Mutual funds, or investment companies as they are sometimes called, provide essentially two safeguards that justify their existence: diversification and expert selection of stocks. The investor, by putting his money in the investment company, buys a small fraction of the best mutual fund stock holdings. In 1940, investment company assets in total were $1,061,548,000. There is another great but little stressed advantage in placing funds in investment companies.


In the great bull markets of 1958-1959 and late 1960-1961 stocks rose in value with little relation to the underlying assets or even the earnings. The best mutual funds sell at net asset value. This net asset value does not mean the net asset value of the companies whose stocks are held by the best mutual fund. On the other hand the investor in an investment company cannot ride a speculative stock up to huge profits. He cannot ride a sound but enormous growth stock up—a stock like American Telephone and International Business Machines.

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