Excerpted from Whtiney Tilson’s latest email to investors
Run, don’t walk, to watch this inspiring only-in-America story, which aired on 60 Minutes last Sunday, about the founder of Chobani, Hamdi Ulukaya, a Kurd who fled Turkey 23 years ago, arriving here knowing not a single person and speaking not a single word of English. A few years later, he bought a yogurt plant in upstate NY that Kraft was practically giving away for $700,000 – and now has the #1 yogurt brand in the country and is a billionaire. He’s created thousands of jobs in upstate NY and Idaho (where Chobani’s other plant is), 30% of which are held by immigrants and refugees – which has made him and Chobani a target of Breitbart and other right-wing loonies in the form of boycotts and death threats. So buy more Chobani!
Charlie Munger: Invert And Use “Disconfirming Evidence”
You can watch the 13-minute segment (or read the transcript) here: http://www.cbsnews.com/videos/chief-of-chobani
2) These numbers are staggering:
In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry — more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors.
“Flows of this magnitude into one company are unprecedented,” said Alina Lamy, an expert on fund flows at Morningstar. “Since the crisis, investors have been saying, ‘I may not be able to control the market, but I can control how much I pay in mutual fund expenses.’ And when they look for quality funds with low fees, the first answer is Vanguard.”
The triumph of index fund investing means Vanguard’s traders funnel as much as $2 billion a day into stocks like Apple, Microsoft and Amazon, as well as thousands of smaller companies that the firm’s fleet of funds track. That is 20 times the amount that Vanguard was investing on a daily basis in 2009. It is manageable, in large part, because no stock-picking is involved: The money simply flows into index funds and E.T.F.s, and through February of this year, nine out of every 10 dollars invested in a United States mutual fund or E.T.F. was absorbed by Vanguard.
By any measure, these are staggering figures. Vanguard’s assets under management have skyrocketed to $4.2 trillion from $1 trillion seven years ago, according to the company. About $3 trillion of this is invested in passive index-based strategies, with the rest in funds that rely on an active approach to picking stocks and bonds.
3) What are the implications of this massive trend toward indexing? Obviously, it pushes up the biggest stocks – and woe unto those chumps (like me) who don’t own the biggest five stocks by market cap today – all tech stocks – which, as of a few days ago (according to a WSJ article), accounted for 53% of the YTD gains of the S&P 500.
Here’s a table of the top 50 as of yesterday’s close (note that 9 of the top 10 are up in the past 12 months, and all 10 have risen an average of 21.2% vs. 11.2% for the S&P 500):
4) Yet the valuation of the S&P 500, while somewhat higher than long-term averages, isn’t crazy, especially if you think interest rates will continue to stay low, as this chart shows:
5) It seems like every day I read about another iconic money manager who’s hit the skids – I do NOT think it is a coincidence that this has happened at the same time as: a) the rise of indexing; and b) the rise of supercomputers/artificial intelligence. In the past 5-10 years, computers have surpassed humans at such enormously complex challenges as chess and driving a car. Is it unreasonable to think they’ve done the same for stock picking (at least in a complacent market)???
Jack Meyer trounced rivals when he ran Harvard University’s endowment in the 1990s. But as a hedge-fund manager, he is struggling.
His Convexity Capital Management LP has lost $1 billion of its clients’ money over the past few years as once reliable options trades backfired. Investors pulled more than $3.5 billion from the bond shop last year, its fifth down year in a row. The firm laid off one-tenth of its staff in recent months.
6) A good article on the enormous good the Consumer Financial Protection Bureau has done, especially for the “forgotten men and women” that Trump pretends to care about. Excerpt:
Since 2011, the agency has returned nearly $12 billion to 29 million consumers.
… Trump’s “forgotten men and women” living on the economic fringes might be the bureau’s greatest beneficiaries. Millions of Americans rely on reloadable, prepaid cards because they’ve bounced too many checks or otherwise have no relationship with a bank. Last fall, the C.F.P.B. finalized regulations that would grant users some of the same protections enjoyed by credit-card customers, including liability limits on lost or stolen cards and easy access to account information. The bureau has also proposed restrictions on debt collectors and payday lenders, who can sometimes legally charge interest rates exceeding what would be 400 percent annually for the two-week loans they provide to the working poor.
… Can the C.F.P.B. survive the Trump years? His election certainly gives hope to all those big banks and fringe lenders that feel themselves under attack by Cordray. In mid-February, Ted Cruz in the Senate and John Ratcliffe in the House introduced bills that would simply abolish the bureau. Yet a recent poll showed that Trump voters, by a 2-to-1 margin, want the bureau left alone, if not strengthened. The C.F.P.B. seems too popular to simply shut down.
So the strategy in Washington has been to defang it rather than eliminate it altogether.
… For the moment, the C.F.P.B. seems to be a full-throated expression of resistance: a government watchdog doing its job, despite a chief executive who resents its mission. But even if Warren and her allies repel legislative attempts to weaken the C.F.P.B., Trump will still get to name Cordray’s replacement. What will be good news for big banks and fringe lenders will be sad news for the forgotten who thought they were sending a champion to the White House.
Here’s another article on the same topic: Mr. Trump Goes After Consumer Financial Protection Bureau, https://nyti.ms/2nA6c5w
7) This is the bizarre, vaguely threatening letter from Klaus Kleinfeld, the CEO of Arconic, to Paul Singer, the activist investor targeting his firm, that cost Kleinfeld his job:
For more on this letter, see: www.wsj.com/articles/ousted-arconic-ceo-sent-a-vague-threat-to-activist-hedge-fund-boss-1492647586, and for more on Singer and Elloitt, see: www.wsj.com/articles/meet-elliott-management-the-hedge-fund-that-toppled-arconic-ceo-klaus-kleinfeld-1492527390