A recent addition to IFA's ever-expanding collection of antique finance books is the 1954 edition of Investment Companies by Arthur Wiesenberger. For those who are not familiar with this weighty tome, consider it the Morningstar of that time period. It reveals everything worth knowing about the 150 mutual and closed-end funds that were around back in the day when the S&P Index was 90 rather than 500, and 8.5% front-end loads were the norm. A few of the funds mentioned managed to survive to the present day. The most noteworthy of these survivors is the Wellington Fund, which is now owned by Vanguard. John Bogle writes extensively about the storied history of the Wellington Fund in his most recent book, The Clash of Cultures. It gives one pause to realize that if Wiesenberger were around today, he would require about forty volumes to cover the 7,000 mutual funds available. The plethora of investment products has created a confusion of confusions that has done very little to serve individual investors, with the one distinct exception of low-cost index funds.
Like most people, I have very little use for mutual fund data that is 58 years out of date, so I found the most interesting part of Investment Companies to be the Foreword, which categorizes 1953 as a "year of confusion" and asks the age-old question, "Should I invest now?" Wiesenberger answers with a resounding "yes" but on the condition that people are truly investing as opposed to speculating. For Wiesenberger, mutual funds fulfill the vital role of providing instant diversification to small investors. There is no doubt that he was speaking from the experience of witnessing non-diversified investors getting hammered by individual stocks that took large losses. However, rather than dwelling on the gloom, Wiesenberger summons The Bard to lighten it up.
I thank my fortune for it,
My ventures are not in one bottom trusted,
Nor to one place, Nor is my whole estate
Upon the fortune of this present year;
Therefore my merchandise makes me not sad.
- "Merchant of Venice," Act 1, Scene 1.
Wiesenberger beautifully summarizes the purpose that equities fulfill in a portfolio: "Common Stocks offer the most easily available means of offsetting the deleterious effects of currency erosion as well as of participating in the long-term growth of our economy." Noting the fact that investors back then did not have the option to simply "buy the market," Wiesenberger admonishes his readers to focus on the selection and supervisory abilities of fund managers. Of course, now that investors can indeed buy the market, they have no reason to pay additional costs for activities that add no value. Although Wiesenberger has long since faded into obscurity, I have no doubt that he would be pleased if he were around today to witness the ability of everyday investors to, in the words of John Bogle, "capture their fair share of stock market returns."