Morningstar Conference: Schwab Chief Steals Fund Managers' Thunder

Also, spotting value in hindsight and a prediction on the comeback of small-cap stocks.
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It's perhaps a sign of the times that the star of this year's

Morningstar Investment Conference

isn't, as in years past, a mutual fund manager, but instead is president of the biggest online brokerage.

And when David Pottruck led his entourage into a packed hall of industry professionals and retail investors, it was clear that Tuesday's keynote speaker had reached celebrity status. No doubt the growth of his stock helped.

Charles Schwab

(SCH)

has skyrocketed in the past 12 months, gaining 329%. In the past 15 months, according to Pottruck, the company's value grew by $200 billion. "People like that," he said simply.

And how. This crowd fell all over itself to fall all over Schwab's co-chief executive officer. "We love Charles Schwab," prefaced one question. It didn't hurt that Morningstar President Don Phillips introduced Pottruck as "THE man." And earlier in the day, Ron Baron, featured as a "terrific stockpicker," disclosed that his

(BARAX) - Get Report

Baron Asset fund is top-heavy with a 20% stake in Schwab. "It's like a

Microsoft

(MSFT) - Get Report

. The margins are going to explode!" Baron said.

Pottruck didn't seem to mind the attention, but did acknowledge the need for humility in such high-flying times. He remembered that recently he bumped into a friend he hadn't seen since high school. "So, how do you like working for your father-in-law?" she asked. "My father-in-law? I enjoy working with Chuck Schwab, but I'm in no way related to him," Pottruck answered. "Well, then," she replied. "How did

you

get that job?"

Value in Hindsight

Kicking yourself because you thought red-hot growth stocks such as

America Online

(AOL)

or

Dell

(DELL) - Get Report

were too high to buy a few years ago? You're in good company.

In a seminar on stock investing, Robert Rodriguez focused on the basics of buying bargains. That's an approach he knows well. Unlike many managers during the growth frenzy of last year, Rodriguez was a stubborn value investor, refusing to stray from the strategy even when the

(FPPTX) - Get Report

FPA Capital fund dipped into negative territory for 1998.

But when asked what he would do differently in the past two years, he kept a straight face while replying, "With great foresight, I would have held Microsoft, Dell and AOL and called them value stocks."

Isn't that what Bill Miller, whose

(LMVTX) - Get Report

Legg Mason Value portfolio recently included big positions in AOL and Dell, did?

Chris Davis thinks so. And the portfolio manager of

(RPFGX) - Get Report

Davis Financial fund,

(SLASX) - Get Report

Selected American and

(NYVTX) - Get Report

Davis New York Venture fund, thinks there's nothing wrong with that.

Asked how he differs from Miller, Davis said, "There's no difference between me and Bill. We have the same definition of value. We all approach the business in the same way: buying a dollar for 60 cents. Bill's genius was that he knew businesses like AOL would return as they would. If I had that, I would have owned those businesses myself."

Small-Cap Forecast

So, is small-cap finally back? You won't get specifics from many managers here. Most, when asked, say only that it

will

come back. They just don't know

when

. But Charles Albers didn't mind offering some numbers. The senior vice president of

Oppenheimer Funds

says his quantitative models predict that large-caps will do better than small-caps for the next six to 12 months.

At time of publication, Brenda Buttner had no positions in the funds mentioned in this column, although holdings can change at any time. Under no circumstances does the information here represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at

TSCBrenda@aol.com.