2019 Speaker Series: Dennis Miller
October 18, 2019
The 2019 MPMG Speaker Series Event held on August 8, began with an investment perspective from Rob Britton, Portfolio Manager.
The importance of avoiding bias
A major theme of the evening was partisan chasm that clouds not just political discourse, but views about the economy and investing as well. Rob pointed out that heuristics – mental shortcuts we build inside our heads to make timely decisions – can lead to biases and decision-making errors. This can be costly from an investment perspective. Rob says that the challenge of accepting different points-of-view is greater than ever.
Key among the biases that cloud decisions made by individuals are:
• Confirmation bias – the tendency of people to focus primarily on information that confirms their beliefs while ignoring information that contradicts it.
• Loss aversion bias – a stronger desire to avoid losses than achieve gains in investments. Many will hold losing positions too long, hoping to “get back to even.”
• Recency bias – investors who are overly influenced by recent events than those in the near or distant past. There is also a tendency to extrapolate today’s headlines, particularly negative ones, into bad news for the markets into the future.
Rob noted that all of us are susceptible to these biases, but knowing they exist and managing them appropriately can lead to more successful investment decisions. Investing with the long term in mind and exercising discipline to acquire good businesses at the right price – factors that are in your control – helps you manage a portfolio even in challenging times.
MPMG is constantly on guard against any number of decision-making biases that can cloud the ability to think independently, analyze data without preconceived notions and accept new information. Rob emphasized the importance of being open to accept new information that may be contrary to existing beliefs.
He notes that the nearly quarter-century of success at MPMG has required it to navigate through different market cycles in an effort to create life-changing wealth for the firm’s clients. This was accomplished by not taking the easy path of following the crowd and blindly accepting the predominant conventional wisdom of the day. Rob reported that $1 million invested in MPMG at its inception grew to more than $14 million 24.5 years later. If you invested in the S&P 500 over that same time period, earning market-like returns, your $1 million would have grown to $10 million1.
The partisan divide
Aesop’s fables are important to MPMG, none more than the tale of the tortoise and the hare, a metaphor for the firm’s investment philosophy. But Rob cited a lesser known of Aesop’s fables, “The Four Oxen and the Lion.” It tells of a lion who tried to attack a group of four oxen, but when they were packed together, he was always met by their horns. After a time, the oxen quarreled with each other and each went to its own corner of the field. The lion found it easier to attack each one by one and brought an end to all four. The key lesson – united we stand, divided we fall.
Rob noted that while America remains a great nation and one with a great future, it is reasonable to be concerned about the extent of the partisan chasm. In a recent poll, 74 percent of Americans say the country is very divided, and 90% see this divide as a serious problem.
The political polarization is having a deep impact on our society. Since the 2016 election, the partisan economic expectations gap – the difference between Republicans’ and Democrats’ assessment of the economy’s direction – has widened to an unprecedented level. The difference stood at just 20 points during the presidencies of Ronald Reagan, George W. Bush and Barack Obama. Most recently, it stood at 55 points2. Rob believes is difficult to attribute this difference could be grounded in real economic differences between Republicans and Democrats. These biases that are preventing some from observing the economy independent of our politics is a serious problem.
Rob highlighted a slew of good economic news – solid GDP growth, low unemployment and inflation, a well-capitalized banking system and a highly profitable corporate America. He says with that underpinning, it is time for America to be doing the big things needed to lay the groundwork to help foster a higher standard of living for future generations. Instead, he fears we’re wasting this opportunity due to partisan bickering.
Rob suggested that investors are letting their own perceptions cloud their investment judgment. He notes that over the past 20 years, the average stock fund returned 6.4 percent per year. A $1 million investment would have grown to $3.6 million. But the average stock fund investor did much worse, according to a study by Dalbar3. Their $1 million investment grew to just $2.2 million. Emotion-driven decision making errors and bias account for the discrepancy between what investors actually do and how funds actually perform. By comparison, $1 million invested in the MPMG All Cap Value composite 20 years ago would have grown to $6.6 million, earning an average annual return of 9.4 percent. This was accomplished by MPMG staying true to its value-based principles and avoiding biases.
