Ravi Nagarajan's  Instablog

Jack Bogle Interviewed at Morningstar Investment Conference

By Ravi Nagarajan
Published on June 4, 2009 at 9:45 pm

Jack Bogle, the Founder and former Chairman of The Vanguard Group, was interviewed on a number of subjects at the Morningstar Investment Conference last week.  Bogle is perhaps most famous for creating the first index mutual fund that was easily accessible to individual investors.  Index funds were very unconventional when they were first introduced in the 1970s and many regarded the concept as “defeatist” - after all, who would be satisfied with being just “average”?

Of course, when fees and expenses are taken into account, most actively managed mutual funds will end up underperforming the market.  My view is that most individuals do not have the time or interest to actively manage their funds. Even more critical is the reality that most individuals do not have the temperament required to avoid being snared by bubbles and collapses. Unless such investors can confidently delegate the task to managers with long term proven records, indexing is a viable option to ensure that results are at least not below average.

I find that many investors and portfolio managers look at index funds with disdain, but this sentiment is misplaced.  Index funds merely provide ordinary people with the ability to at least match market returns and avoid disasters.  This is no threat to those of us who wish to aim for better results and a great service to a large number of ordinary people.

Let’s listen to what he has to say about the latest bear market, return expectations, and various other topics. Bogle’s comments on the importance of the balance sheet and earnings quality (Parts 1 and 2) are particularly compelling.

Part 1: This Bear Market’s the Worst I’ve Seen

Here is a link to the video.

Part 2: Today’s Return Expectations

Here is a link to the video.

Part 3: Buy and Hold is Eternal

Here is a link to the video.

Part 4: Keeping Your Portfolio on Track

Here is a link to the video.

Part 5: What the Business of Investing is All About

Here is a link to the video.

NetJets Richard Santulli Interview on Prospects for Private Aviation

By Ravi Nagarajan
Published on June 3, 2009 at 6:23 pm

In 1989, Warren Buffett spent $6.7 million to purchase a corporate jet for Berkshire Hathaway that he named The Indefensible, perhaps being somewhat embarrassed by an expense that nearly any company the size of Berkshire had long justified as essential for doing business productively.  In 1995, Buffett purchased his first share of a NetJets aircraft and in 1998, he purchased the entire company.

I have followed the fractional aviation industry for many years mostly because of Berkshire Hathaway’s ownership of NetJets (click here for a recent article regarding private aviation) .  Most investments in aviation related businesses have ended in tears over the past century so what would make Buffett interested in a business like NetJets?  The answer has to do with the fact that fractional aviation allows businesses of any size to harness the advantages of private aviation in a very efficient manner.

While the direct costs of a NetJets share is not going to compare favorably to commercial air travel, the benefits often outweigh the costs when the indirect costs of commercial aviation are taken into account.  Debates on executive compensation aside, when you agree to pay executives the kind of sums common these days in larger corporations, it makes little sense to have these executives hampered by the infuriating delays and inefficiencies of commercial air travel.

In a lengthy CNBC interview, NetJets founder, Chairman, and CEO Richard Santulli comments on the challenges facing his company today along with prospects for the future.  Santulli has often been mentioned as a potential future CEO of Berkshire Hathaway which is an additional reason to pay attention to his comments.

(As an aside, those interested in a good overview of Berkshire Hathaway CEO candidates should read The Warren Buffett CEO:  Secrets from the Berkshire Hathaway Managers by Robert P. Miles.)

Bruce Berkowitz on Defense and Health Care Investments

By Ravi Nagarajan
Published on June 2, 2009 at 4:12 pm

When Bruce Berkowitz of The Fairholme Fund has something to say, investors are well served to listen carefully.  I was particularly interested in his comments regarding health care given the reform proposals that are currently under discussion.  Berkowitz makes a strong case regarding the prospects for continued prosperity among many existing players in the industry.

Berkowitz is also bullish on defense related investments.  I found his views particularly interesting as a contrast to a recent article in Barrons regarding the sector.

The video is provided by Morningstar.

Disclosure:  The author does not own shares in any of the companies mentioned in the interview.