Stocks & Markets

Investing: Six People Who Helped Shape a Tumultuous Decade


Financial markets are all about herd behavior. Especially in a decade marked by repeated bouts of collective euphoria and collective panic, it's difficult to find individuals who stood out. Yet some key figures did make their mark during the aughts, the pre-teens, or whatever the 2000s will ultimately be known as. Bloomberg BusinessWeek wanted to identify the handful of people who most affected individual investors over the past 10 years. Our choices are admittedly subjective. Indeed, several other names came close to making the roster—and they are listed as "honorable mentions" at the end of this article. (We'd certainly like to hear your ideas on the topic via the comments section below.) 1. Alan GreenspanFrom 1987 to 2006, former U.S. Federal Reserve Chairman Alan Greenspan set interest rates for the world's largest economy. And, through most of that period, he kept rates very low. In the 1990s and early 2000s, Greenspan was called the "maestro" for his ability to prop up flagging markets or boost the economy. "He was deified," says David Darst, head strategist at Morgan Stanley Smith Barney. "Now, he's being demonized." The chief criticism, says independent market strategist Doug Peta: "Greenspan did a lot to create the conditions for the credit bubble that occurred in the decade." His hands-off approach meant that he did little to discourage bubbles in Internet stocks and housing prices. But, contradictorily, he did a lot when the market faltered, such as after the Sept. 11 terrorist attacks or the Asian financial crisis. His interventions encouraged investors to take too many wild risks, critics say. "If the markets were down, he was always there to protect them," says William Rutherford, president of Rutherford Investment Management and author of Who Shot Goldilocks?: How Alan Greenspan Did In Our Jobs, Savings, and Retirement Plans. Would another Fed chairman have done the same thing, given the economic conditions at the time? Maybe, Darst says. "Greenspan was an expression of the national will," he says. But now, "when everything is going wrong, everybody looks for a scapegoat." Through a spokeswoman, Greenspan declined to comment. 2. Chinese President Hu Jintao and 3. Premier Wen JiabaoBehind closed doors, these two men set policy for the earth's most populous nation—with few checks on their power. Since both took their current jobs in 2003, they have continued China's economic liberalization. It's a process that began in the late 1970s but significantly altered the investing landscape in the past decade. For example, China's low labor costs and cheap exports have helped keep inflation low around the world. "China has lowered the costs of capital and allowed us to do aggressive—and, it turned out, foolish—things," says Todd McCallister, managing director at Eagle Asset Management. The deflationary effect of China was one reason Greenspan and other central bankers could keep interest rates so low, encouraging increased risk-taking around the globe, McCallister argues. China and the U.S. have spent the past decade locked in an unbalanced relationship, in which American consumers gobble up Chinese imports while the Chinese government keeps its currency low and buys up U.S. government debt. The strength of the Chinese economy and the rise of other emerging markets like India and Brazil have also changed where investors put their money. "What you're seeing is the global economy becoming much less U.S.-centric," says David Rosenberg, chief economist at investment manager Gluskin Sheff. It's hard to find a market or economic trend not affected by China's rapid growth rate in the past 10 years: Though China may have helped keep inflation down early in the decade, demand from China began to push commodity prices to record heights by 2008. And, during the global recession, Hu and Wen aggressively stimulated their economy, helping fuel a market rebound in 2009. 4. Warren BuffettThe chairman and chief executive of Berkshire Hathaway (BRKA) made plenty of mistakes in the past decade. He arguably overinvested in financial stocks like American Express (AXP) and Wells Fargo (WFC), Peta notes. But Warren Buffett's credibility largely survived a brutal decade that humbled many other famous investors. His reputation was enhanced by his skepticism of the tech boom early in the decade and his warnings about the derivatives—which he called "financial weapons of mass destruction"—that caused trouble later in the decade. His long-term investing approach was an important antidote to the decade's booms and busts. "As a value investor, he has tried to look beyond the here and now," Peta says. By the depths of the financial crisis in 2008 and 2009, Buffett was a unique figure among American capitalists. Unlike almost all his peers, says Mary Ellen Stanek, Robert W. Baird chief investment officer, "he had the money and he had the credibility." Some worries were eased in October 2008, when Buffett penned an article assuring panicked investors that he was buying U.S. stocks. Many troubled financial institutions reportedly sought Buffett's aid during the crisis. He chose carefully: On favorable investment terms, he helped stabilize two of the most iconic U.S. companies, General Electric (GE) and Goldman Sachs (GS). And as the crisis eased, Buffett resumed his habit of big acquisitions. He capped the decade with the $44 billion takeover of railroad Burlington Northern (BNI). Buffett could not be reached for comment. 