The Long View
The Long View
May 15, 2019
Don Phillips: We’re All in the Behavior Modification Business
Play • 1 hr 2 min

Our guest for this week's installment of The Long View podcast is Morningstar managing director Don Phillips. Don was Morningstar's first mutual fund analyst and eventually became CEO of the firm; he established Morningstar's independent voice and mentored scores of analysts. He also helped develop many of the tools that investors today take for granted, such as the Morningstar Style Box and the Morningstar Rating for stocks (also known as the star rating). Throughout his career Don has worked to enact positive change in the fund industry, speaking out on issues such as misleading advertising and high-fee funds as well as the need for better shareholder disclosures.

In this broad-ranging interview, Don discusses his path from a paper boy investor in Templeton Growth Fund to a job analyzing mutual funds at Chicago startup Morningstar in the mid-1980s. He also opines on the industry's evolution from the opaque, sales-driven culture that he encountered 30-plus years ago to its current emphasis on transparency and very low costs.

Early influences
• The paper-boy years: Don’s early investing influences (1:40) • The magic of mutual funds: “Sir John Templeton is my personal money manager” (2:45) • “I had gotten married”: How an aspiring literature professor became Morningstar’s first mutual-fund analyst (4:00)

Building Fund Research
• “Dark days”: What it was like in the fund industry of the 1980s (5:20)
• Democratizing data: When the freshest fund stats were nine months old (7:10)
• Getting them to answer the phone: How Morningstar’s fund database was built (8:30)
• “Putnam wouldn’t talk to us”: How pull demand (i.e., a reporter’s background notes) changed that (9:45)
• “My first job was to read 777 mutual fund prospectuses” (11:20)
• Don’s “el-train” indoctrination to investing (12:10)
• “Not interested (click)”: Opening doors in the early days (13:00)
• “It’s who you surround yourself with”: How to build a team (14:20)
• “Their funds are better than some, not as good as others…”: Morningstar’s approach to serving the financial journalists that called on it (16:10)
• “They found us”: Connecting with our audiences, finding our voice (17:00)
Analyzing Funds, Finding Our Voice
• “Let’s add a gold fund”: Behind the development of the Morningstar Style Box (18:00)
• “You had to be an insider to know that Windsor was a value fund and Janus was a growth fund”: Turning the tables on fund-company marketers (19:05)
• “Lies, Damn Lies, and Fund Advertisements”: Facing down a fund company’s libel suit (21:45)

Achieving Better Outcomes
• Low-cost trend means “better and better deals for the investor” but beware unintended consequences (23:00)
• It’s not the only thing: “You can have a low-cost portfolio that’s wildly inappropriate for an investor that leads to a disastrous outcome” (25:00)
• “We’re all in the behavior-modification business”: Helping people chart a path to their goals (26:40)
• “I would have closed the (Vanguard) Growth Index Fund”: How the experience you create for investors determines your success in the fund industry (36:30)
• Avoiding the “arms-dealer mentality”: How fund companies can ensure investors have better experiences (39:30)
• “The best thing I can do for my clients…is to go on vacation”: On the wisdom of investing without tinkering, and the hazards of information overload (41:00)
Active vs. Passive Investing (and Remembering Jack Bogle)
• “Passive is getting more active every day”: Finding ways to evaluate algorithms and indexes (28:00)
• “Jack is very much with us today”: Remembering Jack Bogle and his impact on investors and Morningstar (29:10)
• “You can’t get away from arithmetic”: If cost is the enemy then investors probably aren’t overdoing it in fleeing active funds for passive (31:30)
• “To me it’s not an either/or battle”: Don on the mix of active and passive funds in his personal portfolio (32:50)
• Personalization as the new active: “The art of investing is matching investment to investor” (35:00)

