91 at the end of the 1961 September quarter. Its asset value actually fails to reflect its true value because of the many substantial unrealized capital gains in its portfolio which will be distributed to stockholders in the form of dividends, capital gains and increased asset value over the years. Whenever speculative fever runs high, investors tend to forget such basic investment criteria as asset values, income and capital structure. Asset value is a company's book value as reflected in the balance sheet. Book value has become less of a factor in determining price as the market has attached more and more importance to such "intangibles" as patents, franchises, trade names, which are often omitted or carried at nominal amounts on the books. The disparity between book values and market values was, of course, particularly wide in the recent market, where earning, growth or prospects for growth far outweighed the book values of assets.


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This requires him to hold down the current year's expenses. When next year arrives, probably its dividends and values will be better than his low estimate. Whether an investor thinks this is good or bad, it is a necessary accompaniment to sensible owning of common stock or other equities. 22) HOW TO CUT INCOME TAXES Taxes, Although Serious, Are Second Income taxes are a rather complicated subject, and are discussed here only to suggest how they may affect investing. A major difficulty in writing about the income-tax aspect of investments is that people can own investments exactly alike, but the Federal income tax they pay can vary anywhere from zero up, depending upon the owner's total taxable income. Suppose each of two men has a $10,000 savings deposit in the same bank, each deposit paying $300 annual interest.


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" He will have to pay a high capital gains tax on his profit which is $35 (the $45 market price less his cost of $10). His tax would be about $9. There is a certain group of mutual funds organized outside the United States to hold foreign securities, including Canadian securities. These companies are approved as to their financial transactions by the Securities and Exchange Commission. For simplicity let us assume that the fund is a Canadian fund and handles only Canadian investments. It realizes large capital gains, but in Canada (as well as in England and elsewhere) capital gains are not taxable.


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These are the corporation's objectives: to protect and build up the capital fund and to assure the stockholders a reasonable income over and above realized profits from the purchase and sale of securities. The corporation is authorized to issue senior securities and borrow money, but it has never made use of these privileges. The greater part of its funds has always been invested in marketable securities. The Lehman Corporation was organized with a paid-in capital of $100 million represented by 1 million shares. The stock was offered to the public at $104 per share. Except for repurchases by the corporation, there was no change in the capital stock until 1937, when the shares were split three for one.


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