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Fish-Bowl Policy. The fund that has done more than any other to put shares in the household sugar bowl is Massachusetts Investors Trust, oldest and big gest of the mutual funds and the one that set the pattern for all the rest. M.I.T is a child of Boston, which has raised the handling of O.P.M. (other people's money) to the status of a fine art. The art was born of an 1830 court decision, the "Prudent Man Rule." In settling a suit charging a trustee with negligence in investing in common stocks, the judge held that a trustee for someone else's money need only "conduct himself faithfully and exercise the sound discretion" in investments that a prudent man would. This meant that Boston trustees could prudently buy into common stocks, fear no suits from clients even if they lost every penny.
For Massachusetts Investment Trust the prudent man is Chairman Dwight Parker Robinson, 59, a prow-chinned, rock-ribbed New Englander whose family roots go far back into Massachusetts history. Tall (5 ft. 11½ in.) and lean, he guides the $1.5 billion investment of M.I.T.'s 203,000 shareholders (plus the $219 million of 67,000 investors in M.I.T.'s Growth Stock Fund) with such calm and confidence that he sleeps as soundly as he invests. As the boss of the world's biggest fund, he is the first to admit that there are no exact rules for investment. Says he: "Investment is not a science. It is a matter of human judgment."
M.I.T.'s good judgment laid the base for the public's extraordinary confidence in the entire industry. When M.I.T. was founded in 1924, it startled the financial world with a brand new idea. Until then, the investment field had been dominated by "closed-end" investment companies; they sold a specific number of their own shares that were traded in the open market, concentrated on quick profits. M.I.T. shunned the lure of the fast profit, concentrated on long-term gains. More important, it threw out the closed-end idea by continually selling shares to anyone who wanted to buy, redeeming them when anyone wanted out at the net asset value per share on the day they sold (for M.I.T.: $14 per share last week).
When the 1929 crash came, the closed-end shareholders were forced to dump their shares in a sinking market at prices that had no relation to their real value. Their companies went down to disaster—while the mutual funds rode out the storm. The debacle of the closed-end trusts was helped by all sorts of financial jiggery-pokery; in some companies, officers unloaded their own holdings of shaky stocks on the trusts.
M.I.T. helped put an end to all that. Despite howls from the financial world, it opened its books and portfolio of stocks to the public, setting the pattern for the "fishbowl" policy under which the whole fund industry now operates. Instead of fighting New Deal legislation aimed at regulating investment-company practices, it recognized the need for regulation, helped the New Deal frame the laws. So similar were M.I.T.'s bylaws to the Investment Company Act of 1940, which laid the ground rules for the funds, that M.I.T. had to change only a few commas.