The noted comedian has entertained America for nearly four decades with his wit and trademark “rants” on politics and pop culture. He has been called “the most cerebral, astute and clever stand-up ever to put mouth to microphone.” Miller came to national prominence as the Weekend Update correspondent for Saturday Night Live in the 1980s and early 1990s, and a commentator for Monday Night Football. He’s written four humorous New York Times bestsellers and currently hosts a podcast, “The Dennis Miller Option” and a radio feature, “The Miller Minute.”
At the Speaker Series event, Miller shared his humorous takes on the world while also focusing on the issue of how to bridge the partisan divide. He calls his plan MAGA – but rather than its popular meaning of “Make America Great Again,” Miller says he is promoting the idea of “Make America Get Along.” According to Miller, “we need to find a way to agree to disagree. We need to find a way to not be so sure of ourselves. That’s one of the problems we have.”
The Miller plan to bridge the chasm
Miller offered a ten-point plan, couched in witticisms, but with a serious underpinning. Here are some of the highlights of his plan:
• Institute a toll to access social media and a surcharge for using an alias – Miller contends that the Internet is taking a toll on all of us. “Social media lets us come together as one and realize there was no reason to come together as one.” Miller pointed out that “never have lives less lived been more chronicled.” He believes social media like Facebook and Twitter have turned into a hate-fest. And he deplores the use of aliases by commenters on the Internet. “People can be nasty when they are obscured by a cloak of invisibility.”
• Term limits and time limits on national elections – “I can’t believe we’re already back into election season,” says Miller. “Why not make it six months out to start the campaign instead of two years out. That would help us get out of this fractiousness we’re constantly experiencing.”
• Grab an oar and then completely ignore each other more – Miller says if we’re all pulling in the same direction, that’s all we need. We don’t need to know each other better or get embroiled in political arguments.
• Make self-deprecation a tax write off – “we all take ourselves too seriously,” says Miller. “It’s good to poke holes in yourself now and then.” He suggested we all develop “rhino-skin” to withstand criticism and recognize that we each have Achilles heels.
• Climate change and terrorism can cancel each other out – opposite sides are never going to agree on these issues, says Miller. “Let’s give each other a freebie on this one.”
• Summon our inner Sinatra and brush past political correctness – “Political correctness is killing the world we live in and taking the fun out of it,” according to Miller. “For one week, let anybody say anything they want at the top of their lungs. When we all realize it didn’t destroy us, we can move on from here.” Miller related a heartwarming story about his one experience with legendary singer Frank Sinatra, known to be brusque and direct, but who also could demonstrate a heart of gold. The key lesson Miller encourages all of us to remember – “let’s all start laughing again.”
In Miller’s view, too many Americans are leading their lives outside in. “We’ve got to start leading our lives inside out.” He cites politics as a prime example. “Pull the lever you’re going to pull (in the next election) and then shut up about it.” He is puzzled by people who work up significant hatred for any politician. “You can disagree with people, but don’t sit there and fight.” Miller says he doesn’t intend to spend the rest of his dwindling time on earth “talking with strangers about Trump.”
Miller says he enjoyed each of his six seasons on the show, where he anchored the Weekend Update segment. But he admitted that the first year was fraught with fear of not measuring up to the task. “My favorite year was the second year, because I didn’t get whacked the first year,” says Miller. He notes that the world of show business is challenging and competitive, but if you love that line of work, you live with that. “I didn’t get into show biz to be a CPA.”
Miller believes the Internet is responsible for much of what’s changed in our culture. Schools have taken a different direction as well. “Curriculum in the schools in the last 20 years is more touchy-feely. Schools are more support groups, in a way,” according to Miller. As a result, he fears that kids today are not as prepared for the real world as they once were. “The real world is a beast,” says Miller. “You can’t go out soft in the real world. You don’t want to go out like you have a limp on the Serengeti.”
1. MPMG All Cap Value Performance. http://mpmgllc.com/investment-strategy/
2. Curtin, Richard. “Consumer Economic Expectations: Persistent Partisan Differences.” September 12-14, 2018
3. Qualitative Analysis of Investor Behavior. Dalbar, Inc. March 2019.
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.