The Intelligent Investor

Graham discusses investment funds, which are funds that enable individuals to combine their finances and allocate them toward a diversified range of assets. Investment funds can be “open-end,” meaning investors can buy and sell shares at any time, or “closed-end,” meaning that the number of shares remains fixed and shares are traded on secondary markets. He explains three ways to categorize investment funds: by portfolio composition (balanced funds, stock funds, bond funds, hedge funds, letter-stock funds), by objectives (growth, price, stability), and by method of sale (load funds, no-load funds).

He addresses three main questions regarding investment funds, exploring whether it is possible for the intelligent investor to choose a fund that outperforms the market, avoid funds that consistently underperform the market, and make smart choices between the different types of funds.

To draw conclusions about investment fund performance in general, Graham examines the results of ten large mutual funds during the 1960s. The overall performance of these ten funds for the period between 1961 and 1970 was found to be similar to that of the S&P 500-stock composite average, and better than that of the DJIA. Graham points out that mutual funds cannot be blamed for performing about the same as the market since they manage so many stocks that it becomes difficult for them to deviate significantly from market performance.