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HAS ELVIS LEFT THE BUILDING?

2008; Routledge; Volume: 1; Issue: 2 Linguagem: Inglês

10.1080/17530350802243628

1753-0369

Janice Traflet, Elton G. McGoun,

Migration, Ethnicity, and Economy

Abstract This article probes the emergence and evolution of a culture of celebrity in the field of mutual fund management. After discussing the broad contours of the star-manager trend as well as specific examples from various historical junctures, this paper identifies and evaluates several theories to help explain the rise of celebrity fund managers. Finally, this article also endeavors to assess the importance of this trend, the likelihood of it persisting, as well as the long term impact of a culture of celebrity suffusing the world of mutual fund management. Keywords: mutual fund managementcelebrity culturefund salesmanshipinvestment trustscult of performance Notes 1. For the 1941 industry statistics, see SEC Commissioner Jackson Goodwin 1954, p. 2). The 1970 statistic is from McCaffrey and Hart (1998 Mccaffrey, D. P. and Hart, D. W. 1998. Wall Street Polices Itself: How Securities Firms Manage the Legal Hazards of Competitive Pressures, New York: Oxford University Press. [Google Scholar], pp. 26–27). 2. Statistics for 2006 are from the 2007 Investment Company Fact Book Investment Company Fact Book ( 2007 , May ) Investment Company Institute , p. 8 , [Online]. Available at www.icifactbook.org (accessed 25 June 2007) [Google Scholar], p. 8. 3. The manager compared to Elvis was Garrett Van Wagoner. 4. The influx of small investors into the market was hailed as evidence of ‘democratic capitalism’ in practice. On the rhetoric of ‘democratic capitalism’, see Traflet (2004 Traflet, J. 2004. ‘Spreading’ the ideal of mass shareownership: public relations and the NYSE’. Essays in Economic and Business History, 22: 257–273. [Google Scholar]). 5. On the phrase ‘other people's money’, see Brandeis (1967[1914] Brandeis, L. 1967[1914]. Other People's Money and How the Bankers Use It, New York: Harper and Row. [Google Scholar]). 6. ‘Adam Smith’ was the pen name of George Goodman, a former Rhodes Scholar who at the time was working as an analyst and hence wanted to preserve his anonymity. 7. According to Hugh Bullock (1958 Bullock, H. 1958. The Story of Investment Companies, New York: Columbia University Press. [Google Scholar], pp. 7, 10), the investment trust concept was originated by a Scottish bookkeeper named Robert Fleming in 1845 (Henriques 1997 Henriques, D. B. 1997. Fidelity's World: The Secret Life and Public Power of the Mutual Fund Giant, New York: Touchstone. [Google Scholar], p. 52). 8. Also, as Henriques notes, the Boston-style fund ‘would issue only common stock, so that shareholders owned the underlying portfolio free and clear, without any obligations to bondholders’ (1997, p. 52). 9. The marketers for Investors Incorporated most responsible for this strategy were former newspaper advertising salesman Ivan Patterson along with his partner Brother Parker. 10. Henriques further emphasizes the small size of the mutual fund industry in 1929 as compared to the investment trust business. She explains, ‘If the money invested in all these variants [of trusts] were added in, Americans had bet something like $7 billion on the “trust” concept as 1929 opened. Of that, though, less than $150 million was in mutual funds that redeemed their own shares on demand. Thus, the Boston-style mutual fund conceived and promoted by Ed Leffler was still a minor part of the investment trust market’ (p. 58). 11. For early articulations of the common stock theory, see Smith (1928 Smith, E. L. 1928. Common Stocks as Long-Term Investments, New York: Macmillan Company. [Google Scholar]), Bosland (1937 Bosland, C. C. 1937. The Common Stock Theory of Investment, New York: Ronald Press. [Google Scholar]), and Clark (1939 Clark, B. 1939. Common Stocks and Uncommon Sense, New York: Coward McCann. [Google Scholar]). 12. In 1946, for example, Johnson touted the Fidelity Fund as being similar to an investor having one's ‘own personal Boston trustee’. While acknowledging that his fund believed in the ‘rotation of investments’ (rather than a strict buy-and-hold strategy), Johnson was quick to note that ‘The management believes in concentrating on fundamental and relative values rather than preoccupation with “what the market is going to do”’ (Henriques 1997 Henriques, D. B. 1997. Fidelity's World: The Secret Life and Public Power of the Mutual Fund Giant, New York: Touchstone. [Google Scholar], pp. 105–106). 13. Brooks refers to Tsai as a major star, and interestingly, he claims that Johnson never intended Tsai to be such a superstar. ‘Surely without conscious intention, Johnson had raised a maverick star in the likes of the old speculator Jesse Livermore’ (Brooks 1998[1973], p. 137). 14. In the article, the Wall Street Journal calls Peter Lynch not just a star but a ‘superstar’. 15. For another analysis of the modern celebrity as famous but not necessarily accomplished, see Gramson (1994 Gramson, J. 1994. Claims to Fame: Celebrity in Contemporary America, Berkeley: University of Berkeley Press. [Crossref] , [Google Scholar], pp. 8–9). 16. Yet perhaps the Self-made theory in this regard also is flawed. As Chris Rojek (2001, pp. 10–11) has observed, ‘No celebrity now acquires public recognition without … assistance’. 17. Today index funds are exploding in number and are enjoying widespread popularity. See Laise Laise , E. ( 2007 , January 30 ) ‘Investors bombarded by index-fund choices’ , Wall Street Journal , pp. B11 – B12 . [Google Scholar] (2007, pp. B11, B12). 18. According to Standards and Poors (2006 Standards And Poors 2006 , October 13 ‘Indices continue to outperform active fund managers in 2006, says S&P’ , Press Release, [Online]. Available at www.standardandpoors.com (accessed October 12, 2006) . [Google Scholar]) ‘Over longer time periods … indices continue to outperform a majority of actively managed funds’. The report continued, ‘Over the past three years (and five years), the S&P 500 has beaten 68.1% (71.0%) of large-cap funds, the S&P MidCap 400 has outperformed 66.9% (83.6%) of mid-cap funds, and the S&P Small Cap 600 has outpaced 81.1% (80.5%) of small-cap funds’. Also see McGuigan (2006 Mcguigan, T. P. 2006. ‘The difficulty of selecting superior mutual fund performance’. Journal of Financial Planning, 19(2): 50–56. [Google Scholar]). McGuigan's study examined the relative performance of 171 actively managed large and mid-cap domestic stock mutual funds against the performance of a relative index fund during the period from December 1, 1983, and November 30, 2003. McGuigan concluded that the ‘percentage of individual actively managed funds that have outperformed the passive approach [over a 20 year period] is low’, specifically, 10.59% in the case of large caps and 2.63% in the case of small cap funds. 19. See also Bogle (2001 Bogle, J. 2001. John Bogle on Investing: The First 50 Years, New York: McGraw Hill. [Google Scholar]). See in particular Ch. 7, ‘25 Years of Indexing: When Active Managers Win, Who Loses’, pp. 98–107. 20. American Funds notably had the team manager system in place since 1958, but they at the time were an exception. 21. James Lowell, editor of the independent Fidelity Investor newsletter, explained, ‘The team approach is also kind of an insurance policy’, aimed at protecting the company in the event that a superstar is enticed away by a competitor (or a hedge fund, which has more recently been the case).