Advice From Fathers Who Do Know Best

Many of us received some financial guidance from our fathers. Maybe it was wise, maybe not, but it helped shape our lives nevertheless.

For Father’s Day, I decided to see what sort of advice investment professionals gave their children--or at least what the children remember of that advice.

I asked five adult children of mutual fund leaders to share some of the investment lessons they learned as kids. Here’s what they said:

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* Think independently. Conrad Herrmann credits this tip to his dad, Lacy Herrmann, a former money manager who now heads the Aquila family of municipal bond funds in New York.

The younger Herrmann is lead manager for the Franklin California Growth and Franklin Equity funds. In that capacity, he has plenty of opportunities to try to practice what his dad preached.

Independent thinking is most critical when other investors have become especially fearful or greedy, Herrmann says. For example, he bought several battered computer-networking stocks for his funds earlier this year, when the shares were depressed after the release of a disappointing earnings report for a bellwether company. The stocks subsequently rebounded.

For independent thinking to work, Herrmann says, you have to do enough homework to have confidence in your own decisions.

“People on Wall Street often get too focused on short-term results,” he says. “You have to step back and ask yourself some basic questions.”

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* Start early. Katherine Berger opened her first individual retirement account at age 18. She credits her father, Bill Berger, head of the Berger Funds in Denver, with getting her started with that mutual fund purchase, along with other financial basics such as learning how to balance a checkbook.

In hindsight, Katherine wishes she had put away money even earlier. People who put the power of compounding to work at an early age can see much bigger returns than those who start later in life.

“I think people have a better sense now of teaching kids about money,” says Berger, who directs Berger Funds’ advertising strategies. “Even my dad is more focused on teaching his grandchildren about money than he did with us.”

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* Avoid losing money. The Davis Funds group has earned a reputation for low-volatility stock investing. So it’s no surprise that Andrew Davis remembers his father, Shelby Davis, preaching the merits of consistent performance.

“His first rule of making money is not to lose it,” says Davis, who manages the Davis Real Estate and Davis Convertible Securities funds. “If you look at his track record, you’ll notice that he has had a few extraordinary years but a lot of simply good years.”

The ability to avoid losers relates to another of Shelby Davis’ precepts: the idea of understanding a company well enough to know how much to pay for its shares.

“He would tell us to try to find a few great companies and hold them for the long haul,” says his son. “He would stress that compounding is the key to building wealth over the long run.”

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* Diversify your holdings. It’s perhaps fitting that James M. Benham, one of the first people to introduce a money market fund, should have related this pointer to son Jim A. Benham. Money market funds and other cash vehicles constitute one of the three main asset categories, along with stock investments and bonds.

With proper diversification, investors may find it easier to stay focused on the long haul, says the younger Benham, a marketing manager at the American Century family, which was created by the merger of Twentieth Century Mutual Funds and Benham Group.

“My father would say there’s no reason to check your mutual fund prices in the paper every day,” Benham says. “If the reason you selected an investment still holds, he would recommend that you stick with it.”

Benham says he personally holds significant stakes in both small-stock and international funds as part of a diversified portfolio, anticipating that both groups will fare well relative to U.S. large-stock portfolios in the years ahead.

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* Treat shareholders as you would like to be treated. John Bogle Jr. picked up this tip from his father, John C. Bogle, founder and chairman of Vanguard Group in Valley Forge, Pa. Vanguard’s fees are typically among the lowest around, and the senior Bogle has been an outspoken critic of high fees at other firms.

But Bogle Jr. says treating shareholders well also manifests itself in other ways, such as closing funds to new investors before their assets grow so large that their performance suffers.

The younger Bogle manages three stock funds for the n/i family in Boston. The firm vows to stop accepting new cash once assets reach $100 million or $200 million, depending on the portfolio.

It’s notable that none of the offspring quoted in this article said he or she was pushed into investing. Some, like Bogle and Benham, did open brokerage accounts as youngsters, but none reported having financial lessons crammed down his or her throat.

“My dad always stressed that you should do something because you like it, not to make money,” says Benham.

And, as you might expect with any parent-child relationship, sometimes the lessons didn’t sink in. For example, Bogle, who buys and sells stocks for the n/i funds, recalls that his dad was always a big proponent of buy-and-hold investing.

“That’s one thing I didn’t learn very well,” he says.

Russ Wiles is a mutual fund columnist for The Times. He can be reached at [email protected]