came down from the nineteen forty act which outlined all
kinds of details that today rule the mutual fund industry
Specifically that means that to qualify for being considered a
diversified mutual fund the fund must have at least seventy
five percent of its assets invested in external securities like
normal stocks and bonds I either fun can't invest in
its own stock seems like an obvious rule But all
kinds of slick dealers took advantage of the system in
the early days of you know mutual fund Oh in
cash and cash E instruments like money market index funds
get counted in this seventy five percent number as well
Okay that's a seventy five What about the five there
Well that number of first to the max amount of
the fun that can be invested in any one stock
And that includes various siri's like one company might have
supervoting be stock like google slash alphabet as well as
normal a stock the five percent there maxes out as
a total of each Remember that the goal here is
qualifying to be diversified If you have more than five
percent anyone investment Well should it go bad Overall performance
of the fund would be really really harmed right So
what happens if a given fund put on a whole
load of dough into amazon in two thousand ten like
it was four percent of its fund at that point
And then the stock goes up abovitz five percent the
old fashioned way i'ii buy just growing fast like amazon
stock it All right well the fund then in theory
has to trim it down Trim down that amazon exposure
amazon position to sit below that five percent max threshold
There's actually a lag or duration that fund companies air
allowed Tto handle of a stock should suddenly jump like
amazon did and pierce that five percent figure But there
must be a plan to trim out the overexposure to
that one awesome stock Okay so that's the five What
about that ten on the end there Okay the ten
percent figure refers to control meaning that a mutual fund
can't own more than ten percent of a given cos
voting stock So if a company has ten for one
supervoting class b stock than the fund company can't own
more than one percent of that b stock right because
then they'd have ten percent control But if company has
a stock that's identical to be in every single way
except for board election votes will then the fund could
own ten percent of the a stock The goal here
tto limit fund influence over a particular companies Management decisions
to money influence whisperer temptations If fund companies could in
fact directly influence board elections or whatever So that's a
seventy five five ten rule kind of like the golden
rule except that it's more doing to mutual funds as 00:02:48.29 --> [endTime] you would have them do unto you
