2017 Speaker Series: Lesley Stahl
August 11, 2017
The 2017 MPMG Speaker Series Event, held on August 10, began with Senior Portfolio Manager and Principal Harrison Grodnick providing some perspective on today’s investment environment.
Investors’ never-ending pursuit of the “secret sauce”
Whether as a business venture or as an investor, the desire to identify a “sure thing” has been a persistent theme. As described in the classic investment book The Tao Jones Averages, individuals have an innate need to find certainty in what is inherently an uncertain world. The pursuit of the sure thing is wrapped around a flawed belief that a “secret sauce” can be identified that will be the key to success.
The discovery of a secret sauce has been an elusive target for investors. There were false starts in the past – the Dutch tulip craze, the Nifty Fifty stocks, the dot -com bubble, and even the recent housing bubble. Investors misinterpreted short-term gains as the next sure thing, but in the long run, were disappointed.
MPMG has been disciplined in its approach to invest- ing. Our emphasis is on identifying a select group of companies that are solid businesses with good balance sheets, capable management and prospects for long-term growth, driven by unique products and services they deliver. Of course, of prime importance is that these companies, in our view, are available at favorable prices relative to the broader market. We believe that one reason for our long-term record of success is our focus on buying good stocks at below- market value but with above-market growth prospects. Because MPMG narrows its portfolio to a select few stocks from the broad equity market uni- verse, we’re able to identify stocks that we believe are better positioned to reward investors over the long run.
Can your investments hold up when taking distributions?
Ultimately, the reason most people invest is to build a base of assets that can generate income in retirement. So how do different types of investments hold up when distributions are taken from the account? Our comparison was inspired by an article published by USA Today that tracked the portfolio performance of the ten largest mutual funds (as of January 1, 2000), assuming a stream of income was being withdrawn from the funds. We back tested these ten largest mutual funds against the MPMG All Cap Value composite from Jan. 1, 2000 to June 30, 2017. The assumption was that $1,000,000 was invested in each portfolio, with $50,000 taken out yearly for income purposes. Only three of the mutual funds actually grew in value using that assumption. Three ran out of money. By comparison, MPMG’s portfolio tripled in value even while paying out a regular stream of income each year.
It is another demonstration of how MPMG’s approach can make a positive difference for investors. But to achieve this type of success, we believe the real “secret sauce” is PATIENCE. Our style is not in favor during all market cycles. But over time, our approach has proven to be successful due to our patience with our investments and the patience our clients have demonstrated in sticking with their investment in our portfolio.
Leslie Stahl – the perspective of a longtime journalist in these unusual times
Longtime CBS News correspondent and 60 Minutes co-editor Leslie Stahl shared her perspective after decades of covering the biggest stories of our times. She first joined CBS News in 1972, a female pioneer in a male-dominated industry. Along with serving as a White House correspondent for CBS during the presidencies of Jimmy Carter, Ronald Reagan and George H.W. Bush, she also served as moderator of the Sun- day morning staple, Face the Nation. Stahl has earned a collection of Emmy Awards, including a Lifetime Achievement Emmy earned in 2003. She continues as a major contributor to 60 Minutes and recently authored a New York Times bestseller, Becoming Grandma: The Joys and Science of New Grandparenting.
Highlights of Leslie Stahl’s presentation
The media and the criticisms leveled by President Trump
According to Leslie Stahl, Trump is criticizing the media as masters of “fake news” and enemies of the American people. Trump told her in an interview during the campaign that he does this to inoculate himself. His goal is to discredit and demean the media so that when unflattering stories about him appear, the public won’t believe it. Stahl points out that Trump is hardly the first president to disdain the media. “Clinton and Obama didn’t like us one bit,” she says, “but they did- n’t set out to systematically crush us. Richard Nixon did.”.
Part of the fault for what has become a toxic media environment, according to Stahl, dates back to the early 1980s. A decision was made then to do away with a law referred to as the Fairness Doctrine. This required broadcast media to represent both sides of issues. A local station that failed to abide by this policy could be subject to losing its license. Without that, we’ve seen the rise of partisan news coverage, such as Fox News and MSNBC. She also pointed out that in today’s environment, the leadership within CNN has admitted they are tacking more to the left in order to boost ratings and profits. This approach, according to Stahl, erodes the public’s trust in the media.
