I56 BONUS SHARES

But it is also true that there are, at all times, a
very large number of securities, especially in the
industrial market, which would stand higher if their
earning power and position were more closely
scrutinised. This is very, clearly seen to be the case
from the apparently extravagant prices at which
insurance companies, for example, sometimes buy
the businesses of one another. They give a price
which is considerably above the market value of the
concern as represented by the price of its shares.
Critics say that the terms are extravagant, and yet
the deal is found to be highly profitable to the
buying company. The profit of the deal, of course,
may be increased by the advantages of amalgama-
tion, but quite apart from that it is clear that the
market price of securities very often undervalues,
as it also, perhaps, still oftener overvalues, the real
position of the companies on whose earning powers
they represent claims. In any case, there is the fact
that these capitalisations of reserve funds, which
make no real difference to the actual position of the
company, are universally regarded, in the language
of the Stock Exchange, as " bull points/' It is
assumed, of course, that the directors would not
carry out such an operation unless they saw their
way to a higher earning power in the future as a
justification for the larger capital. In this expecta-
tion the directors might be right or wrong, and, even
if they are right, that prospect o$ higher earning
power, if market prices could be relied upon to
express the true position of a company, would have
been " in the price/'