In writing upon the subject of this paper, I met at the outset with a difficulty which, I am afraid, will tend to make the paper less interesting to some of you than I would like it to be. The difficulty I refer to is this—that a considerable proportion of such information as I have upon the subject, and that which occurs most readily to me, is what I may perhaps call “particular” information, that is information relating to particular investments; whereas the information which appears to me to be most suitable to give here is that of a more general character, relating, primarily, to the principles which should guide us in selecting investments.

The first point to consider in connection with any railway the securities of which are under consideration for investment, is the value of the undertaking itself in relation to the amount of the issue of bonds or other security charged upon it. There are various ways of considering the value, the principal of which are:

1. The cost of the undertaking.

2. The probable cost of building another similar railway.

3. The actual present value as evidenced by the revenue derived from it.

As regards the first of these, it may be noted that this criterion of value is the least reliable of the three, but it is interesting not to overlook it, as it is in this respect that we find the greatest contrast between English and American railways. Whilst English, railways were built at very great expense, large sums being paid for land both in the country and in towns, and the actual work of construction being done upon the most expensive scale, American railways were, in early days, built very cheaply, the land being obtained without payment, and the railway construction being on an economical scale.