Morningstar Advisor - Summer 2007 - 40

Morningstar Conversation Weitz Value WVALX Growth of $10,000 Fund Large Value $20K S&P 500 15 WW: Between hedge funds and the private equity folks, any company that gets tired of being public can be taken over. My dream is that all the companies go private, and we get to be the buyers when they try to bring them public again. They want to sell them to us at 15 times earnings, and we bid them seven times, and we get the last laugh. 06 07 companies are trying to undercut them with fiber to the home. When the bigger banks are taken over by out-of-towners, at least what I’ve seen in Omaha, little community banks start up. And then Wal-Mart replaces Sears, replaces the corner store, and… JR: There’s nothing left to invest in. WW: That’s the end of that. JR: When I started the firm 25 years ago, I focused on smaller, midsized companies because I thought that’s where the value was. I thought that this was the best way to beat the S&P 500. And they didn’t have style boxes and they didn’t have Russell indexes—all that hadn’t been invented yet. Now, if you start to look for where the opportunities and values are, to be forced to buy something that’s more expensive and less high-quality because it’s a certain size, and to be outlawed from buying the higher-quality, faster-growing company because it’s a little larger, it’s nonsensical to some of us who have been in the business for a long time. We talk to our peers about it, and we all scratch our heads and say this doesn’t make sense. But it is hard to change the world. WW: Yes. In the late ‘90s, we were labeled small/mid-cap. I knew there was such a thing as a Russell 2000, but I really paid no attention to it. But we owned a lot of small, cellular companies and cable companies, and there was a lot of consolidation going on. And I didn’t realize how much Internet fever those stocks were catching, because we just bought them because they had cash flows. Our funds were neck and neck with the S&P, which is what I was looking at, so I didn’t think they were anything special. But the funds were 10 or 20 percentage points ahead of the Russell for two or three years in a row. And all of a sudden, we got several billion dollars in. We thought it was because people recognized what great investors we were. But all it was, we were beating all the people in the box they put us in. And now we’re getting exactly the opposite thing. I just figure it’s something we 03 04 05 Category 10-Yr. Annl Ttl Return % Large Value Morningstar Rating 13.51 10-Yr. Annl Invstr Rtrn %* QQQQ Expense Ratio (%) 8.84 Invstr Rtrn % Rank Cat JR: I’ve been concerned that some of our favorite companies getting bought out by these private equity people at 15% premiums. The premiums seem to be getting smaller and smaller, and we all know the incentives for management teams to do this—it does seem kind of perverse. WW: Especially if you’ve been holding the stock five or 10 years, waiting for somebody to really recognize the full value, and then you get short-stopped by a takeover. That’s really annoying. What we need is for a few of them to not work and for this cheap debt money to dry up. Then it’ll be a little harder to do that. JR: I wonder, as more and more of these takeovers occur in industry after industry, will there be a large enough universe of small-cap stocks for us money managers to find highquality small companies? So many of the great industries have just been consolidated away. We owned A.G. Edwards, which was just acquired by Wachovia WB. There’s only a few brokerage firms left of any size that are still publicly traded. You look here in Chicago, where there’s only one bank that’s really an independent bank, Northern Trust NTRS. Here’s a big city, and there’s no one left. So where do you go to invest? Do you change from being small/mid-cap to buying larger-cap companies? Do you put the money in cash? Do you find another niche somewhere? WW: I’m really more of a reactor than trying to foresee how it’s going to play out, because I keep getting surprised. We were interested in cable companies in the ‘90s, and people were very skeptical about them. And they finally fulfilled their promises. Now, the phone 1.13 Stewardship 41 Minimum Investment $ Z * 5,000 Data as of May 31, 2007 Dollar-weighted return that measures how the typical investor in the fund fared. Ariel ARGFX Growth of $10,000 Fund Mid-Cap Blend $23K S&P 500 16 03 04 05 06 07 Category 10-Yr. Annl Ttl Return % Mid-Cap Blend Morningstar Rating 13.51 10-Yr. Annl Invstr Rtrn %* QQQQ Expense Ratio (%) 12.65 Invstr Rtrn % Rank Cat 1.07 Stewardship 32 Minimum Investment $ X * 1,000 Data as of May 31, 2007 Dollar-weighted return that measures how the typical investor in the fund fared. 40 Morningstar Advisor Summer 2007

