2018 Speaker Series: Dr. Michio Kaku
September 14, 2018
The 2018 MPMG Speaker Series Event, held on August 16, began with an overview of MPMG’s performance and a discussion about an area of focus in the current portfolio.
Innovation and science contributes to investment success
Senior Portfolio Manager Harrison Grodnick highlighted the importance of innovation, science and economics in helping America win the space race in the 1960s. The advancements in the space program led to dozens of practical applications for consumers, ranging from water purification to digital cameras to CAT scans.
Harrison pointed out that MPMG’s portfolio includes companies that are beneficiaries of its focus on innovation. Ownership of these innovative companies has contributed to the MPMG All Cap Value portfolio’s historical returns. The MPMG All Cap Value composite portfolio returned 29.50% in 2017, outpacing a strong return for the benchmark S&P 500 – 21.83%. Over the 23-year history of MPMG, it has generated dramatically more wealth for investors than the stock market as a whole, as a $1 million investment with MPMG at inception on January 1, 1995 would have grown to over $14.2 million through the end of 2017 (12.2% net annualized return). Meanwhile the same $1 million would have grown to $9.1 million if it were to receive S&P 500 Index-like returns (10.1% annualized return)1.
Focus on the future, not the headlines
The news cycle has moved at an increasingly rapid pace in the past few months. Harrison stated that headlines may be interesting, but that they are often “interestingly unimportant.” He emphasized the benefits of looking outward, celebrating our nation’s and the world’s innovative past and discussing its importance to our future.
Harrison shared a cautionary tale from featured speaker Michio Kaku’s book, “The Future of Humanity,” about China’s past. In the 15th century, under Admiral Zheng, China undertook that day’s version of the space program, pursuing the most ambitious naval expansion in history. China built a huge fleet of large ships for defense purposes. An additional benefit of its outward focus was that China sent its ships to explore the world. Its explorers brought back life-changing inventions such as gunpowder, the compass, and the printing press. The country enjoyed great prosperity, but after Admiral Zheng passed, China turned inward. Its great fleet was destroyed or allowed to rot. For the next few centuries, China entered a period of “regression, decay, total collapse, chaos, civil war and revolution.” The question raised by this historical incident is whether we could see another powerful nation repeat such an inward turn in today’s world?
Harrison emphasized that along with looking for stocks that offer attractive value, MPMG continues to focus on innovative, credible companies that are helping to invent the future.
Dr. Michio Kaku – the amazing future that awaits us
Dr. Kaku is one of the leading science figures in the world today. He is considered by many as the most prominent living physicist and is co-founder of string field theory, a leading candidate today for the theory of everything. He also is notable for tracking and predicting trends that affect business, medicine, finance and our way of life. Dr. Kaku is the author of four books that have made the New York Times bestseller list.
One of his most recent books, “The Future of Humanity,” examines the destiny of humanity as we reach for the planets and the stars. He appears regularly on a variety of TV network news programs and has also hosted multiple TV series on science. He also writes regularly for major publications such as The Wall Street Journal and Discover magazine.
Why science matters to investors
“What does a physicist have to say about money, the economy, investments and the future?” asked Dr. Kaku. His answer was that physicists invent things. He notes that physicists invented the transistor, which made possible all of the wealth of the digital world. They invented the laser, which made it possible for the Internet to link up all computers. Other important scientific advancements of recent times range from the World Wide Web to radio and television to microwaves, X-ray machines and MRIs. This matters to investors, said Dr. Kaku, because “wealth comes from science, technology, innovation and a society willing to invest in it.”
Where we’ve been, where we’re going
To support his case about the important role science plays in building wealth, Dr. Kaku reviewed a brief history of recent developments. “The first wave of science was the industrial revolution,” he said. It provided the energy to power the steam engine and prosperity followed. The second wave came when scientists worked out the laws of electricity and magnetism. Then the transistor, laser and rockets were invented to trigger the third era of wealth generation.
The fourth wave, according to Dr. Kaku, will incorporate “science at the molecular level, artificial intelligence, nanotechnology and biotechnology.” All are in their infancy, but coming advancements will change life, as we know it. He anticipates that even our language will change. For example, electricity was still a sensation more than a century ago. Today, that word is hardly ever uttered. Dr. Kaku expects the same will be true of the word “computer.” “Like electricity, it will be everywhere and nowhere. Nobody will use that word in the future.”
The changing face of daily living
Technological advancements will dramatically alter the way we live our day-to-day lives, according to Dr. Kaku. “The future of your Internet is in your contact lens.” We are not far from the day when you will be able to blink and pull up information about people you meet, or translate the language you are hearing in a foreign country. Other advancements on the horizon that will affect everyday life include:
- 3D printers that will allow you to download blueprints and manufacture specific items customized to your needs
- Intelligent wallpaper than can change colors and designs as you specify
- Cell phones that can scroll out to the size you want, then fold back up and be put back in your pocket
- Medical information available directly to you in your home in understandable language, accessible by simply talking to your smart wall.
The next golden age of space exploration
The Apollo space program is considered a great American success story, one driven by science. It was also excessively expensive, representing 5% of the federal budget at the time. Today, the cost of space exploration has declined dramatically. Dr. Kaku said reusable rockets could bring the cost down by a factor of ten. He noted that Elon Musk (creator of Tesla and SpaceX) wants to build a bigger rocket that can ultimately transport one million colonists to Mars.
In a related development, we can expect to see the return of supersonic transport. The problem with previous versions of this (such as the Concorde) was that it created sonic booms. NASA has challenged aeronautics firms to come up with a new form of supersonic jet by 2025 that can avoid sonic booms.
Unimaginable medical miracles
Digitization has changed industries in a big way. A prime example he cited is the music industry, once controlled by record companies and the sales of tangible products such as CDs and vinyl records. Now the industry is digitized, and Apple Computer is the major driver of the music market. Another industry undergoing a digital transition is media. This is altering the newspaper, television, radio and movie businesses.
Dr. Kaku believes the next big industry due for a dramatic change is medicine. As baby boomers age, it will be necessary to reduce costs. A number of developments are on the horizon. Most notable is the liquid biopsy. He reports that a so-called “smart toilet” will be able to analyze bodily fluids. It will detect cancer genes, proteins and enzymes and let you know that you may be at risk of getting cancer in the future. This will provide a diagnosis far earlier than can happen with current medical technology. As a result, Dr. Kaku predicts that in the future, “the word ‘tumor’ will disappear from the English language. He noted the first commercial (and very expensive) versions of the smart toilet will appear in 2018.
Other advancements include the ability to grow ears, bladders, skin, bone, cartilage, heart valves and windpipes using your own cells. This will allow doctors to literally replace failing parts of your body.
Another major challenge to tackle is the brain. Dr. Kaku said that we are not far from a time when we will be able to record memories and play them back to experience what you’ve experienced. This is already being tested on mice and monkeys, and humans are not far behind. It could represent an important development to combat Alzheimer’s and other forms of dementia.
1. MPMG All Cap Value Performance. http://mpmgllc.com/investment-strategy/
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.
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