Investors are being offered the chance to drink from the Holy Grail of mutual funds, buying into a mysterious vessel with legendary powers...

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Investors are being offered the chance to drink from the Holy Grail of mutual funds, buying into a mysterious vessel with legendary powers, and yet the very opportunity to use the great chalice may prove that the whole idea is more fantasy than reality.

For the first time since 1982, the Sequoia fund is opening its doors to new investors. If ever there was a legendary fund, this is it. Sequoia is the mutual fund started by Warren Buffett’s stockbroker; Bill Ruane was a friend of Buffett when he co-founded Sequoia in 1970, when Buffett was liquidating his investment partnership and advised his clients to take their cash to Sequoia.

Since that start in 1970, Sequoia (SEQUX) has returned more than three times the Standard & Poor’s 500.

According to Morningstar, an investor who plugged $1,000 into Sequoia back when it started would have a little more than $200,000 today; by comparison, the same investment in an S&P 500 index fund would be worth about $63,000.

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Morningstar data showed that the fund outperformed its large-cap blend-category peers in 332 of the 333 rolling 10-year periods dating back to its 1970 start.

Performance was so good, in fact, that when the fund stopped taking new accounts, some shrewd financial advisers started purchasing shares directly from people who had gotten in during the open days; experts can’t think of any other closed fund that developed that kind of black market.

But what made Sequoia special was not just its investment returns, but also a knack for doing the right things when no one else seemed to care. It was the picture of sound communications with shareholders, responsible governance and a champion of low-cost, low-turnover investing.

Reopening this past Thursday served a key purpose for the fund. The shareholder base stopped growing 26 years ago, and management is concerned about attrition. Assets topped $5 billion a decade ago; today they stand at about $3.8 billion.

That money is invested in less than 25 stocks, and one-quarter of its cash is invested in Berkshire Hathaway (BRK.A), paying homage to the fund’s Buffett roots.

Over the last five years, plenty of similar funds have blown past Sequoia, most notably the Fairholme fund (FAIRX), which has a similar focus on investing the Buffett way and which also owns a big slug of Berkshire stock.

“The very fact that Sequoia is opening right now is a sign that some very good, smart people are thinking this is a time to be allocating capital, not retreating,” said Don Phillips, managing director at Morningstar.

“They have resisted so many temptations to reopen in the past … That makes this even more intriguing; it may not be a world-beater any more, but you can still feel pretty good about it.”

Chuck Jaffe is senior columnist at MarketWatch. He can be reached at cjaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.