Morningstar Advisor - Summer 2007

Table of Contents 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 - Intro
Morningstar Advisor - Summer 2007 - Morningstar Advisor - Summer 2007
Morningstar Advisor - Summer 2007 - Cover2
Morningstar Advisor - Summer 2007 - Contents
Morningstar Advisor - Summer 2007 - 2
Morningstar Advisor - Summer 2007 - 3
Morningstar Advisor - Summer 2007 - 4
Morningstar Advisor - Summer 2007 - Letter from the Publisher
Morningstar Advisor - Summer 2007 - 6
Morningstar Advisor - Summer 2007 - 7
Morningstar Advisor - Summer 2007 - Get to Know the Bond “All-Stars”
Morningstar Advisor - Summer 2007 - 9
Morningstar Advisor - Summer 2007 - Research Briefs
Morningstar Advisor - Summer 2007 - 11
Morningstar Advisor - Summer 2007 - Our Stewardship Test Gets Tougher
Morningstar Advisor - Summer 2007 - 13
Morningstar Advisor - Summer 2007 - Save It for Later
Morningstar Advisor - Summer 2007 - 15
Morningstar Advisor - Summer 2007 - Too Many Oranges
Morningstar Advisor - Summer 2007 - 17
Morningstar Advisor - Summer 2007 - Best of Both Worlds
Morningstar Advisor - Summer 2007 - 19
Morningstar Advisor - Summer 2007 - 20
Morningstar Advisor - Summer 2007 - No Two Clients Are Alike
Morningstar Advisor - Summer 2007 - When It Comes to VAs, It’s Seller Beware
Morningstar Advisor - Summer 2007 - 23
Morningstar Advisor - Summer 2007 - 24
Morningstar Advisor - Summer 2007 - 25
Morningstar Advisor - Summer 2007 - 26
Morningstar Advisor - Summer 2007 - 27
Morningstar Advisor - Summer 2007 - 28
Morningstar Advisor - Summer 2007 - Hands On: Finding the Suitable Fund Share Class for Your Client
Morningstar Advisor - Summer 2007 - 30
Morningstar Advisor - Summer 2007 - 31
Morningstar Advisor - Summer 2007 - 32
Morningstar Advisor - Summer 2007 - 33
Morningstar Advisor - Summer 2007 - Fund Style Can Drift Off Course
Morningstar Advisor - Summer 2007 - 35
Morningstar Advisor - Summer 2007 - 36
Morningstar Advisor - Summer 2007 - Sticking to Their Style, Through Thick and Thin
Morningstar Advisor - Summer 2007 - 38
Morningstar Advisor - Summer 2007 - 39
Morningstar Advisor - Summer 2007 - 40
Morningstar Advisor - Summer 2007 - 41
Morningstar Advisor - Summer 2007 - 42
Morningstar Advisor - Summer 2007 - Marathon Man
Morningstar Advisor - Summer 2007 - 44
Morningstar Advisor - Summer 2007 - 45
Morningstar Advisor - Summer 2007 - 46
Morningstar Advisor - Summer 2007 - 47
Morningstar Advisor - Summer 2007 - Growth, With a Chaser
Morningstar Advisor - Summer 2007 - 49
Morningstar Advisor - Summer 2007 - 50
Morningstar Advisor - Summer 2007 - 51
Morningstar Advisor - Summer 2007 - A Menu of Ideas to Fill Five Market Baskets
Morningstar Advisor - Summer 2007 - 53
Morningstar Advisor - Summer 2007 - 54
Morningstar Advisor - Summer 2007 - 55
Morningstar Advisor - Summer 2007 - 56
Morningstar Advisor - Summer 2007 - 57
Morningstar Advisor - Summer 2007 - Funds: Finding Funds with Conviction
Morningstar Advisor - Summer 2007 - 59
Morningstar Advisor - Summer 2007 - Stocks: So You Say You Want Income?
Morningstar Advisor - Summer 2007 - 61
Morningstar Advisor - Summer 2007 - 62
Morningstar Advisor - Summer 2007 - All Eyes on China
Morningstar Advisor - Summer 2007 - 64
Morningstar Advisor - Summer 2007 - 65
Morningstar Advisor - Summer 2007 - 66
Morningstar Advisor - Summer 2007 - 67
Morningstar Advisor - Summer 2007 - Mutual Fund Analyst Picks
Morningstar Advisor - Summer 2007 - 69
Morningstar Advisor - Summer 2007 - 70
Morningstar Advisor - Summer 2007 - 71
Morningstar Advisor - Summer 2007 - Undervalued Stocks
Morningstar Advisor - Summer 2007 - 73
Morningstar Advisor - Summer 2007 - Most Popular Variable Annuities
Morningstar Advisor - Summer 2007 - 75
Morningstar Advisor - Summer 2007 - What’s New at Morningstar and on the Web
Morningstar Advisor - Summer 2007 - 77
Morningstar Advisor - Summer 2007 - 78
Morningstar Advisor - Summer 2007 - 79
Morningstar Advisor - Summer 2007 - The Advisor’s Economic Moat
Morningstar Advisor - Summer 2007 - Cover3
Morningstar Advisor - Summer 2007 - Cover4
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