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The Clash of the Cultures: Investment vs. Speculation by Arthur Levitt Jr., John C. Bogle

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Chapter 8

The Rise, the Fall, and the Renaissance of Wellington Fund

A Case Study—Investment Wins, Speculation Loses

The name “Wellington” had a magical ring, a sort of indefinable air of quality about it that made it almost perfect as a name for a conservative financial organization.

Walter L. Morgan, Business Decisions That Changed Our Lives, 1964

Introduction

The triumph of long-term investment over short-term speculation is not just a theory. It can be a meaningful reality. So I present in this chapter a real-world case study of the Wellington Fund, an actively managed balanced mutual fund that was founded by Walter L. Morgan in 1928. Not only have I been present during the past 61 years of that nearly 84-year history, but I was an active participant at the two crucial turning points, first when the Fund moved away from its focus on traditional investment policies to speculation, and then when it returned to those investment roots.

During its first four decades, Wellington’s hallmark had been a conservative strategy of long-term investment. Then, in 1966, under new management that sought to earn higher returns, the Fund turned to an aggressive strategy. Over the subsequent decade, that strategy, heavily laden with speculative elements, proved an abject failure. The Fund’s returns were abysmal, and assets plummeted from $2.1 billion in 1966 to $475 million in 1974, a staggering drop of more than 75 percent.

Then, beginning in 1978, Wellington Fund returned to the objectives ...

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