While advisors are intellectually curious about all manners of topics, it’s investing that really gets them going. When it comes to investing theory and application, these five men being honored as part of the 2015 IA 35 tend to be in every advisor’s pantheon.
Interestingly, these are also men who have strong personal connections with each other—either as student and teacher, mentor and mentee or business advisor and entrepreneur. Not that they always agree, but even in their criticism and, in some cases, their aversion to suffering fools gladly, they’re more interested in getting to the truth than they are in scoring debating points.
Let’s start with Graham, the father of value investing, yes, but more important, the person who democratized investing, explaining the ways of Wall Street but also paving the way, eventually, for advisors and clients to avoid the ways of Wall Street. Graham’s influence came through his collaboration with David Dodd in research, teaching at Columbia University and publishing seminal books. Perhaps his most famous student, Warren Buffett, called “The Intelligent Investor” (1949) “by far the best book on investing ever written.”
In his foreword to Rob Arnott’s book “The Fundamental Index,” Harry Markowitz sums up fundamental indexing this way: “What I will refer to as an efficiency-weighted portfolio will outperform a capitalization-weighted portfolio.” In a footnote in the book, Arnott writes that “many of the critics of the Fundamental Index concept are our friends and even mentors,” noting that Jack Bogle himself encouraged Arnott to launch his firm Research Affiliates. In turn, Arnott “views Bogle as one of his heroes […] and sees the Fundamental Index concept as a natural and important extension of Bogle’s impressive legacy.”
So what of the legacy of John Bogle, the champion of index investing, the creator of the Vanguard culture and the unswerving advocate for the individual investor? Another member of this year’s IA 35, George Kinder, had this to say about Jack Bogle: “One of the things Bogle has said is that the only mistakes he ever made were when he made a decision based on business or based on marketing. His great decisions were based on the consumer, what the consumer cared about.”
In 2013, IA Editor-at-Large Bob Clark wrote about a conversation he had with Markowitz, the Nobel laureate and the founder of modern portfolio theory, which with the publication of the Brinson, Hood, Beebower 1986 paper “became the foundation of today’s independent advisory industry,” wrote Clark. What did Markowitz say to Clark? “Perhaps the most important job of a financial advisor is to get their clients in the right place on the efficient frontier in their portfolios, but their No. 2 job, a very close second, is to create portfolios that their clients are comfortable with.” Our fifth man to honor is Eugene Fama, who still teaches at the University of Chicago, and also won the Nobel in Economic Sciences for his work on creating the efficient market hypothesis. Speaking last year, a former student and teaching assistant of Fama’s, Cliff Asness of AQR Capital hedge fund fame, pointed out that despite their different takes on the efficiency of the market, “along with Jack Bogle, he’s one of my investing heroes.”