Mutual fund managers are trapped in this rather deadly vicious circle: the more successful they are, the more money flows into their mutual fund. Then, it is more difficult for them to beat the market averages or even to match their own past performance.
Once the brokerage house, rather than the bank, became the locus for American savings, that money would find its way into the stock market, because the broker was someone with a much higher tolerance for risk than the banker.
I think those who invest in mutual funds want someone else to do the thinking for them. But the fact that they can move the money around the family of mutual funds just through a phone call lets them feel that they can play tycoons.
If you go back to the time of J.P. Morgan, the world of high finance was completely wholesale. The prestigious investment banks on Wall Street appealed exclusively to large corporations, governments, and to extremely wealthy individuals.
What I find very interesting about the mutual funds managers is that here are people who are the new masters of the universe. They're managing billions, yet they're subject to this quiet daily tyranny of numbers.
The suspect nature of these stories can be seen in the anecdote Jefferson told of Hamilton visiting his lodging in 1792 and inquiring about three portraits on the wall"They are my trinity of the three greatest men the world has ever produced," Jefferson replied: "Sir Francis Bacon, Sir Isaac Newton, and John Locke." Hamilton supposedly replied, "The greatest man that ever lived was Julius Casar.
A prudent silence will frequently be taken for wisdom and a sentence or two cautiously thrown in will sometimes gain the palm of knowledge, while a man well informed but indiscreet and unreserved will not uncommonly talk himself out of all consideration and weight. (Alexander Hamilton's 'thesis on discretion' written to his son James shortly before his fatal duel with Burr.)
The richly cadenced prose is hypnotic, the research prodigious, the analysis acute, the mood spellbinding, and the cast of characters mythic in scale. I cannot conceive of a better book about Capitol Hill. An unforgettable, epic achievement in the art of biography.
Washington once advised his adopted grandson that where there is no occasion for expressing an opinion, it is best to be silent. For there is nothing more certain than that it is at all times more easy to make enemies than friends.
Stock market corrections, although painful at the time, are actually a very healthy part of the whole mechanism, because there are always speculative excesses that develop, particularly during the long bull market.
There were two qualities about the mutual funds of the 1920s that made them extremely speculative. One was that they were heavily leveraged. Two, mutual funds were allowed to invest in other mutual funds.