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 diversification
 in investment, the individual risk is thereby
absorbed. For as the risk grows it can be constantly
absorbed by corresponding increases in diversification.
 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 speculation
 can be turned into investment which is much
safer than many individual investments in so-called
“gilt-edge’ securities. And the paradox is that because
 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 numbers
 of investors, who have accepted it by employ-