5. Steve CaseRapid advances in technology forever changed the investing landscape in the past decade, and many individual tech executives and inventors made their mark. Technology allowed the creation of new financial products, from exchange-traded funds to complex securitized derivatives, and the whole market seemed to speed up. Transaction costs have fallen, says William Quinn, chairman of American Beacon Advisors. But the speed of technology also "creates more of a trading mentality, which I don't think is good for investors or for companies that need capital long-term," he says. Steve Case, the former chief executive and chairman of America Online (AOL), played a unique role in the decade's technological change, representing both the excesses of the tech boom and its great successes. A master marketer, Case arguably popularized the Internet by building America Online into the leading U.S. Internet portal, with 17 million users by 1999. Then, as the new decade began, he epitomized the tech craze with AOL's bold $166 billion purchase of traditional media firm Time Warner (TWX). The merger, which proved disastrous, was a "hubristic act," Darst says. Hype about the Internet caused investors to lose billions of dollars when the tech bubble burst in the following two years. But widespread use of the Internet and other technologies transformed the way markets worked. Individual investors got unprecedented access to the markets—and the financial info that is their lifeblood—through home Internet connections. Case's current firm, Revolution LLC, did not respond to requests for comment. 6. John BogleNot every important figure of the decade played a direct role in the markets. Some had a more subtle influence, changing the way investors thought about the world. John Bogle, the now-retired founder of Vanguard Group, has spent decades fighting for lower expenses for mutual fund investors. And his Vanguard Group helped create the low-cost, passively managed mutual fund, an approach that typically provides investors with returns that are better than those of high-cost managed funds. "His influence has been felt more in the last 10 years," argues Tom McGuigan, principal at Burns Advisory Group. One reason: In the tough market conditions of this decade, investors started to notice how much of their savings were being siphoned off by the investment industry. "In the good markets of the late '90s, nobody cared," he says. In an interview with Bloomberg BusinessWeek, Bogle says his investment advice this decade "batted pretty close to 1,000." But on his other objective—changing the mutual fund industry—"I was an abject failure," he says. "Most of the things I said we should stop have actually gotten worse." According to Morningstar (MORN), the average expense ratio for domestic stock funds has fallen from 1.38% in 2000 to 1.24%. That's still far above index fund expense ratios, typically well below 0.5%. Such index funds have become a part of 401(k) plans demanded by savvy investors. During the whole decade, $188.4 billion flowed into low-cost U.S. stock index funds, according to Morningstar. However, almost $522 billion still flowed into higher-fee funds. This month, Bogle issued a new version of his 1999 book, Common Sense on Mutual Funds, updated to reflect what has changed over the past decade. Though he continues to warn about the ways that the mutual fund industry overcharges investors for subpar returns, the 80-year-old Bogle says his message is at least being heard by individual investors and financial advisers. "There is an awareness of" the importance of investing costs, Bogle says. "We're starting to get that." If you're hunting for other key people of the decade, there are plenty of investing figures to choose from: Stephen Schwarzman, the co-founder of Blackstone Group (BX), was a driver of the decade's private equity boom. Apple (AAPL) Chief Executive Steve Jobs and Google (GOOG) founders Larry Page and Sergey Brin led two of the most important companies of the decade. Leaders of financial firms were equally important, though far more troublesome to investors, including figures like Angelo Mozilo, the founder of mortgage giant Countrywide Financial. Washington, D.C., also provided its share of influential figures. George W. Bush's eight-year Presidency had a profound effect on U.S. foreign policy, tax rates, market regulation, and the appointments of Federal Reserve officials. Along with Bush, current Fed Chairman Ben Bernanke, former U.S. Treasury Secretary Henry Paulson, and current Treasury Secretary Timothy Geithner had crucial roles in the worst financial crisis in a lifetime. Whose impact do you think we're exaggerating? Whose influence do you think we're missing? In the spirit of the giant water cooler that is the Internet, let us hear what you have to say in the reader discussion section below.
Steverman is a reporter for Bloomberg News in New York.

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