Before this era, she says “there were reporters who really strove to be objective. It was the mark of a good reporter.” As one of the first female reporters on net- work TV, Stahl also bemoans a significant change in network news. She notes that her first year at CBS was spent serving as an apprentice to more senior correspondents, and it was a year before she was reporting on the air. Stahl says such a system of grooming younger reporters no longer exists at the major net- works. Yet she is troubled by the fact that the public tends to lump the media all together as “one big salad bowl.” She believes even the best practitioners are tainted by the idea that “there’s a media sphere and we’re all one thing.” Her suggestion for people trying to get at the truth is to read a lot and to try to synthesize the information gathered by doing so.
President Trump’s first 200 days
Stahl had two opportunities to interview Trump in 2016. She says the first was at the Republican convention. “He sat on the edge of his chair, leaning forward, ready to pounce. He was wired and super-confident.” Three days after Trump’s surprising election victory in November, she again interviewed him. “The only way to describe him at that point – in shock.” She notes that he was not feisty, was thoughtful, never questioned the questions he was asked.
Stahl finds that we’re in a unique era with a significant disconnect between the polls and the state of the country. “There is not a politician alive who wouldn’t kill for this economy,” notes Stahl given today’s low un- employment rate and the strong stock market. Typically, presidents poll well in such times, but that’s not happening now. She says Trump’s low approval rating “explains why Republicans are defying him in Congress and Vice President Pence is raising money and formed a PAC.” Yet she believes it is too early to count Trump out, as he has survived a variety of firestorms.
Potential conflict with North Korea
This issue was front-and-center at the time of Stahl’s appearance. She is concerned that the use of inflammatory language might provoke military action. She quoted a letter Jackie Kennedy penned to Soviet leader Nikita Khrushchev in the aftermath of President Kennedy’s assassination. In it, she wrote, in reference to the Cuban Missile Crisis of the previous year, “While big men know the needs for self-control and restraint – little men are sometimes moved more by fear and pride.”
Her time at 60 Minutes and her most memorable interviews
Stahl has fond memories of legendary 60 Minutes correspondent Mike Wallace. She says Mike called and asked her if she would join the program if offered, an opportunity she jumped at, though it didn’t immediately come to fruition. She says of Wallace, “I loved him, I still love him, but he had a reputation,” because he would steal stories from fellow correspondents. He once stole one from Stahl, a profile she planned to do on Barbra Streisand.
Among her most memorable interviews is one she conducted early in her 60 Minutes tenure with Thoralf Sundt, Jr., a doctor based at Minnesota’s own Mayo Clinic who was considered the be the best brain surgeon in the world. Dr. Sundt was sent the impossible cases from around the world. However, he himself suffered from bone cancer and was in excruciating pain even as he operated. Stahl says her favorite stories are human-interest tales like this that tell about people doing good things.
She also recalled a Face the Nation interview with former British Prime Minister Margaret Thatcher during the height of the Iran-Contra crisis. She pressed Thatcher several times about whether she could continue to trust President Reagan, and ultimately, Thatcher declared, “why does it seem I love your country more than you do?” Thatcher then walked out of the interview. Stahl received a large number of complaint letters after that interview for how it was conducted.
The fears and joys of being a grandmother
One of her greatest fears is the pervasive role of electronics, particularly smartphones, and its impact on younger generations. “Kids would rather play in the virtual world than the real world. It has changed friendships.” She says pre-teen and older kids are exhibiting serious mental health issues because of the isolation that comes from being on a phone all the time. The impact has been seen in unexpected ways. Kids are less desirous of obtaining a driver’s license, so there are fewer accidents. They are less likely to drink alcohol and they are less likely to have sex. As a result, the teen birth rate is at an all-time low, down 67% since the early 1990s. Yet the rate of depression and suicide is skyrocketing.
Stahl believes today’s grandparents (and she is one) are the “wimpiest” ever. “We do not criticize, we do not give advice.” She believes that grandparents are biologically transformed, and physically unable to say no. “We become hopelessly indulgent with grandchildren.” Grandparents today are, in her estimation, a whole new breed that doesn’t act like traditional grandparents. “A good percentage of us are pitching in, ‘Granny Nannying,’ spending 3-4 times on grandchildren than was the case just 12 years ago.” She says grandparents are in the third stage of life. “In the first stage, we believe in Santa Claus. In the second stage, won’t believe in Santa Claus, and in the third stage, we are Santa Claus.”
