First Fund: The Origins and Legacy of Massachusetts Investors Trust (MIT)

During the mid-1920s, business was booming in the United States as the stock market began its steady climb toward all-time highs.^₁ The Roaring Twenties was marked by a feverish optimism, new innovations and the question “what will they think of next?”^_2,3 Hearing so many get-rich-quick success stories, many people began wondering how they, too, could get rich quick.^₄

But there were many hidden dangers for regular American families lurking below the surface of the US’ largely unregulated stock market.^₅ The closed-end funds of the time, which were the most popular “pooled investments,” often engaged in troubling practices that put Americans’ hard-earned money in jeopardy.^₆ Some investment managers would intentionally prey on the ignorance of unsophisticated investors and sell what are called speculative securities, which seemed quite attractive on the surface but were known to be, or at least suspected to be, either highly risky or, ultimately worthless.^₇ They also refused to disclose their holdings, making it nearly impossible for people to know what the holdings were actually worth.^₈

And since these closed-end funds didn’t give investors direct ownership of their assets, small investors who actually managed to buy into one and then wanted to sell their shares would have to find other investors to buy them instead of selling the shares back to the fund itself. Given the lack of regulations in the market, the buyers of their shares had little incentive to pay a fair price.^₉ Not only that, many closed-end fund managers either borrowed money to purchase speculative stock,^₁₀ or in some cases, would purchase shares of other speculative closed-end funds.^₁₁

Knowing the terrible harm these funds could cause, Edward Leffler, one of the early trustees of MFS, envisioned a more transparently managed and ethical investment vehicle — a fund that could issue additional shares if new investors wanted to buy into the product and,^₁₂ more importantly, would guarantee its shareholders the right to sell their shares back to the fund at any time.^₁₃ Leffler also wanted shareholders to be able to sell their shares back to the fund for a fair price (i.e., the underlying value of the fund’s stock holdings),^_14,15 which was not the case for closed-end funds — sell prices often differed from the market value,^₁₆ making them incredibly expensive if sold at a premium. Leffler’s investment vehicle would give regular Americans an accessible path to financial security for themselves and their families.

Throughout his career selling individual securities, Leffler had witnessed firsthand from sitting at kitchen tables with his customers that “there was no sound investment vehicle” to help ordinary people “get somewhere financially.”^₁₇ He was determined to introduce a more durable and democratic investment platform that would not only stand the test of time but change lives.