The Future of Funds, Advice, and Research
• Imagining the fund industry in 10 years (and its similarity to the music business’s radical transformation): “It may be that the mutual fund is like the old LP” (42:20)
• “Investors have a right to know” the ESG consequences of where their money is going (45:00)
• “Digitizing process”: Using big data to assess the investment process (46:10)
• “When you’re reading literature, you’re seeing the world through different eyes”: The importance of diversity to decision-making and life (47:30)
• “Put it on a little piece of paper and put it in a drawer”: How investment committees can avoid knee-jerk reactions and make better decisions (48:30)
• “The art of investing is the match between investment and investor”: New frontiers in fund research (52:00)
• “There is fee pressure, but there’s also a lot of satisfaction”: How the advice industry evolves amid automation and declining prices (56:30)
• “Fiduciary standards in general are hard to enact”: The intentions are good, but beware bureaucracy, red tape, and unintended consequences (58:30)

References
• Don Phillips, recipient of 2016 Matthew R. McArthur Industry Pioneer Award https://investmentsandwealth.org/news-room/2016/imca-awards-recognize-outstanding-achievement
• Sir John Templeton https://www.templeton.org/about/sir-john
• Wall Street Week https://www.youtube.com/watch?v=3ADn7V_l4Ws
• Joe Mansueto https://www.morningstar.com/company/about-us/joe
• Don’s love of the liberal arts, literature, and business https://grahamschool.uchicago.edu/news/how-liberal-arts-thrive-business-world
• Don Phillips, “Reflections on Fund Management, Five Lessons from 25 Years” http://www.imas.org.sg/uploads/media/2012/10/31/519_100907_Reflections_on_Fund_Management_Five_Lessons_from_25_Years_Sep11.pdf
• The Wiesenberger Books https://www.ifa.com/articles/arthur_wiesenberger_morningstar/
• Morningstar Mutual Fund Sourcebook https://images.app.goo.gl/LgzRCxK9Q3Bu77WC9
• Charles Royce https://www.roycefunds.com/people/chuck-royce
• The Morningstar Style Box http://www.morningstar.com/InvGlossary/morningstar_style_box.aspx
• Vanguard Windsor Fund https://www.morningstar.com/funds/xnas/vwndx/quote.html
• Court of Appeal, Second District, Division 7, California.; Morningstar, Inc., and Don Phillips, Petitioners, v. SUPERIOR COURT of the State of California, for the County of Los Angeles, Respondent. PILGRIM GROUP, INC., Real Party In Interest; No. B075691. https://caselaw.findlaw.com/ca-court-of-appeal/1769980.html
• ESG Investing https://www.morningstar.com/company/esg-investing
• Morningtar Blog: Sustainable Investing https://www.morningstar.com/blog/tag/sustainableinvesting
• Janus Funds, Super Bowl XXXI (1997), “Eyes” ad https://adage.com/videos/janus-funds-eyes/1024
• “The Evolution of Robo-Advisors”, Morningstar blog (July 2018) https://www.morningstar.com/blog/2018/07/11/robo-advisors.html
• “The Importance of Asset Allocation” by Roger G. Ibbotson, Financial Analysts Journal, May/June 2010 https://www.cfapubs.org/doi/abs/10.2469/faj.v66.n2.4
• “Why Diversity and Inclusion Matter to Investors” by Dan Lefkovitz, Morningstar blog, Dec. 18, 2018 https://www.morningstar.com/blog/2018/12/18/diversity-inclusion.html
• Cathy Odelbo https://www.morningstar.com/company/about-us/catherine
• John Rekenthaler https://www.morningstar.com/articles/archive/208/articles-by-john-rekenthaler.html
• Lori Lucas https://www.ebri.org/about/staff/lori-lucas-cfa
• A Global Guide to Strategic-beta Exchange-Traded Products https://www.morningstar.com/lp/global-guide-to-strategic-beta
• “Strategic-Beta Exchange-Traded Products Continue to Grow, but Show Signs of Maturity” by Ben Johnson, Morningstar blog, Mar. 27, 2019 https://www.morningstar.com/blog/2019/03/27/strategic-beta-etp.html
• “Vanguard Founder Jack Bogle Passes Away” by Dan Culloton and Alec Lucas, Morningstar.com https://www.morningstar.com/articles/908054/vanguard-founder-jack-bogle-passes-away.html
• Invesco QQQ Trust (which tracks the Nasdaq 100 Index) https://www.morningstar.com/etfs/xnas/qqq/quote.html
• Jack Brennan, former Vanguard CEO [to find] https://en.wikipedia.org/wiki/John_J.Brennan(businessman)
• Sheryl Garrett https://garrettplanningnetwork.com/about/team

