Morningstar Advisor - August/September 2009 - 10

Contributors Bradley Kay Andrew Sheng John Coumarianos Stuart Bradford Bradley Kay never takes the latest financial story in the media at face value. He needs empirical verification. “This desire drives much of my research at Morningstar,” says Kay, who is a Morningstar ETF analyst. “To assess any new investing story, we cannot only check it against our gut or a few easy-to-remember examples. We need to pull as much data as we can to try to see if the pattern shows up in a systematic way.” It’s this thinking that made him question a recent story on small-cap stocks, which led to the writing of this issue’s Spotlight article, “Recession Rallies’ Sweet Spot” (page 36). “What quickly becomes clear when working with stock market data every day is just how dominant all that day-to-day noise is,” he says. “We need tremendous amounts of data, decades of data, to sort out meaningful stock market patterns from the merely suggestive.” Andrew Sheng, who has served in various central banking and regulatory jobs in Asia, has written and spoken frequently this year about the excesses that caused the financial crisis and what Asia can learn from it. His article “Asia’s Way Forward” (page 24) is a reminder of how financially connected is the world. “I call this crisis a network crisis of trust,” he says. “The network is only as safe as its weakest link, and if one part of the network is taking higher and higher leverage to increase its profitability, it is doing so at the expense of the rest of the network. Interconnectivity has win-win positive feedbacks, but it also has lose-lose negative feedbacks, which explains the way markets overshoot in both directions.” Sheng’s book From Asian to Global Financial Crisis: An Asian Regulator’s View of Unfettered Finance in the 1990s and 2000s (Cambridge University Press) will be published in September. Mutual fund analyst John Coumarianos was screening for stocks for his own portfolio and was looking at who else owned the names. “I use a lot of old Ben Graham strategies and screens, such as low P/E combined with high equity/ assets,” Coumarianos says. “I noticed a lot of the stocks I was attracted to were owned by Charlie Dreifus (manager of Royce Special Equity RYSEX), which didn’t surprise me. But I also noticed that a lot were owned by this fund called Queens Road Small Cap Value QRSVX.” That led him to investigate the fund further. He liked what he saw in manager Steven Scruggs and started covering the firm’s funds this year. Coumarianos profiles Scruggs in Undiscovered Managers (“Value Hound,” page 53). Stuart Bradford, who created all the illustrations for this issue, is an illustrator from Northern California who lives near the ocean and enjoys the weather (most of the time). From a young age, he has loved surrealism, dadaism, and old stereo instruction manuals. These interests, along with the new digital tools, helped determine his photo-illustrative style. “I like explaining processes— economic or otherwise—with playful juxtaposition and, I hope, clear concepts,” Bradford says. “Rube Goldberg is a big influence, strangely enough.” A recent interest has been postwar graphic design with its emphasis on flat color, texture, and line work. “That period produced such beautiful visual dynamics. Strong ideas yet abstract. I tried to create a similar sense of drama and contrast with these illustrations,” he says. Other clients include The New York Times, Intel, The Wall Street Journal, and Harvard University. 10 Morningstar Advisor August /September 2009

Morningstar Advisor - August/September 2009

Table of Contents for the Digital Edition of Morningstar Advisor - August/September 2009