Morningstar Investment Conference – 4

Some additional insights from yesterday plus a couple things to note from this morning…

Jason Zweig, the outstanding writer and editor who updated the latest version of Benjamin Graham’s The Intelligent Investor, brought the keynote presentation at lunch yesterday.  Mr. Zweig spoke about the topic of his new book, Your Money and Your Brain, a study on the relationship between what goes on in your brain and how you pursue your investments.  It seems to be a very interesting book – or at least he made it seem that way – and we will be trying to obtain a copy for a review soon.

The highlight from Mr. Zweig’s talk was that our brain works in two different ways – reflexive and reflective.  Our reflexive brain must be controlled by our reflective brain if we are interested in making sound investment decisions.  He brought up the point that three repetitions seems to be the key to leading to expectations.  If something happens twice, we automatically assume it will happen a third time.  Interestingly, he also said that “negative surprises are three times more powerful than positive surprises.” 

The keynote session to end the day yesterday was a conversation between Don Phillips of Morningstar and legendary investor Jean-Marie Eveillard.  The talk began with Mr. Eveillard’s coming retirement and his successor – yet to be named due to a non-compete agreement the person holds with the prior employer.  Then it gravitated to something more interesting:  value investing.  Mr. Eveillard said, “the value investor has to accept the idea of suffering – it’s good for the soul.”  I think this is particularly important as we need to remember to have long term outlooks on our investments no matter what they do in the short term.  We may suffer before realizing our expected gains.  Mr. Eveillard also spoke about the importance of looking for companies with securities priced attractively, not necessarily because you like the asset class they belong to.  Just another way to look at the bottom-up approach versus the top-down approach.

This morning Brian Rogers from T. Rowe Price gave a speech on Corporate Governance.  He began by comparing today’s market environment to that of 1982.  Concerns of inflation and the banking industry were high.  The difference today is that we’re not facing high interest rates also.  He also said that corporate governance activism is much greater today than it was in the 1980s.  He said that one important thing to remember is to focus on Responsible Activism as opposed to short-term activism.  It is important to try to get the company to improve long term performance.

He provided some observations on the market (note – I’m unsure if these were his own thoughts or paraphrased from someone else.  That was unclear but I wanted to provide them for you anyway so just don’t think they are necessarily direct quotes from him):

1. Economies, markets and investors are resilient.
2. Statically speaking, the world doesn’t end that often.
3. The world needs a strong financial system.
4. Are rising commodity prices and investor’s expectations today’s version of irrational exuberance?  — He spoke about the price of oil and how he does not understand where the last $40 has come from.
5. Can equities return more than 4%?  — This is a test he always puts an equity position through before making the purchase.

And he closed with the following thoughts:

1. World of corporate governance will continue to evolve.
2. We have an obligation to protect the interests of our investors.
3. Common sense:  a great starting point.
4. Be a realist and pragmatist, not an idealogue.