Morningstar Advisor - Summer 2007 - (Page 42)

Morningstar Conversation competitors. It seems to me there’s limited amount of industries and companies that a person can truly get their arms around and be an expert in. I wonder sometimes about the manager who has 200 names in the portfolio. WW: It makes no sense to me. JR: As I get older, the more I believe that not only do you have to get to know the industries and companies, but you also need to understand the culture and character of the management team. You need to be able to get on the phone with the CEO or a CFO and take their temperature and see whether they truly believe in their own story. And now, in the world of Regulation FD, you have to read so much through voice inflection, the way they say things, and what they don’t say. All of which makes me even more committed to keeping a concentrated portfolio, where you know the people really well and can understand their energy, their commitment, and their enthusiasm for the future. WW: I talked to the Chicago Society of Analysts today at lunch, and we got into the subject of the scandal stocks. After a Tyco blows up or after a Fannie Mae or Freddie Mac comes out with an admission that they miscounted by $9 billion over the last couple years, when is it safe to go back in the water? If you know the managers, you can judge whether they’re going to be able to cope with the problems or make that right decision at the fork in the road. That’s where us old folks can bring some value that the young ones can’t. They can out-hustle us on spreadsheets, but knowing that a manager did something crooked 23 years ago might be a good reason not to look at that stock again. K I’m finally beginning to believe that it’s possible to understand a Yahoo or a Google. I don’t pretend that I do yet, but a Yahoo is starting to look like a media company. —Wally Weitz should have a little bit of everything versus focusing on the areas that you feel confident in? WW: We’re always going to be 30%, 40%, 50% financial. We’re going to be 10%, 20%, 30% media entertainment. We’re going to be the occasional retailer or something. I can’t conceive of ever getting close to that fully-diversified-sector-neutral kind of a place. I’ve been accused of running closet sector funds. It’s not on purpose, exactly. It’s not because I think it’s better to be more concentrated; it’s just that the good ideas tend to cluster. In 1990-91, when commercial real estate was having a bust, Bank of New England went under and there were serious doubts about Wells Fargo WFC and others. We got the idea that the banks that made it through would be fine. Now, we didn’t know exactly which ones would make it, because you can’t get really inside and tell. But we had ways of making some assessments, and we must have owned 12 or 15 banks. People would look at our list and say, “You’ve got 70 names in your portfolio.” Well yeah, but 15 of them are the same. It’s the same story implemented 15 different ways. At one point, our cable stocks got up toward 30% of the portfolio, and as they kept going up, we just sold enough to keep it down. Even I couldn’t let it go over 30%. JR: I think both of us share the belief that we’re doing a lot of the work ourselves and getting to know the companies and their To view a video excerpt of this conversation, go to: http://MorningstarAdvisor.com/Conversation.asp 42 Morningstar Advisor Summer 2007 http://MorningstarAdvisor.com/Conversation.asp

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Summer 2007

Morningstar Advisor - Summer 2007 Contents Letter from the Publisher Get to Know the Bond “All-Stars” Research Briefs Our Stewardship Test Gets Tougher Save It for Later Too Many Oranges Best of Both Worlds No Two Clients Are Alike When It Comes to VAs, It’s Seller Beware Hands On: Finding the Suitable Fund Share Class for Your Client Fund Style Can Drift Off Course Sticking to Their Style, Through Thick and Thin Marathon Man Growth, With a Chaser A Menu of Ideas to Fill Five Market Baskets Funds: Finding Funds with Conviction Stocks: So You Say You Want Income? All Eyes on China Mutual Fund Analyst Picks Undervalued Stocks Most Popular Variable Annuities What’s New at Morningstar and on the Web The Advisor’s Economic Moat

Morningstar Advisor - Summer 2007

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