The performance shown compares the MPMG All Cap Value Composite portfolio (composed of separate accounts) with the various mutual funds listed. The investment vehicles included have different legal structures; accordingly, carry varying degrees of risk and limitations. Separate accounts represent accounts individually managed by a registered investment advisor (as opposed to managed within a registered fund) in accordance with the investment management agreement between the client and MPMG.
Due to the now outdated nature of the statistical data in the referenced study, MPMG calculated the performance data of the specified funds using, to the best of its ability, the same methodology as that which appeared in such study.
MPMG brought the statistical data to a current date to provide a reader with current relevant data.
*Notes to Performance
Firm: Minneapolis Portfolio Management Group, LLC (“MPMG”) is an independent investment adviser registered with the United States Securities and Exchange Commission that invests in both domestic and international small-, mid-, and large-cap equity securities. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request.
The All Cap Value Composite (“ACV Composite”) was created on January 1, 1995. Data from January of 1995 through March of 2000 on the chart on the previous page represents the performance of accounts managed by MPMG while associated with Salomon Smith Barney, Inc. Data from April of 2000 through March of 2004 on the same chart represents accounts managed by MPMG while associated with Wachovia Securities, LLC. The performance data shown represents the performance of accounts for which MPMG was responsible while operating as a distinct business-unit of the foregoing companies using the trade name “Minneapolis Portfolio Management Group.” Please note, however, that MPMG was formed as an independent legal entity in April 2004. These results reflect the performance of all accounts under management for at least one calendar quarter that MPMG has managed on a discretionary basis, using the same strategy.
Calculation Methodology: Returns for periods longer than one year are annualized. Results are size and time-weighted and net of expenses, excluding the effect of all income taxes, and unless otherwise noted, reflect reinvestment of interest, income, and/or realized capital gains. All realized and unrealized capital gains, losses, dividends and interest from investments and cash balances are included. The composite is asset-weighted, using end of quarter market value. Dispersion is presented as the standard deviation of the individual component portfolio returns around the aggregate composite return on an asset weighted basis. The results are expressed in U.S. Dollars. Because MPMG’s accounts are individually managed and clients may impose restrictions on management, account performance may vary.
Selection Criteria: The ACV Composite includes all discretionary accounts with no client-imposed restrictions that are managed in accordance with the ACV Composite strategy. Performance data for all accounts has been calculated from each account’s first full quarter of management through the date of this report or the last full quarter of management prior to cessation of the account.
Composites: Additional information regarding MPMG’s policies for calculating performance results, including a complete list and description of all MPMG composites and performance results, is available upon request.
Fees: The performance results are shown net of actual fees from 3Q 2004 – present, a 2% model fee for 2Q 2000-3Q 2004, and a 2.2% model fee for 1995-1Q 2000. These model fees represent the highest fee charged to any account managed by MPMG while associated with Salomon Smith Barney and, subsequently, Wachovia Securities, LLC. Actual fees charged to MPMG’s clients may vary depending on, among other things, portfolio size and the level of service required by the client. The fees charged for wrap programs typically include investment management fees, trading costs and, in some cases, custody fees.
Since no one investment program is suitable for all types of investors, this information is provided for informational purposes only. Past performance is not a guarantee of future results. You should review your investment objectives, risk tolerance and liquidity needs before selecting a suitable investment program.
Although the information in this document has been carefully prepared and is believed to be accurate as of the date of publication, it has not been independently verified as to its accuracy or completeness. Information and data included in this document are subject to change based on market and other condition. All prices mentioned above are as of the close of business on the last day of the quarter unless otherwise noted. Market returns discussed in this letter are total returns (including reinvestment of dividends) unless otherwise noted.
The information in this document should not be considered a recommendation to purchase any particular security. There is no assurance that any of the securities noted will be in, or remain in, an account portfolio at the time you receive this document. It should not be assumed that any of the holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable. The past performance of investments made by MPMG does not guarantee the success of MPMG’s future investments. As with any investment, there can be no assurance that MPMG’s investment objective will be achieved or that an investor will not lose a portion or all of its investment.