Fortune magazine (April 29, 1996) is trying to explain changes in the composition of ownership of the fortune 500 companies. Consider the following quotation:

"That just plain folks own a piece of the FORTUNE 500 isn't new. But their piece has never been so big. The Investment Company Institute, a trade association in Washington, D.C., calculates that individual shareholders currently have more than $3 trillion sitting in mutual funds, about three times the amount at the beginning of the decade. About half that money is in stocks."

Ans. The way I read it is that the piece owned by the "plain folks" has never been so big as demonstrated by the size of mutual funds, sitting at $3 trillion.

This is not necessarily a correct argument. One trivial explanation is that the "$3 trillion" has no reference point, i.e., the number could simply reflect the recent unprecedented increase in stock prices. Such price jumps would definitely boost the amount "sitting in mutual funds."

A slightly more interesting argument can also be made. Suppose that individual investors decided that they would be better off investing in mutual funds rather than deciding themselves which stocks to invest in. If these folks moved their accounts from brokers to mutual funds wouldn't such an action increase the amount "sitting in mutual funds?" It surely would.

Note that I am not trying to explain the source of the increase in mutual fund holdings. I am simply trying to get you to think critically about what you read in the press, or in morevalue.com for that matter.