INVESTMENT OPPORTUNITY PRINCIPLES

Thus the expression “rate of return over cost” is appliedto tiie comparative merits of two alternative incomestreams. I repeat that by cost is meant the compara-tive loss from one’s income stream at first, caused bysubstituting one use of capital for another, and by returnis meant the comparative gain which accrues usuallylater, by reason of this same substitution. The cost isliterally the difference it makes today and the return isthe difference it makes in the future—the first negative,the second positive.

It will be noted that this description is all inclusive.It applies to every possible cost and every possible return.The problem of the investor—and everyone is an in-vestor in some degree and manner—is always to answerthe question: “What difference does it make to my in-come stream whether I choose one way rather than an-other? What do I sacrifice and what do I gain?” If thecost comes first and the return comes later, he wants toknow if the return exceeds the cost by enough to beworth while. The excess is his return over cost and theimportant magnitude is the rate per annum of this returnover cost.

Usually this question, “What difference does it make?”,is asked with reference to a proposed change from anold to a new layout of one’s plans. Will a little moretilling of the soil bring a big or a little return, boththe tilling and return in crops being translated at theirmarket prices into money? Will a new harvesting ma-chine at market prices make enough difference in the har-vest to be worth while? Will a merger of two companiesmake a return in future profits sufficient to make the tem-porary costs involved in the merging process worth while?It will be seen, then, that the concept here used of in-

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