Do You Sincerely Want To Be Rich? by Charles Raw, Bruce Page, Godfrey Hodgson Read Free Book Online Page B

to have anything to do with the company at first. But he went to a course in the company and my impression is that he was a very good student. He was handicapped because he didn't have any money… On one occasion, he asked me to lend him $80. I still have the receipt. He paid me back - he was the sort of boy you could trust.'
        The idea to which Walter Benedick introduced Bernard Cornfeld was older than most mutual fund salesmen of the time realized. The device of forming a company whose business would consist in collecting money from the public and investing it in other companies - light bulb companies, steel companies, or what have you - can be traced back to Britain in the late 1860s. The most dexterous early exponent was a Scottish textile executive named Robert Fleming, grandfather of the man who invented James Bond.
        Since its inception, the idea has been shuttled back and forth across the Atlantic. Its most consistent attraction has always been the claim that by putting up a relatively small sum, an investor can participate in the advantages of a large, diversified and professionally managed block of investments. Tins has usually diverted attention from a number of important subtleties and problems.
        The basic investment company idea has proliferated into a confusing variety of different types, but the vital distinction is that between the closed-end type, and the open-end type.
        Examples of both existed in the Twenties, but in those days the closed-ends were much the more fashionable. In the more recent boom, the fashion was reversed. The difference owes something to the historical effect of the earlier boom upon the latter, and something to the social changes that took place between the two eras.
        It is a question of attitudes to liquidity. The essence of a closed-end investment company is that it operates with a finite quantity of capital: therefore, when you put your money into it you receive in exchange securities not essentially different from those you would get if you put your money directly into a company making light bulbs. Your money has been locked up as part of the capital of the company, and can be turned back into cash only by selling your securities to someone else. It requires, in fact, a considerable degree of financial sophistication: the investor needs to be able to cope with some of the complexities of operating on the stock exchange.
        In 1924, the first American investment concern was started which did not use a finite sum of capital, raised in a single operation - but instead, proposed to create and sell new shares in itself on a continuous basis. This was the Massachussetts Investment Trust, which was able to offer as a result of its originality the classic open-end advantage that the company itself would always buy back its own shares from investors, for cash, on demand.
        At the time, it did not occur to the people who put their money into closed-end investment companies that they would ever have any difficulty in selling their shares on the stock exchange. Many of them, probably, could not imagine that they would ever want to sell-so the idea of a company which 'redeemed' its own shares had no particular appeal. Before 1929, people did not anticipate that stock exchange conditions might be such as to reduce their closed-end shares to unsaleable pieces of paper. Such horrors as the decline of Goldman, Sachs Trading Corporation lay in the future.
        The securities of this classic closed-end investment corporation were first sold on the New York Stock Exchange at $104 per share, which was reduced by the crash to $1.75 per share. 'After 1929' a subsequent report of the Securities and Exchange Commission 1 noted drily, 'closed-ends lost much of their former favour with investors.'
        Falls like that of Goldman, Sachs Trading Corporation were not isolated events. By the end of 1929, 'professional expertise' was thoroughly