Mike
Lipper’s Monday Morning Musings
Are
History & Economics Books Closed?
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
The Reward for Analysis is Prediction
The payoff for analysis is plausible prediction, whether
correct, wrong, or part of each. As this is an investment guess as to the
future, it will at worst beget an emotional reaction, or possibly thoughtful
disdain. On the other hand, it might suggest a future looking distinctly
different than extrapolating the present, including the desires of those presently
in power.
This may be an appropriate time to look forward to something
different than the present and begin investing on the chance something
different happens. The reason this is an appropriate time to express these
thoughts is that those in power are only focused on the immediate and have
closed the political and economic history books.
The following items point to a different kind of future:
Political Disruptions
- There is hardly any national government that is universally popular, which is different than being tolerated by a diverse population. At the moment the majority is not unified and lacks dynamic leadership.
- The current renter of the White House is waging a war which he believes he can end and in so doing can generate a political victory for him and his party. He should study the greatest UK leader of modern times, Winston Churchill, who lost power immediately after WWII to the Labor Party.
- While office holders are getting older, voters are getting younger and richer.
- While some media are controlled, increasingly more are not. Anyone, anywhere, may be able to reach individuals and groups.
- Both ancient Greece and Rome lost total control to an enlarged population. China had similar problems.
Financial/Economic Changes
- The impact of air conditioning is coming to Europe, Asia, Africa, the Middle East, and Latin America. (In the US, the one thing the founding fathers did not foresee was the federal government existing in the humid swamp of Washington DC.)
- The population of the US is likely to shrink without immigration, causing the national debt, social security, and Medicare to fall under pressure.
- The rotation of the relative ranking of investment performance is likely to change. Over the last ten years only domestic and international science and tech funds have beaten the average large-cap growth fund average. This is from a universe of over 100 mutual fund category averages. (It is my bet that this will not be the case over the next ten years. None of the initial stocks in the first DJIA are in the current index.) The common denominator of successful funds is essentially the inclusion of computer-oriented products or services with substantial sales in the US. It is this concentration in a dynamic global world that will eventually lead to a rotation to other segments of the market.
- Evolution has been part of life on our planet since the beginning of time. I believe only change agents have a chance of surviving longer. My accounts have two good examples of successful change agents, along with some mistakes. (These are not recommendations that should be made with complete knowledge of an investor’s needs, wants, and understanding.) Each of these companies began life pursuing other businesses and made significant purchases. Berkshire Hathaway started as a money-losing textile mill. After Warren Buffett’s hedge fund bought it, Charley Munger taught him how to buy good companies at reasonable prices, which resulted in them building a great holding company. Recently, Warren appointed Greg Able as CEO of the firm. He is in the process of slowly turning Berkshire into more of an operating company by doing the following things:
- Appointed a Senior Executive over groups of single companies.
- Purchased Alphabet stock for cash, making it one of the firm’s 5 largest holdings.
- Purchased a home and community construction company and combined it with an existing builder of factory-built homes and a mortgage provider. (The country needs a major increase in the building of homes, and they will be part of the solution.)
Berkshire has not said anything yet about paying a dividend,
although I think they will do so in a number of years. My thinking is based on
Mr. Buffett’s statement that he and Charley were not running the company for
the shareholders, but for their heirs. (It is already happening. I believe that
a good bit of the stock owned by individuals for 50 years or more has been inherited
on a step-up basis. These new owners of the stock will have different attitudes
toward the company as they consider their own retirement needs. In order to
keep this growing number of shareholders happy, it makes sense to pay a
reasonable dividend.
The second stock already pays a mid-level dividend. The Thomson
family controls roughly 70% of all shares of Thomson Reuters through their
private holding company. They have made a number of dissimilar investments over
time, including a commanding position in the North Sea oil field. Their
principal business today is distributing critical data to law firms, accounting
firms, corporations, and governments in the US, Canada, the UK, and Latin
America. Thomson is the largest provider of this type of data, and they have
taken their time converting their products to utilize “AI”. Their customary
careful management has recently introduced “AI” driven products which have been
well received, making good progress with both old and new customers. (Disclosure:
For a few years Thomson owned the data of my firm, Lipper Analytical Services,
but they recently sold it to the London Stock Exchange Group.) Thomson Reuters
is similar to Moody’s, S&P Global, and other commercial data providers that
we own.
Working Conclusion:
Change is inevitable and risky, but necessary, and worth the
risk most of the time.
Please share your thoughts
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