Morningstar Advisor - Fall 2008 - 52

Morningstar Conversation people who go through that site every day. You don’t think that has value to advertisers. They just have to do a better job of monetizing it, that’s all. KK: What are some other interesting positions in your portfolio? RH: About 25% of the portfolio now is in engineering/construction, as it relates to electricity in the national grid system. Years ago, when we were doing a risk analysis on Google, we asked Google managers what they thought their biggest risk was. I hoped that they would say Yahoo, but they said electricity. That’s odd, I thought at the time. It seemed to be working there fine. But they said the grid was very fragile and dependability was not high. If the electricity on their servers goes out, they have no revenues, so they moved their servers to high-dependable grid systems. We had made a lot of money in alternatives last year in solar and others. Their prices had gotten high, and we sold, but I recognized that for every solar farm that goes up, for every wind farm that goes up, you still have to have a transmission and distribution system put in. Our companies will be the beneficiaries of solar farms and wind farms. What you will see over the next three to five years is that the demand for electricity is rising faster than the supply is able to give it. We have to address it. There’s going to be more build-out of electric power transmission and distribution, and that’s a big part of the portfolio. KK: There doesn’t seem to be a lot of exposure KK: Who are a couple of guys who aren’t named Warren and Bill whom you admire on the investing side? RH: Chris Davis has done a great job at his shop. Another guy that I like is Tom Russo, who runs Gardner Russo & Gardner. You have to tip your hat to David Winters. I’ve known David for a number of years, and he’s starting the Wintergreen Fund WGRNX and it looks like from a global perspective he has done very well. KK: Do you study other investors? RH: Oh, sure. In this business, if you’re not looking at what the other smart people are doing, shame on you. I’m not so egotistical that I don’t want to know what other smart people are doing, so absolutely. Part of our research intelligence is looking at the smartest people in the world and finding out what they’re doing. What are they buying? What are they selling? Per chance they see something that we don’t want to see. It’s a very competitive landscape. directly to the consumer in the portfolio. RH: No, other than the fact that you might argue that the Internet stocks are consumerdiscretionary because they’re ad-supported businesses. Amazon certainly would be a consumer-related stock, but we’re not overwhelmed with consumer-direct purchases. KK: But you’re not necessarily making a comment on consumer itself, are you? RH: I’m somewhat agnostic on consumer. It has had a good run for 20 years, but there’s some debt and leverage to work through. Consumer is important to the economy, undoubtedly, but I think people have a tendency to think about this in black and white. Either consumers are spending or they spend zero. It doesn’t work like that. Either they’re spending a lot or they’re spending less, but there’s always some consumer spending. In 2006, I started doing a big read on the state of the national grid system and electricity. I found out that it’s in dire need of both upgrade and repair. We’ve got to build new electric power facilities. Old ones that have been around for 50 years are coming offline. That really opened up my mind. Then, there is transmission and distribution. You make electricity, but you’ve got to distribute it with power poles and the lines and the connectors, and that’s a big business. We’ve got about 9% of our portfolio just in transmission distribution. KK: What are some stocks? RH: Quanta Services PWR is the largest labor On the value side, there are obviously some high-quality guys that we’re seeing. On the growth side—the problem is that it’s very hard for me to find growth investors. There are some growth numbers out there that are staggeringly good, but when I look at the portfolio and the portfolio turnover rate is 100%, 200%, 400%—they’re obviously doing something different than me and the processes are technically oriented, momentum-oriented. We have done less well relative to our growth peers because we’re more valuation-centric. K Kunal Kapoor is president and chief investment officer of Morningstar Investment Services (http://www. mp.morningstar.com). force that works for utility companies. General Cable BGC makes the copper line. Thomas & Betts TNB makes the connectors to which the lines connect. You can follow the value chain all the way down. And it’s a secular business that’s not going to have a lot of economic sensitivity. If you talk to the electric utilities, they say that it doesn’t matter if we have a recession or not. We’ve got to improve the grid. We’ve got to make this investment. Capital is set aside to do it. I think you also have to think globally. I know that the G7 economies are slowing down, but I’m not yet a believer that the emerging-market economies are going to go into recession. They were growing at 7% to 10%, so maybe they grow 4% to 6%, but they’ll grow four or five times faster than we’re growing in the G7. I think there’s a lot of opportunity internationally. See more of Hagstrom and Kapoor’s conversation on video at MorningstarAdvisor.com. 52 Morningstar Advisor Fall 2008
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Morningstar Advisor - Fall 2008

