206 The Stock Market Crash—And After 
cents. It is both normal and proper that the higher 
the risk the cheaper the chance of winning can be 
obtained, compared with its mathematical value. 
Hence, the more risky the investment would be to 
a lone individual playing the game, the safer it is, 
if, by pooling in an investment trust with wide diver- 
sification in investment, the individual risk is thereby 
absorbed. For as the risk grows it can be constantly 
absorbed by corresponding increases in diversifica- 
tion. Thus the individual member of the trust may 
gain more on the riskier investments, bought by the 
trusts at much less than their mathematical value, 
than if he played the market alone with less risky 
investments, but bought at much nearer their 
mathematical value. 
So the investment trust has proved that specula- 
tion can be turned into investment which is much 
safer than many individual investments in so-called 
“gilt-edge’ securities. And the paradox is that be- 
cause of the ‘‘caution factor” the market value of 
the riskiest investments has been depressed far below 
their real mathematical value. The investment 
trusts, carrying the principle of diversification to wide 
limits, have managed to get a higher average return 
from investments which individually would have 
proved quite risky, while at the same time they have 
extracted from them largely their elements of risk. 
This principle, so far as I know, never has been 
definitely formulated in the investment market, but 
it has been acted upon intuitively by increasing num- 
bers of investors, who have accepted it by employ-