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Talking Points

With venture funds and investment banks providing fuel in the form of IPOs to the Internet mania, mutual funds became unlikely speculators. In order to keep up with high returns being reported by the most speculative funds, others moved heavily into Internet stocks. The result was that many small investors who placed their savings and pension money in annuities with major mutual fund houses suddenly discovered, after the bubble burst, that beneath high returns lay wild speculation by the fund managers, and the investors lost large amounts.

In effect, with Wall Street taking start-ups public at a stage which in the past would have been a venture investment, and mutual funds loading up on such stocks, mutual funds became like venture capitalists—with sometimes high returns but also high risks. Without realizing it, small investors had moved via their mutual fund investments into one of the fastest, most risky games in the financial markets.


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