Morningstar Advisor - August/September 2013 - (Page 55)

are maybe even lower than Vanguard’s. The philosophy comes out if every fund in your complex has low cost. It doesn’t come out when you can pick and choose to meet competition. Bogle: Yeah, the turnover over 100%. Forget them. Phillips: At some point, does it cease to be indexing, if you’re not buying and holding the whole market? I think there’s some progress, but I don’t particularly like the huge concentration of assets in the top five or 10 firms. It’s actually higher than it was in the past. Not hugely higher, but those top 10 firms probably have 50% of the industry’s assets, and that’s where the money flows are. But I would say, yes, the industry is better. But what’s that all about? We should be getting better and better from where we are, and that’s really my gripe, my lover’s quarrel with the industry. We can’t stand there and say that we’ve done a great job when the record shows that we have not done a great job, A, because of cost, but B, because of the way we attract investors. Bogle: You can say you index. You see this all over the place in the ETF market, where there are, I think, 1,500 funds, and I think they track something like 1,100 different socalled indexes, some of which they make up themselves. Indexing, like any good idea, attracts marginal players. Phillips: This is our 25th anniversary of the conference. When we hold our 50th anniversary, are you optimistic that this industry, at that point, will tilt more toward a profession than a business today, or are you worried that it’ll be the opposite? Bogle: I’m optimistic that will happen, and I actually expect to be here. It’s obvious to all of us. It’s obvious to someone selling cars or anything else. But this industry has these two masters, and it doesn’t seem to be obvious. The consumer is not always the object of their existence. The object is getting bigger. It’s gathering assets. So, I can’t disagree with you. The industry has gotten somewhat better. But for heaven’s sake, as I’ve often said, “Success is a journey and not a destination.” Some people say that Vanguard is a great firm. Of course it’s not. It should be trying to be great, striving forever to be great. But once you think you’re there—that’s not a good idea. Forget it. Keep working for what your duties are, what you’re assigned to do, what your conscience tells you to do. Just be the kind of person you want to be when nobody else is looking. K Don Phillips is head of global research with Morningstar. Phillips: You regularly champion indexing, obviously, and you tend to have less gracious Phillips: It’s a standing invitation. things to say about active management. But when I look at some of the firms out there, Bogle: I should say, in 2001, I wrote a book I see more of your DNA in a place like called John Bogle on Investing: The First 50 Years, leaving hanging that the sequel, John Bogle on Investing: The Second 50 Years would be out there. As some of you know, I may, particularly right now, not walk like I’m 44, or even look like I’m 44, but 17 years ago I got a 26-year-old heart, so I’m only actually 43. T. Rowe Price or American Funds than I do in some of the upstart, very specialized or leveraged index funds. What would your counsel be to someone: Would you rather have them buy a lower-cost actively managed fund than a high-cost index fund? Bogle: I guess the answer to that, since I believe that cost is the single most important factor, is absolutely yes, provided the [active fund] had reasonable diversification. I think [Morningstar] had a piece of data the other day that said the average cost— [the average] expense ratio of an index fund—if you take all of them and add them up, and divide by 200 or whatever the number is, is 129 basis points. Phillips: And the turnover is over Phillips: Truly young at heart. Bogle: Yeah, so count on seeing me there. It has to happen, because ultimately, and I have a quote again in this Boston speech from Adam Smith. This is the great Adam Smith, 1776, The Wealth of Nations. They call him the first consumer advocate, and he says— it’s so obvious that I’m not even going to try and prove it—that serving the consumer must be the object of every enterprise’s existence. 100%. Stunning. MorningstarAdvisor.com 55 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2013

Morningstar Advisor - August/September 2013
Contents
Contributors
Letter From the Editor
Under Pressure
Has Your View of Bonds Recently Changed?
The Simple Life Cuts a Path to Prosperity
How Extended Is Your Bond Fund?
A Bond Contrarian Scours the Globe for Value
Investments á la Carte
Investment Briefs
Bond Market Behemoths
Shopping in the Digital Age
Shopping in the Digital Age
Diverse Crowd
Motor City Meltdown
Bond Convergence
Corporates Are Fairly Valued, but Opportunities Will Arise
A Legend Still Pines for the Good Fight
Greener Pastures
Forecasting Market Bubbles and Crashes
Forecasting Market Bubbles and Crashes
Home-Court Advantage
Overcoming Technophobia
These Funds Are Counting on Undervalued Sectors
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
What Price Advice?

Morningstar Advisor - August/September 2013