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 Suppose you were trying to design a mutual fund that would not be on any financial planner's buy list. The first stop would be easy -- make sure it was undiversified. Then, insist that the fund put its money in illiquid assets -- the type that couldn't be sold for years. Now, just to ward off any knee-jerk contrarians, let's make sure our fund invested in small, unglamorous companies that operate in prosaic businesses like automotive radiators and glass recycling -- companies that Wall Street had never heard of and probably wouldn't care about even if it had. Oh, and just to be on the safe side, we'll make it a closed-end fund, so the shares are likely to trade at a discount. Actually, we don't have to invent this fund -- it already exists. Equus II, which trades on the American Stock Exchange, is a wonderful guide to thinking about how to approach the stock market, precisely because it violates so much of the conventional investing wisdom. Most funds invest in stocks -- that is, they focus on expected market performance as a basis for buying and selling shares. Equus invests in businesses, which means its focus is on the operations -- now and in the future -- of its investees. Not coincidentally, it has been, and I believe will continue to be, a superior investment. |
