550 Forestry Quarterly 



Again, touching somewhat historically upon this subject, it is 

 interesting to note that the first outlet for timber bonds was 

 largely among the lumbermen themselves. Such investments were 

 then attractive, for the lumbermen could not be deceived by false 

 statements or values. Having shown his faith in the value of the 

 security, confidence was then established with outside investors 

 who, through the continued prosperity of the lumber market, 

 were deceived into believing that almost any issue of like nature 

 was good. But the investor was not alone misled in this regard, 

 for the bond houses were imposed upon in much the same way, 

 with the result that instead of these concerns dictating to the lum- 

 bermen as to the terms of the mortgage, the lumbermen, to a 

 great extent, actually took the whip hand and obtained pretty 

 much what they desired. Is it not a generally accepted fact that 

 a good many lumber companies sold their properties to the bond- 

 holders at fancy figures, and retained their equities (if such they 

 were) or, at least, temporary additional profits, through their 

 stock ownership? 



Another evil which has crept into the business within the last 

 few years, is that of the investment bankers attempting to strad- 

 dle the fence, so as to speak. They had seen so much money 

 made in the lumber industry that some of them decided that it 

 would be to their advantage to become stockholders in the enter- 

 prises that were being financed. 



When they assumed this position, their judgment was naturally 

 and unquestionably warped, to the detriment of the investor. 



But the present condition of the timber security market is not 

 altogether due to the mishandling of the issues. It has been 

 caused, in part, it is believed, by a wrong principle in issuing the 

 bonds ; and here we come to the serial or sinking fund feature — 

 in other words, the method of ultimate redemption. There are 

 instances where bond issues have been readily purchased by in- 

 vestors, because of the large amounts maturing serially or of the 

 large sinking fund requirements, the investor supposing that the 

 quicker the issue should be retired the safer the investment. This 

 is very fallacious reasoning; it boots little that any form of re- 

 demption, dependent upon earnings, shall be greater than the 

 ability of the concern to meet the same. 



Any company that is obliged to force its product upon the mar- 



