The Intelligent Investor_ The Definitive Book on Value Investing - Benjamin Graham [96]
Investment Owner’s Contract
I, _____________ ___________________, hereby state that I am an investor who is seeking to accumulate wealth for many years into the future.
I know that there will be many times when I will be tempted to invest in stocks or bonds because they have gone (or “are going”) up in price, and other times when I will be tempted to sell my investments because they have gone (or “are going”) down.
I hereby declare my refusal to let a herd of strangers make my financial decisions for me. I further make a solemn commitment never to invest because the stock market has gone up, and never to sell because it has gone down. Instead, I will invest $______.00 per month, every month, through an automatic investment plan or “dollar-cost averaging program,” into the following mutual fund(s) or diversified portfolio(s):
_________________________________,
_________________________________,
_________________________________.
I will also invest additional amounts whenever I can afford to spare the cash (and can afford to lose it in the short run).
I hereby declare that I will hold each of these investments continually through at least the following date (which must be a minimum of 10 years after the date of this contact): _________________ _____, 20__. The only exceptions allowed under the terms of this contract are a sudden, pressing need for cash, like a health-care emergency or the loss of my job, or a planned expenditure like a housing down payment or a tuition bill.
I am, by signing below, stating my intention not only to abide by the terms of this contract, but to re-read this document whenever I am tempted to sell any of my investments.
This contract is valid only when signed by at least one witness, and must be kept in a safe place that is easily accessible for future reference.
Chapter 9
Investing in Investment Funds
One course open to the defensive investor is to put his money into investment-company shares. Those that are redeemable on demand by the holder, at net asset value, are commonly known as “mutual funds” (or “open-end funds”). Most of these are actively selling additional shares through a corps of salesmen. Those with nonredeemable shares are called “closed-end” companies or funds; the number of their shares remains relatively constant. All of the funds of any importance are registered with the Securities & Exchange Commission (SEC), and are subject to its regulations and controls.*
The industry is a very large one. At the end of 1970 there were 383 funds registered with the SEC, having assets totaling $54.6 billions. Of these 356 companies, with $50.6 billions, were mutual funds, and 27 companies with $4.0 billions, were closed-end.†
There are different ways of classifying the funds. One is by the broad division of their portfolio; they are “balanced funds” if they have a significant (generally about one-third) component of bonds, or “stock-funds” if their holdings are nearly all common stocks. (There are some other varieties here, such as “bond funds,” “hedge funds,” “letter-stock funds,” etc.)* Another is by their objectives, as their primary aim is for income, price stability, or capital appreciation (“growth”). Another distinction is by their method of sale. “Load funds” add a selling charge (generally about 9% of asset value on minimum purchases) to the value before charge.1 Others, known as “no-load” funds, make no such charge; the managements are content with the usual investment-counsel fees for handling the capital. Since they cannot pay salesmen’s commissions, the size of the no-load funds tends to be on the low side.† The buying and selling prices of the closed-end funds are not fixed by the companies, but fluctuate in the open market as does the ordinary corporate stock.
Most of the companies operate under special provisions of the income-tax law, designed to relieve the shareholders from double taxation on their earnings. In effect, the