John Bogle on Investing: The First 50 Years

INTRODUCTION

THE ALMOST FABULOUS growth of the open-end investment company has been termed “the most important single development in the financial history of the United States during the last 50 years” by the Securities and Exchange Commission.¹ From 1924, when the first two open-end companies were organized, the industry has grown spectacularly to a thriving group of over 100 companies. Total assets, but $140 million in 1929 and $64 million during the Depression two years later, had risen to $370 million in 1937.² In 1940, when the great expansion of investment companies began, assets were about $450 million, and by the end of 1950 they had reached the tremendous total of $2.5 billion, a ten-year growth of almost 500%. (Table I.)

The open-end investment company is but one type of investment company, which is a financial institution whose sole business is the investment in securities of the money entrusted to it. The size of the open-end segment as well as its differentiating aspects are such that it can validly be considered a distinct branch of business, that is, an industry. This thesis will mention open-end investment companies by other names, including “mutual funds,” “investment trusts,” and simply “investment companies.” Its particular differentiating features are two: the continual offering (at net asset value plus a commission) of new shares for sale and therefore unlimited capitalization, and the readiness to redeem shares at net asset value. The other form of investment ...