Some understanding of the early experience of investment com panies is necessary to show the reasons for federal regulation and its importance to investors.

A few investment companies were organized in the United States before World War I. Although investment companies in the United Kingdom were well established, it must be remem bered that until World War I the United States was a debtor nation, and the number of holders of common stocks was rela tively small. Not until the great bull market of the twenties was well under way did the investment company idea take hold here.

When investment companies began to raise funds, the rush to buy soon developed into a stampede. Without going into de tails, we may note that by the end of 1926 there were about 160 investment companies of various kinds with assets of about $1 billion. Growth was rapid: 140 new companies were formed in 1927; 186 in 1928. By 1929, the rate of formation was one every business day; assets at the end of the year were valued at over $7 billion. The amount of new capital raised by investment companies in 1929 was about $1.5 billion. Undoubtedly, pur chases by investment companies contributed substantially to the rise in stock prices during the last three years of the bull market, which ended in 1929. Certified Financial Planner - Read More.