The Long Road: Diehard II

January 25, 2008

As interest in index investing swells at Diehards, Morningstar fumbles the ball.

Taylor Larimore spends 40-plus hours a week working with investors to tweak their long-range investment plans.

But he rarely meets any of them. Instead, he posts online. "Nearly half of my time is spent doing research to make sure my answers are as accurate as possible," said Larimore in an email. "I don't like to give opinions unless I can back them up with facts and figures."

The ex-Chief of the Small Business Administration's finance division in Miami uses much of his retirement time to help build It's a volunteer-run, grass-roots investment site that has built a tremendous following among novices and experienced index investors alike.

Besides IU, it's one of my favorite investment sites. It's a free resource that everyone should at least check out. And it's even better these days since breaking away from's discussion boards, where Diehards first started.

Don't get me wrong, Morningstar is one of the good guys in the investments industry. So I say this with a high degree of reverence: Folks, you really blew it.

Here's the backstory. As a complement to Morningstar's Vanguard Diehards forum, a group of computer-savvy indexers formed Besides serving as an archiving system to long-ago discussions, the site provides a superior search engine to Morningstar's paltry and glitch-riddled offering on the original forum.   

Last year, expanded in a big way. An all-volunteer army built a new discussion site. (Interestingly enough, they're using the same software we use for ours at IU.) It's called the Bogleheads forum, named after Vanguard founder and occasional poster John Bogle.

To make a long story short, the new forum has far surpassed the old one, raising the question of whether Morningstar's name is really much of a draw to indexers anymore.

Consider that the old Diehards registered some 2,833 posts over 299 conversations in the past month, according to the software. (Those figures were through midweek.)

At the new forum, some 19,003 new posts in 1,885 separate conversations had been logged in that same time frame.

"Since we're indexing all of the Morningstar Diehards posts as well as our own, we can prove these numbers are correct," said Alex Frakt, who serves as the's site administrator. In real life, he manages an immigration law firm in Chicago.

What happened? As we like to say at IU, the numbers speak for themselves.

In its early days some eight years ago, Morningstar's Diehards forum averaged around 57 posts per day. Those steadily increased to 289 and peaked with a 30-day average of 396 in December 2006.

In February 2007, the independent Bogleheads' Forum launched. In its first full month, the new chat area averaged 368 new posts per day. At Vanguard Diehards, traffic dropped to a daily average of 205 per day. In April, it fell to 152 before stagnating at around 125 in the next five months.

"So they sort of stabilized at around 125," Frakt said. "But then they decided to completely redesign its site in September. It was a disaster."

Almost immediately, traffic at Morningstar's Diehards forum plummeted. In November 2007, for example, average daily posts fell to 77. By last December, daily posts were down to a meager 56 on average. Essentially, Morningstar had shot itself in the foot, dropping participation to similar levels as when it first started.

"A lot of people complained that they didn't like Morningstar's software anymore and their site was extremely slow," said Frakt. "Morningstar just didn't keep its forum up-to-date."

This year, the old Diehards site has gained some traction, up to around 94 per day in the past 30 days through Wednesday. "That includes a partial redesign of the original redesign," Frakt said. "It fixed some of the worst problems Morningstar was going through."

Meanwhile, Bogleheads stayed fairly steady around the 345 range in its initial six months. "After the rollout of Morningstar's redesigned Diehards in the fall of 2007, our numbers started immediately going up to around 500 posts on average per day," Frakt said.

Morningstar declined to comment on this story.

The rise is unusual given it includes no advertising other than word of mouth. And at current levels, it's fair to surmise that is getting much more than just disenchanted Morningstar participants.

Now in its 10th year, the Diehards forum has built a reputation as one of the best sites on the Internet. You can find some of the most intelligent discussions on everything from debates about individual asset allocation plans to critiques of the latest research and articles pertaining to index mutual funds and exchange-traded funds (ETFs).

Even IU regulars such as Rick Ferri and Larry Swedroe hang out at Diehards.

"The philosophies of IndexUniverse and the Bogleheads site are very similar," said Mel Lindauer, who helps moderate along with Larimore and other veteran investors. "Both focus on low-cost funds and self-education for passive investors."

The mainstream media has even caught on to the site's influence. Magazines ranging from Forbes to Money have written laudatory pieces on Diehards. National dailies such as the Wall Street Journal and USA Today have also featured the group.

In early 2006, Wiley & Sons published The Bogleheads' Guide to Investing. It was co-written by Larimore, Lindauer and Michael LeBoeuf, another long-time Diehard.

"Our problem now is making sure the quality and integrity of the forum remains solid," Lindauer said. "We really strive for accuracy. Anybody can have an opinion, which is fine. But we work hard to point out when posts aren't factually correct."

And that can be quite a task for an open forum with some 5,500 registered members. (Anyone can read content, but you've got to pick a user name and provide an email address to post).

"We don't want a lot of people posting using different aliases," Lindauer said.

The current moderators at the newly independent site don't want to degrade Morningstar. They say the Chicago-based investment researcher gave them a start and the resources to gather a community. And they genuinely appreciate that support.

But in this age of MySpace and Facebook hysteria, it's odd that Morningstar let so many eyeballs go their own way. In the end, it's turned out to be a blessing in disguise for investors. The revamped is better organized, easier to navigate and much more intelligently moderated than the older version.

And it's becoming a true social networking site. There are meet-up groups forming and getting together all the time around the country (something that started over at Morningstar). The Diehards even have their own convention each year, something that IU believes has become a truly major event in the indexing community. 

The grassroots effort that started Diehards will no doubt keep it popular for a long, long time. But one has to wonder about the now publicly traded, ever-expanding Morningstar. Although its chat areas are definitely a noncore part of its business, the Diehards episode should be a wake-up call.

Morningstar fell into the trap of not listening to its customers. As a result, this industry icon has lost a lot of luster with index investors. And that's a real shame.

Murray Coleman is manager editor of and research director for Index Publications. He can be reached at (415) 839-9740 or [email protected] via email.

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