Minutes
AAII Orange County Chapter
Monthly Meeting, May 15, 2010
Balearic Community Center
1975 Balearic Dr.
Costa Mesa, CA 92626
President Bob Welge brought the meeting to order at 1 pm. Beginning with preliminary announcements, Bob drew members’ attention to the availability of Chapter contact information and handouts for today’s talk on the side table, and of water at the back table. Bob acknowledged the efforts of the Chapter’s leaders: Facilities Chair Craig Stoddard, Vice President Ed Castleman, Treasurer Dave McMillin, and Bill Phillips, Hospitality Chair, for putting up signs and setting up the room.
Bob next announced the schedule of future chapter meetings. The next meeting will be at the normal 8:45am time on June 12th, 2010, when Dr. Leonard E. Goodall, Co-editor of the newsletter No-Load Portfolios, will discuss Lessons Learned from the Market Declines of 2000-02 and 2007-09. There will be no meeting in July, but there are active plans for August and September. Further details on these future events and other Orange County Chapter information can be viewed on Bob’s website www.robertsgeneral.com.
Bob then introduced today’s speaker, Ron Muhlenkamp, Founder, President and Portfolio Manager of Muhlenkamp & Company, Inc. Bob noted that he and Ron had just returned from the Money Show in Los Vegas where Ron had made several presentations, as well as a presentation to the Los Angeles AAII Chapter earlier today. That and he generously extended his discussion over a late lunch after today’s presentation.
Ron grew up in a farming family, so it isn’t surprising that his talk included a number of farming metaphors. One graphically illustrates the poor timing sometimes shown by the small investor: noticing the corn growing all summer, he finally decides to plant some in October, when of course his crop dies, and nothing and nobody can convince him to plant more come the next March.
Ron graduated from MIT with an engineering degree, then went
on to obtain an MBA from Harvard and become a CFA. He is author of Ron's
Road to Wealth: Insights for the Curious Investor (Wiley, 2007). He began
managing investments in 1977 and opened the Muhlenkamp
Fund (MUHLX), a flexible, large-cap blend mutual fund, which has consistently
outperformed the S&P 500 over the past ten years.
Ron’s investment strategy focuses on a 4-5 year investment cycle, with allowance for the effects of longer term fundamental economic conditions. One doesn’t have to predict these conditions or cycles, but must respond correctly once they occur. One example: in the 1970’s, conditions were right to borrow money and buy real estate. He watches the 10 year Treasury Bond rate vs the Federal Funds (FF) rate; a low FF rate will be raised as necessary to control inflation, until bankruptcies occur, when it will be lowered again.
Ron offered some views about how to deal with, or understand the stock market better. For example, rather than panic under conditions like the October, 1987 market crash, one should view it like crops destroyed by a hail storm – yes, short term damage has been done, but one needs to be ready and willing to plant crops again the next spring. In the short term, prices are determined by the current balance of supply and demand (like at a live auction), but in the long term, prices are determined by fundamentals.
Key economic series and other trends to monitor for judging market conditions include: consumer spending (monthly, seasonally adjusted retail sales), business investment, velocity of money, Federal Reserve and Treasury Bond rates, credit defaults, taxes, and changes in regulations. Another measure of likely growth of economic activity is Fisher’s equation involving (population growth)x(productivity).
Ron commented on the great shift in the US economy from
manufacturing by noting the increased proportion of income spent today on
health care, social security taxes, leisure time and financial services. He
noted that 25 years ago the largest building in Pittsburg, PA was the U S Steel
building; today, U S Steel has vacated the building, and its landmark building
is now occupied by a hospital.
Ron closed his talk with two observations: “today’s problems are yesterday’s solutions” (i.e., government ‘solutions’ inevitably cause future difficulties), and “gold is half religion” (noting that most Money Show presenters are currently negative on gold).
For those with questions or seeking further information, the Muhlenkamp Fund website is www.muhlenkamp.com, or, the fund can be contacted at 877.935.5520.
Following the conclusion of Ron’s talk, Bob Welge adjourned the meeting at 3 pm.
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Minutes Recorded by Ed Sharman