Investing In Large, But Not Big Companies

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Because so much is said and written about the giants, an investor may easily fail to notice the other large companies. But a major feature of American business organization is the numerous corporations, each one large compared to the average, but small alongside the giants.

In 1952 about 13,000 American corporations had at least $5 million of assets. Now a business with $5 million in property is presumably well beyond the nursery stage. But to avoid getting bogged down with large numbers of companies, suppose we limit ourselves to those having at least $50 million of assets. A business with this much property probably has several thousand employees and a few thousand stockholders. How many are that big? More than1,500 of them in the United States.

Obviously an amateur investor cannot possibly choose intelligently among 1,500 stocks. But let us defer this problem. The point right now is that the United States contains a great many large corporations, most of them with names that mean little to us; but still they are successful, established companies, and quite possibly their stocks are good investments.

The little matter of price per share is a reason for looking beyond the leading names. When an already prominent company is expected to do well on future earnings, it attracts much attention from speculators and investors, including some who own or manage large blocks of capital. In their desire to get in on a good thing, these people may run the price of the prominent stock up too high, as compared to the stock of less well-known companies that also have good prospects for earnings. Because of high price, a stock may be a much less desirable investment today than it was at some time in the past.

Massachusetts Investment Trust is one of the oldest and largest of American investment companies. Being itself in the billion-dollar-asset class, how much does this trust rely on the other giants in putting its investment policy into effect? In 1955, the trust evidently considered most of the giants to be high-grade investments, but it turned down a third of them in favor of other large companies. (Incidentally, the trust's policy of broad diversification required it to own stock in a list of companies long enough that this alone caused it to look well beyond the giants.)

Under largely the same management as this trust is a company called Massachusetts Investors Growth Stock Fund. The trust and the fund are alike in limiting their investments to common stocks. The word "growth" in the fund's name implies that it selects stocks expected to do exceptionally well in the future, although current dividends may be low. In 1955 only one tenth of its stock values were in stock of giant corporations, and most of those were life-insurance companies. Apparently the fund managers believed that outside the life-insurance industry very few of the giants had future growth prospects as good as those of quite a few other not-so-large corporations.

Bigness has its advantages for an investor, but he need not wear self-imposed blinders that prevent him from seeing anything but a few giants.

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