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Fund Times

Fund Times: Report from the 2006 Morningstar Conference

Plus, news on recent fund capital flows, new Calamos funds, and more.

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Short-term thinking and its detrimental effects are rife in the business and investment worlds, but so are opportunities for investors who don't follow the herd, said Legg Mason Capital Management's chief investment strategist, Michael Mauboussin, at Morningstar's 2006 Investment Conference this week.

One reason for the business world's increased focus on short-term results over the past couple of decades has been a transformation in the way executives are compensated. According to Mauboussin, in 1985 about 1% of a CEO's pay was tied to the performance of his or her company's stock price, but by 2005 a full 60% of compensation was stock-price related. That gave CEOs incentive to maximize their companies' stock prices and, unfortunately, fixate on earnings-per-share growth, Mauboussin said. This fixation evolved even though the linkage between EPS growth and value creation is tenuous, stated Mauboussin. Therefore, in seeking to maximize their compensation, executives made decisions that had a deleterious effect on the long-term health of the company and on long-term shareholder value, he said.

Lawrence Jones does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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