Investment Wisdom Passed Down From Famous Dads

Charles A. Jaffe is mutual funds columnist at the Boston Globe

When it comes to investing, some fathers did know best. How else could you explain a legion of famous money managers whose children now are arguably as successful as dear old Dad?

For Father's Day, I asked these management progenies to recall the one lesson their fathers taught that stuck with them most strongly. Their answers are remarkable mostly for their simplicity.

* Treat shareholders fairly.

Not surprisingly, this was the golden rule in the Bogle household.

John Bogle Jr., who runs the n/i funds, said he was strongly influenced by his father, John Sr., who founded Vanguard Group and helped popularize low-cost funds.

Fair treatment, he says, was something "I heard my whole life long. That stuck with me even when I had no idea I would go into the fund business."

The Bogles, father and son, both practice and preach this mantra, keeping expenses low and communications high and generally doing unto others as they would want for themselves.

* Investments are people, not pieces of paper.

Chris Davis would not have gone into the family business had his forebears tried to convince him that accounting or price-to-earnings analysis is what makes investing fun and interesting. His grandfather was Shelby Cullom Davis, one of Wall Street's first famous managers, and father Shelby Davis made his mark with Selected American Shares.

"To analyze a business--including mutual funds today--and see its potential, my father told me to look at the people," said Chris, best known for managing the Davis New York Venture fund. "This was big with my grandfather too. He called it 'separating the doers from the bluffers.' " Doing that is "what makes investing fun."

* Never underestimate the power of compounding.

Andrew Davis ate at the same table with Chris, but recalled a different lesson. He was about 6 when his father asked if he would rather have a dollar a day for the rest of his life or a penny that doubles in value every week for the rest of his life.

"I don't want to claim that I understood every word of it, but it wasn't long after that I never got that question wrong again," said Andrew, who manages Davis Convertible Securities and Davis Real Estate and is co-manager (with Chris) of the new Davis Growth & Income fund. "I learned that the first few doubles--from one to two and two to four--are nice, but that the next few doubles are where you really make money."

Those "next few doubles" require time. Impatient investors often wreck the compounding component of saving and investing.

* Do your own homework and make your own decisions.

Marc Gabelli insists this advice from his father, Mario--Morningstar's 1997 manager of the year--had more to do with life than investing, but it applies on the financial front.

"Whether it involves investing or planting flowers, it is easy to wind up dissatisfied if you rely entirely on someone else's decisions," said Marc, who runs several funds, including Gabelli Interactive Couch Potato fund. "Rely on yourself and you develop the conviction to stand behind your decisions."

* Be objective.

Steve Yacktman, who manages money with his father, Donald, at the Yacktman Funds, notes the advice he got can sound kind of cruel.

"He told me to make coldhearted decisions, without emotional attachments," said Steve. "Look at the long-term impact, stay out of the situation, and don't let anything in that can influence you. List the facts, make a decision and execute."

That's not cruel; it's a great way to run money--or to decide whether to buy, sell or hold a mutual fund.

* Don't risk what you can't afford to lose.

That fatherly wisdom passed from one of the biggest risk-takers in the business, Jim Oberweis, to Jim Jr. It's intriguing commentary too, because the family business, the Oberweis Funds, is big on high-risk, aggressive investment strategies.

"He didn't want us to take on more than we could stomach," said Jim Jr. "He taught us--and everyone should do this--to first get a handle on how much risk we really can live with."

* You must save before you invest.

David Nicholas, who recently took over as president of the Nicholas Funds from father Ab, notes that his dad often told him that the most important thing to do with money is to save it.

"First you save it, then you invest it, then be patient and it will grow into a nice nest egg," the younger Nicholas recalled. "You have to start somewhere, and the foundation for a good future starts with saving as much you can."

Alas, the leading daughter of legendary investors was unwilling to discuss what she learned from Dad--apparently, Fidelity Investments founder Ned Johnson's best lesson to daughter and money manager Abigail was to never talk to the media unless absolutely necessary.


Charles A. Jaffe is mutual funds columnist at the Boston Globe. He can be reached by e-mail at or at the Boston Globe, P.O. Box 2378, Boston, MA 02107.

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