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From its original 200 stockholders and $50,000 capital, M.I.T. has grown to 68,000 stockholders and assets (as of last week) of $211.1 million. Over the years it has paid out about $14 million from capital gains and nearly $100 million in dividends. Though it has large blocks of stock in more than 125 companies, it follows investment-trust practice by keeping its fingers out of management.
The Heavy Top. M.I.T. suffers from some of the ills of bigness. It cannot quickly unload any of its large blocks of stock (for fear of breaking the market), hence it does not offer investors much chance for quick gains. This fact was spotted by Minneapolis-born Sidney L. Sholley, a statistician and financial analyst who had settled in Boston. In 1932, he organized a new Boston-type trust called Keystone Custodian Funds, Inc., which offered customers as conservative or as speculative a program as they wanted. If their main interest was income they could buy any of four bond funds, or two preferred-stock funds; if they wanted to gamble for quick profits they could choose from four speculative common-stock funds. Sholley's plan paid off; today Keystone, with $170 million in assets, is second only to M.I.T.
The Payoff. Big or little, investment companies have one major service to sell: their ability to buy stocks wisely. How well have M.I.T. and Keystone done? A "management rating" system devised by Hugh A. Johnson, a Buffalo broker, gives a clue. Johnson invested a hypothetical $10,000 in each of 35 funds, traced what happened to it over the 1938-48 decade.
In this system, $10,000 invested in M.I.T. grew to $21,904 through capital gains and income in the ten years, though increasing in value less than the New York Stock Exchange's average of all listed stocks. In Keystone's best-performing stock fund, the investment grew to $22,875. I-1 dividends alone, Keystone's "52" stock fund led with an 8.8% return, followed by M.I.T. with 6.6%.
But some of the smaller, more flexible funds made bigger overall profits. A small ($2,000,000) company, Axe-Houghton Fund "B," run by a husband & wife team, Mr. & Mrs. Emerson Axe of Tarrytown, N.Y., led all other stock funds with a total value of $30,638 for the original $10,000.
The Drawbacks. Investment trusts have had their own ups & downs. In the '203 they grew to a $7 billion business which the 1929 crash almost wiped out. Even some that survived were guilty of sharp practices and management abuses which brought on a five-year investigation by the SEC. The probe resulted in the Investment Company Act of 1940, that put investment companies under rigorous SEC supervision.
There are still some drawbacks. The big commission charged at the original purchase usually eats up the first two years' dividends. And as funds are usually invested in a wide segment of the market, they must inevitably depreciate when the market as a whole is going down. Thus, most investment companies will be just as healthy, in the long run, as the total U.S. economy. Their biggest virtue is that they are giving more & more small investors (stockholders now exceed 1,000,000) a widespread stake in that economy.