Bogleheads On Investing Podcast
Bogleheads On Investing Podcast
bogleheads
Episode 031: Jamie Catherwood, host Rick Ferri
Jamie Catherwood is a financial historian and the publisher of the website Investor Amnesia. He received a history degree from King’s College London in 2017 before joining O’Shaughnessy Asset Management, a quantitative investment firm based out of Stamford, Connecticut. Jamie quickly built his reputation as an expert on the history of money and finance after starting a popular weekly blog that links current market activity and investor behavior to similar events and investor behaviors throughout the centuries. Jamie shared numerous interesting anecdotes in this podcast and draws clear parallels to the current environment This podcast is hosted by Rick Ferri, CFA, a long-time Boglehead and investment adviser. The Bogleheads are a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, founder and former CEO of the Vanguard Group. It is a conflict-free community where individual investors reach out and provide education, assistance, and relevant information to other investors of all experience levels at no cost. The organization supports a free website at Bogleheads.org, and the wiki site is Bogleheads® wiki. Since 2000, the Bogleheads' have held national conferences in major cities around the country. There are also many Local Chapters in the US and even a few Foreign Chapters that meet regularly. New Chapters are being added on a regular basis. All Bogleheads activities are coordinated by volunteers who contribute their time and talent. This podcast is supported by the John C. Bogle Center for Financial Literacy, a non-profit organization approved by the IRS as a 501(c)(3) public charity on February 6, 2012. Your tax-deductible donation to the Bogle Center is appreciated.
57 min
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WashingtonWise Investor
Charles Schwab
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Sound Investing
Sound Investing
Paul Merriman
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Financial Decoder
Financial Decoder
Charles Schwab
Are You Rationalizing an Investing Mistake?
If you save money and invest it consistently, your path toward meeting your goals may seem simple. But most investors quickly discover that there are hurdles in the way—including our own brains. There are many cognitive and emotional biases that can trap us, and investors sometimes rationalize falling prey to these biases in familiar ways. In this episode, Mark is joined by Brad Bartick, branch manager of the downtown Denver Schwab branch, and financial consultant Joanna Heckman to discuss four different biases that investors have faced recently and what they sound like in action. Subscribe to _Financial Decoder_ for free on Apple Podcasts or wherever you listen. _Financial Decoder_ is an original podcast from Charles Schwab. If you enjoy the show, please leave a ★★★★★ rating or review on Apple Podcasts. Important Disclosures: Investors should consider carefully information contained in the prospectus or, if available, the summary prospectus, including investment objectives, risks, charges, and expenses. Please read it carefully before investing. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Investing involves risk including loss of principal. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager. Apple Podcasts and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. Google Podcasts and the Google Podcasts logo are trademarks of Google LLC. Spotify and the Spotify logo are registered trademarks of Spotify AB.Important Disclosures: The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve. Investing involves risk including loss of principal. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see www.schwab.com/indexdefinitions. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. Diversification strategies do not ensure a profit and do not protect against losses in declining markets. The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party. Apple Podcasts and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. Google Podcasts and the Google Podcasts logo are trademarks of Google LLC. Spotify and the Spotify logo are registered trademarks of Spotify AB. (0221-1EPK)
29 min
Money For the Rest of Us
Money For the Rest of Us
J. David Stein
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