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The Cult of the Portfolio Manager

An idea whose time has come--and gone

The cult of the mutual fund portfolio manager began during the 1960s, to ill effect. "Performance managers" who owned the "glamor stocks" of "go-go companies" thrashed the major stock indexes, attracted large inflows and glowing press reports, and then smacked into a six-year wall.

The cult behaved better upon its return, during the bull market of the 1980s. This next generation of mutual fund heroes, by and large, invested more soberly than its predecessors. Vanguard's John Neff was conservative by any standard, favoring the cheapest of blue chips. But even the growth-stock stars, such as Fidelity's Peter Lynch or Acorn's Ralph Wanger, knew how to survive bear markets. Unlike the go-go managers, the 1980s' breed of mutual fund superstar retained most shareholders during the downturns.

With apologies to Jack Bogle, I can even be persuaded that the 1980s cult was a positive thing. Star managers attracted some investors who otherwise would not have purchased stock funds (back then, as opposed to now, famous managers inevitably held equities). Good timing, given that stocks rose almost uninterruptedly for two decades. For those who switched from holding stocks directly to receiving professional management, that decision worked out well, too. In most cases, the leading funds outperformed the portfolios of do-it-yourself stock investors.

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About Author

John Rekenthaler, CFA  John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

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