Common Sense on Mutual Funds

2 Jeremy J. Siegel, Stocks for the Long Run, 2nd ed. (New York: McGraw-Hill, 1998), 11. Reproduced with permission.

4 Peter L. Bernstein, “Off the Average, or the Hole in the Doughnut,” Economics and Portfolio Strategy (September 1, 1997).

5 Kosinski, Being There, 66-67.

Chapter 2

1 John C. Bogle, “Investing in the 1990s: Remembrance of Things Past, and Things Yet to Come,” Journal of Portfolio Management (Spring 1991): 5-14.

2 John C. Bogle, “Investing in the 1990s: Occam’s Razor Revisited,” Journal of Portfolio Management (Fall 1991): 88-91.

3 John C. Bogle, “The 1990s at the Halfway Mark,” Journal of Portfolio Management (Summer 1995): 21-31.

4 “Look at All Those Beautiful Scantily Clad Girls Out There,” Forbes, November 1, 1974.

5 Peter L. Bernstein and Robert Arnott, “Bull Market? Bear Market? Should You Really Care?” Journal of Portfolio Management (Fall 1997): 26-29.

Chapter 3

1 Kenneth L. Fisher and Meir Statman, “Investment Advice from Mutual Fund Companies: Closer to the Talmud Than to Markowitz,” Journal of Portfolio Management (Fall 1997): 9-24.

2 Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal ( July/August 1986): 39-44. Quoted passage is on p. 39.

3 Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal (May/June 1991): 40-48.

4 William Jahnke, “The Asset Allocation Hoax,” Journal of Financial Planning (February 1997): 109-113.

Chapter 4

1 Berkshire Hathaway Inc., Chairman’s Letter, 1996.

Chapter 7

1 Peter Lynch with John Rothchild, Beating the Street (New York: Simon & Schuster, 1993), 57.

Chapter 8

1 Roger Lowenstein, “ ’97 Moral: Drop Global Investing Bank,” Wall Street Journal, December 18, 1997, C1.

Chapter 9

1 William F. Sharpe, “The Styles and Performance of Large Seasoned U.S. Mutual Funds, 1985-1994,” published on the World Wide Web, March 1995.

2 Mark M. Carhart, “On Persistence in Mutual Fund Performance,” Journal of Finance 52 (March 1997): 57-82.

3 Burton G. Malkiel, “Returns from Investing in Equity Mutual Funds, 1971 to 1991,” Journal of Finance 50 (June 1995): 549-571.

4 William N. Goetzmann and Roger G. Ibbotson, “Do Winners Repeat?” Journal of Portfolio Management (Winter 1994): 9-17.

Chapter 10

1 Barton Biggs, “A New, Higher Mean to Revert To?” Morgan Stanley, February 24, 1997.

Chapter 11

1 Carla Fried, “Protect Your Profits,” Money, November 1997, 91-97.

Chapter 12

1 Peter L. Bernstein, “Where, Oh Where, Are the .400 Hitters of Yesteryear?” Economics and Portfolio Strategy (April 15, 1998).

2 Excerpted from Warren E. Buffett’s letter to Peter L. Bernstein, Economics and Portfolio Strategy ( June 1, 1998).

3 Roger Lowenstein, “Why Closing Fidelity’s Magellan Isn’t Enough,” Wall Street Journal, September 4, 1997, C1.

Chapter 13

1 A similar study by T. Rowe Price Associates estimated that taxes would have reduced pretax (and publicly reported) returns by an even greater 3.9 percentage points in the 20 years through 1996. Donald J. Peters and Mary J. Miller, “Taxable Investors Need Different Strategies,” Journal of Investing (Fall 1998): 37-44.

2 Robert H. Jeffrey and Robert D. Arnott, “Is Your Alpha Big Enough to Cover Its Taxes?”Journal of Portfolio Management (Spring 1993): 15-25.

