  Back in the day, bucket shops were establishments that purported to trade the stock market, but really took bets on the market instead of actually fulfilling the orders on the exchange.  So, in a bucket shop, a customer could come in “buy” shares, but they wouldn’t actually own the shares they purchased.  Couple the gambling nature of the bucket shop with the substantial margin that was extended to “traders” at the time, and many people lost their savings to bucket shops.  Also, since the customer never owned to stock or commodity purchased, if the bucket shop went out of business, the customer lost their “investment.”

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