Morningstar Advisor - Summer 2008 - (Page 52)

Morningstar Conversation RG: There are about 4,000 companies publicly traded in the world [that have] more than $1 billion in market cap. There is no way one individual can look at 4,000 companies. No way. But we use as our start point the 500 or 600 names that are recommended internally at T. Rowe. That really helps a lot because even though that’s 500 or 600 names, there may be only 10 changes in a buy recommendation per week. It’s a manageable number. us into the business. I think we all spend too much time on that, myself included, because we just love looking at new names. The second is idea protection—spending time on the names you already own, those 80 children in the crib, in the bassinet, and you’re deciding who to throw out of the nursery. The third is spending time on the big picture, the mosaic of what’s going on in the economies and all. What I’ve learned is that I’ve got to spend at least half my time on the names we already own, a quarter on each of the others. It is okay if an analyst has this great new name he’s recommending and I miss it. Shame on me. But if I get wrong what we already own, shame on the whole process. Being okay with missing a few but making sure what we do we get really right has made my job much more manageable. KK: Let’s talk about the big picture. What do you see when you look at the global economy? RG: Not to scare off potential investors, but this is among the hardest times in my entire career; it’s the most confusing time as to what to do. It really is. It is obvious that the world economy has gone from dynamic growth to moderate growth to the late stages of an economic cycle, and that 5% real GDP growth that we had for multiple years is slowing to only 3%, maybe even less. We also know that the biggest problems are in the developed world. The U.S. is in recession; it’s just a question of how long. In Europe, we’ve got a lot of separate countries that have some economic issues, particularly the U.K., which is going to get near to a recession, and Italy, Spain, and Ireland. I also came to the realization that when doing global you don’t have to get everything right. You need to get enough right. Some say, “Wait a minute. Are you compromising?” No. It’s understanding what’s most important to get right and where to spend your time. There are three important buckets of investing time, and I think most of us get it wrong. The first is idea generation—looking at new names you could buy. It’s everybody’s first love. It’s what brought But what really concerns me is more than that. Remember, we own stocks. We don’t own economies; profits drive stocks more than the 52 Morningstar Advisor Summer 2008

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Summer 2008

Morningstar Advisor - Summer 2008 Contents Letter from the Editor Contributors Inbox College Planning: Solutions and Concerns ETFs: The Next Chapter Engineering Financial Advice Investment Briefs Flexible vs. Style-Pure Managers: The Evidence Forging a New Commodity Index Work Your Way Through College Planning Sizing Up the Options Best and Worst 529 College-Savings Plans A 529 Travel Guide 10 Tax-Smart Tips for College-Savings Planning Global Dialogue How Sequoia Cranks Out Good Returns Year After Year The Many Layers of David Winters Living on the Edge Stocks to Buy Once a Decade With Munis Feeling the Pain, Some Opportunities Arise Health Care Provides Shelter from Economic Storm Help Your Clients Get More Out of Their Bond Portfolios Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar New on MorningstarAdvisor.com Closer to Fine

Morningstar Advisor - Summer 2008

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