The Clash of the Cultures: Investment vs. Speculation

Chapter 4

The “Mutual” Fund Culture—Stewardship Gives Way to Salesmanship

Managers of other people’s money rarely watch over it with the same anxious vigilance with which . . . they watch over their own.

—Adam Smith

The clash of the cultures in finance is well illustrated by one specific example: the mutual fund industry. As I mentioned earlier, I recently celebrated my sixtieth anniversary in this field, and I’ve witnessed this cultural change firsthand. The fund industry of 2012 has a totally different culture than the culture that dominated the field all those years ago. Once characterized primarily by a focus on long-term investment, today the fund industry seems focused largely on short-term speculation. While I’m not pleased with the change, please understand: I love the mutual fund industry. But I have a lover’s quarrel with the industry to which my long career has been dedicated. I simply want us to live up to our highest potential to fulfill our fiduciary duty to fund investors.

An Industry Changes

The Stunning Growth in Mutual Fund Assets

There are many reasons for the change in the industry’s culture. First was the remarkable growth of the industry’s equity funds. Their assets leaped from just $2.5 billion when I joined the industry in 1951 to $5.9 trillion today, a remarkable 14 percent annual growth rate. When a small industry—dare I say a cottage industry?—becomes something like a mastodon, almost everything changes. “Big business,” as hard experience teaches us, ...