Table of Contents for the Digital Edition of Morningstar Advisor - Fall 2008

Morningstar Advisor - Fall 2008
Contents
New on MorningstarAdvisor.com
Letter from the Editor
Contributors
Inbox
Are You Preparing for Higher Taxes?
State of Financials
Oracles of Alabama
Investment Briefs
Managers’ Investment Secrets Revealed
Conformity Becomes a Growing Concern at American
Gimme Shelter
Location, Location, Location
Rooted in Buffett, Going for Growth
Keeping Little Company
Away from the Numbers
Consumer Confidence
What about Natural Gas?
TIPS to Beat Back Inflation
Investing in Hidden Assets
Funds That Have an Edge Come Tax Time
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
One for You, 19 for Me
Morningstar Advisor - Fall 2008 - Intro
Morningstar Advisor - Fall 2008 - Morningstar Advisor - Fall 2008
Morningstar Advisor - Fall 2008 - Cover2
Morningstar Advisor - Fall 2008 - 1
Morningstar Advisor - Fall 2008 - 2
Morningstar Advisor - Fall 2008 - Contents
Morningstar Advisor - Fall 2008 - 4
Morningstar Advisor - Fall 2008 - 5
Morningstar Advisor - Fall 2008 - New on MorningstarAdvisor.com
Morningstar Advisor - Fall 2008 - 7
Morningstar Advisor - Fall 2008 - 8
Morningstar Advisor - Fall 2008 - Letter from the Editor
Morningstar Advisor - Fall 2008 - Contributors
Morningstar Advisor - Fall 2008 - Inbox
Morningstar Advisor - Fall 2008 - Are You Preparing for Higher Taxes?
Morningstar Advisor - Fall 2008 - 13
Morningstar Advisor - Fall 2008 - State of Financials
Morningstar Advisor - Fall 2008 - 15
Morningstar Advisor - Fall 2008 - 16
Morningstar Advisor - Fall 2008 - Oracles of Alabama
Morningstar Advisor - Fall 2008 - 18
Morningstar Advisor - Fall 2008 - 19
Morningstar Advisor - Fall 2008 - 20
Morningstar Advisor - Fall 2008 - Investment Briefs
Morningstar Advisor - Fall 2008 - 22
Morningstar Advisor - Fall 2008 - 23
Morningstar Advisor - Fall 2008 - 24
Morningstar Advisor - Fall 2008 - 25
Morningstar Advisor - Fall 2008 - Managers’ Investment Secrets Revealed
Morningstar Advisor - Fall 2008 - 27
Morningstar Advisor - Fall 2008 - 28
Morningstar Advisor - Fall 2008 - 29
Morningstar Advisor - Fall 2008 - Conformity Becomes a Growing Concern at American
Morningstar Advisor - Fall 2008 - 31
Morningstar Advisor - Fall 2008 - 32
Morningstar Advisor - Fall 2008 - 33
Morningstar Advisor - Fall 2008 - 34
Morningstar Advisor - Fall 2008 - 35
Morningstar Advisor - Fall 2008 - Gimme Shelter
Morningstar Advisor - Fall 2008 - 37
Morningstar Advisor - Fall 2008 - 38
Morningstar Advisor - Fall 2008 - 39
Morningstar Advisor - Fall 2008 - Location, Location, Location
Morningstar Advisor - Fall 2008 - 41
Morningstar Advisor - Fall 2008 - 42
Morningstar Advisor - Fall 2008 - 43
Morningstar Advisor - Fall 2008 - 44
Morningstar Advisor - Fall 2008 - Rooted in Buffett, Going for Growth
Morningstar Advisor - Fall 2008 - 46
Morningstar Advisor - Fall 2008 - 47
Morningstar Advisor - Fall 2008 - 48
Morningstar Advisor - Fall 2008 - 49
Morningstar Advisor - Fall 2008 - 50
Morningstar Advisor - Fall 2008 - 51
Morningstar Advisor - Fall 2008 - 52
Morningstar Advisor - Fall 2008 - 53
Morningstar Advisor - Fall 2008 - Keeping Little Company
Morningstar Advisor - Fall 2008 - 55
Morningstar Advisor - Fall 2008 - 56
Morningstar Advisor - Fall 2008 - 57
Morningstar Advisor - Fall 2008 - Away from the Numbers
Morningstar Advisor - Fall 2008 - 59
Morningstar Advisor - Fall 2008 - 60
Morningstar Advisor - Fall 2008 - 61
Morningstar Advisor - Fall 2008 - Consumer Confidence
Morningstar Advisor - Fall 2008 - 63
Morningstar Advisor - Fall 2008 - 64
Morningstar Advisor - Fall 2008 - 65
Morningstar Advisor - Fall 2008 - 66
Morningstar Advisor - Fall 2008 - 67
Morningstar Advisor - Fall 2008 - 68
Morningstar Advisor - Fall 2008 - What about Natural Gas?
Morningstar Advisor - Fall 2008 - 70
Morningstar Advisor - Fall 2008 - 71
Morningstar Advisor - Fall 2008 - 72
Morningstar Advisor - Fall 2008 - TIPS to Beat Back Inflation
Morningstar Advisor - Fall 2008 - 74
Morningstar Advisor - Fall 2008 - 75
Morningstar Advisor - Fall 2008 - Investing in Hidden Assets
Morningstar Advisor - Fall 2008 - 77
Morningstar Advisor - Fall 2008 - Funds That Have an Edge Come Tax Time
Morningstar Advisor - Fall 2008 - 79
Morningstar Advisor - Fall 2008 - 80
Morningstar Advisor - Fall 2008 - 81
Morningstar Advisor - Fall 2008 - Mutual Fund Analyst Picks
Morningstar Advisor - Fall 2008 - 83
Morningstar Advisor - Fall 2008 - 84
Morningstar Advisor - Fall 2008 - 85
Morningstar Advisor - Fall 2008 - 50 Most Popular Equity ETFs
Morningstar Advisor - Fall 2008 - 87
Morningstar Advisor - Fall 2008 - Undervalued Stocks
Morningstar Advisor - Fall 2008 - 89
Morningstar Advisor - Fall 2008 - 90
Morningstar Advisor - Fall 2008 - 91
Morningstar Advisor - Fall 2008 - Most Popular Variable Annuities
Morningstar Advisor - Fall 2008 - 93
Morningstar Advisor - Fall 2008 - 94
Morningstar Advisor - Fall 2008 - New at Morningstar
Morningstar Advisor - Fall 2008 - One for You, 19 for Me
Morningstar Advisor - Fall 2008 - Cover3
Morningstar Advisor - Fall 2008 - Cover4
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