3 James P. Garland, “The Attraction of Tax-Managed Index Funds,” Journal of Investing 6 (Spring 1997): 13-20.

4 Joel M. Dickson and John B. Shoven, “Mutual Funds and Taxes: An Investor Perspective,” ed. James Poterba, Tax Policy and the Economy 9 (1995).

5 Jeremy J. Siegel, “The Nifty-Fifty Revisited: Do Growth Stocks Ultimately Justify Their Price?” Journal of Portfolio Management (Summer 1995): 8-20.

6 John B. Shoven, “The Location and Allocation of Assets in Pension and Conventional Savings Accounts” (working paper, March 1998).

Chapter 14

1 Suzanne McGee, “Money Business in Scotland under Siege,” Wall Street Journal, November 12, 1998, C1.

Chapter 15

1 Michael Kelly, “Cranks for Veep,” New Yorker, September 30, 1996, 40.

Chapter 16

1 Nicolaj Siggelkow, “Soft Dollars and 12b-1 Fees: Agency Issues in the Mutual Fund Industry” (paper submitted to the Harvard University Department of Economics and Graduate School of Business Administration, March 9, 1998).

2 Jason Zweig (unpublished speech, 1997). Reprinted with permission.

Chapter 17

1 Pat Regnier, “Trouble in Paradise,” Morningstar Investor, February 1997, 14-16.

2 Kurt Andersen, “The Digital Bubble,” New Yorker, January 19, 1998, 30.

Chapter 18

1 Michael Mulvihill, “A Question of Trust,” Morningstar Mutual Funds, August 30, 1996, S1-S2.

2 “A Quick Q&A with Warren Buffett,” Morningstar web site (www.morningstar.net), May 6, 1998.

3 Samuel S. Kim, “Mutual Funds: Solving the Shortcomings of the Independent Director Response to Advisory Self-Dealing through Use of the Undue Influence Standard,” Columbia Law Review (March 1998).

4 “Remarks by Chairman Arthur Levitt, U.S. Securities and Exchange Commission,” Investment Company Institute, Washington, D.C., May 15, 1998.

Chapter 19

1 Keith Ambachtsheer, “Today’s Financial Food Chain: Getting the Customers on Top,” Ambachtsheer Letter, no. 150, June 30, 1998. Reprinted with permission.

2 Ludwig Mies van der Rohe.

Chapter 20

1 Gearhart Thatcher Lane, “The Entrepreneur in American Economic History” (senior paper, Yale University, Spring 1997).

Chapter 21

1 Robert K. Greenleaf, Servant Leadership: A Journey into the Nature of Legitimate Power and Greatness (Mahwah, NJ: Paulist Press, 1991). Reprinted with permission.

2 Steven I. Davis, Leadership in Financial Services: Lessons for the Future (London: Macmillan Press, 1997). Quotations excerpted from pp. 127-151. Reprinted with permission.

Appendix I

1 Alert readers will note the discrepancy between this yield and the current yield I referenced in Chapter 2. The latter is based on dividends paid over the trailing 12 months, which don’t fully reflect 2009’s estimated dividend cuts. In an effort to err on the conservative side, I use the reduced dividend amount in looking ahead at the coming decade.

2 Again, close readers will note the difference in these P/E ratios from the current ratio of 25-times that I mentioned in Chapter 2. Normally, it’s perfectly reasonable to use either earnings over the trailing 12 months or average earnings over the past 10 years to calculate the market’s P/E. But in periods of either sharply depressed corporate earnings (such as 2009) or inordinately high earnings levels (such as 1999), using average earnings over the past 10 years will smooth the impact of these anomalous short-term results.

Appendix II

1 Jeremy J. Siegel, “Stocks Underpriced? Well, Not Quite,” Wall Street Journal, April 14, 1998, A23.

2 Bruce Upbin, “Unrealistic Expectations,” Forbes, July 6, 1998, 266-268.

3 Benjamin Graham and David L. Dodd, Security Analysis (1934; repr., New York: McGraw-Hill, 1997). Reproduced with permission of The McGraw-Hill Companies.