Causes Affecting the Value of Bonds

Hermann F. Arens, James R. Bancroft
1920 The Annals of the American Academy of Political and Social Science  
SPECULATION AND INVESTMENT T WO classes of persons are interested in the price fluctuations of securities-speculators and investors. The speculator is .one who assumes the risks of ownership with the purpose and intention of profiting by a change in the capital value, while the investor purchases securities or other property in order to obtain an income therefrom. If one buys a house and lot in order to obtain an income by renting the premises, then he is an investor. If, however, he purchases
more » ... ecause of a belief that the property will advance in value within a reasonable time, he is speculating, that is, he is looking for p1'ofit which he expects to obtain through the enhanced capital value of the property. The buying and selling of securities with the object of profiting through a change in value (either up or down) is speculation, entirely apart from the question of whether the operator buys outright or on a margin. Investments may be foolish or illadvised, but if the ownership is assumed with the belief that they will yield continuous income and with the intention of holding them for the sake of the income then the purchaser is properly an investor, not a speculator, even though the security is not entirely paid for at the time of purchase. The speculator, to be sure, usually, though not always, operates in stocks, yet, even in that case experience shows that the movements of bond prices are of value in judging the price move-ments in stocks. Since, however, bonds are primarily an investment proposition rather than a medium for speculation, the chief interest in the movements of bond prices will naturally be found in the camp of investors rather than in that of the speculative group. If, therefore, we are considering the causes which affect bond prices, it is best to distinguish between those causes which affect the prices over a period of time and those, perhaps more obvious causes, which operate to influence prices during a shorter period. Since both sets of causes are in operation all the time it is not possible to draw a hard and fast line between what we shall consider the short and the long period. In a general way we can say that if we wish to know how bond prices will move during the next few months we should consider chiefly those causes which most strongly influence the immediate trend, bearing in mind as a background the causes which are operating to determine secular trend. Whereas, if we want to know how bond prices may be expected to move over the next five years, the long-time causes are those to which we must assign primary importance, modified at any time by the factors which exercise a more immediate influence. THE DIFFERENCE BETWEEN BONDS AND OTHER SECURITIES To distinguish between these two sets of factors it is necessary to conat UNIVERSITE DE MONTREAL on June 7, 2015 ann.sagepub.com Downloaded from
doi:10.1177/000271622008800123 fatcat:rz4h5sfmw5cnjhn7xrv75gslim