This week began with the sad news of the passing of President George H.W. Bush. Whenever a former U.S. President passes, it brings back memories from his time in office. When I think back to the first Bush presidency, the one thing I really miss is having a president who was actually presidential. He wasn’t immediately running for re-election; in fact, he almost seemed half-hearted in his re-election attempt. One commentator I heard said it best when he said that President Bush was a better public servant than he was a politician. Wouldn’t that be unique today?

When I think about George H.W. Bush and his time in office, what I remember that is so different from every president since is that everyone seemed to respect him. This does not mean everyone agreed with him or voted for him – he was our last one-term President after all – but no one went around talking about how much they hated George H.W. Bush. It just didn’t happen. One could argue this is because social media had not been invented, but that was true in the Clinton years, and there were plenty of people who said they hated Bill Clinton.

Social media was in its infancy when George W. Bush was in the White House, but we had congressmen who referred to him as “the current resident” instead of Mr. President. I don’t believe anyone was walking around in the 1988 to 1992 timeframe saying “he is not my President.” I, for one, miss that.

I hope we regain that civility in the future. The market activity yesterday even reminds me of the first Bush years. We plunged because the interest rates on the 2-year Treasury went higher than the interest rates on 5-year Treasury. That is what investors call an inverted yield curve, which supposedly means we are headed for economic slowdown and maybe even a recession. Ignore the fact that a month ago or so we were fretting over a yield curve being too steep, now it is flat and we are fretting over that.

Are we headed for a recession? Employment is the key. We have an unemployment rate under 4 percent, and real wages are growing for the first time in a generation. It is hard to imagine how a recession could happen under those circumstances. Yesterday morning Wells Fargo CEO Timothy Sloan was asked if the bank was hearing about economic slowdown concerns from their clients. His quick response was a flat, “No.” In fact, he is experiencing the opposite. He stated that small business optimism was strong.

The economy was strong in the late 1980s and early 1990s as well. Then we slowed just a little and all the talking heads started talking about recession. George H.W. Bush stated that we were not in a recession, which was, at the time, technically correct. Bill Clinton said he “felt our pain” and was our President for the next eight years. The lesson is that we can talk ourselves into a recession very easily, even when times are actually very good. This is why these market signals cannot be ignored.

That economic blip in the early 1990s was over before inauguration day, and what followed was some of the strongest growth we have ever seen. While we feel the pain of the market, fundamentals remain strong and as long as they do things will work out in the long term.

Markets may be down, but the biggest loss this week is for our country. George H.W. Bush will be deeply missed.

Warm regards,

Chuck Osborne, CFA
Managing Director

~The Last Presidential President

There is an old saying, “Great minds discuss ideas, average minds discuss events, and small minds discuss people.” It is often attributed to Eleanor Roosevelt, although there is no evidence that she ever said it. It is on a plaque in my house because it was one of my mother-in-law’s favorite sayings.

I thought about that over the last few weeks. I don’t know how it was for you, but this past election season was horrible in our neck of the woods. We had to turn off our phone because politicians are exempt from the no-call list. We couldn’t stop the mailers.

I received a mailer from one candidate which made the following argument: I should vote for this candidate because the other candidate had made a poor advertisement. I’m not kidding. There was no mention of any platform; in fact, the candidate did not make a single positive argument for casting the ballot for anyone. No, I was to vote against the other candidate because the camera angle on one advertisement was awkward. You can’t make this stuff up.

I know discussing politics is dangerous, because we live in this polarized anger- and hate-filled world, right? I am not so sure. I have made many investments over the course of my career, and the best ones are always when my team and I have been able to discern a truth which is counter to the current perception. Are we really as polarized as the media claims? I think the answer depends. Are we talking about ideas, events, or people?

Earlier this fall I had the opportunity to return to my boarding school in Indiana for a gathering of alumni volunteers who help the school across the country. One of my classmates was there from Colorado, and we had a great conversation while catching up.

He and I see the world completely differently, at least that is what the pollsters who try to pigeon-hole everyone into a data point would tell you. I believe that it is pretty accurate to say that come election day we would cancel out each other’s vote on most occasions. This notwithstanding, we did what nobody is supposed to do: we discussed politics…and it was great. How is this possible?

We kept our discussion about ideas, not people. When two people do this I believe they will find exactly what we did, which is that what we have in common far outweighs our differences. I know that goes against what the media would have everyone believe, but it is a fact. When one takes away the team colors and the divisive personalities, the vast majority of us get along very well. It also helped that we both kept in mind that even when we disagreed, the fact remains that we are friends, and in this case have been for more than 30 years. Isn’t that more important than winning an argument?

I know it happens every election because of the calendar, but for some reason, this year’s election being followed by Veterans Day seemed especially appropriate. Maybe because it is the one-hundredth year of the armistice that ended World War I, which occurred at the eleventh hour on the eleventh day of the eleventh month of 1918. Maybe it is because with all of our differences, veterans have a way of reminding us how fortunate we are to live in a free country, and that freedom is never free.

The issue with our politics is not that we are polarized; it is that our political discourse has become almost solely about people, not about events, and certainly not about ideas. Change the level of discourse and we can change the atmosphere. That has to start from the ground up. I’m willing to give it a go, and I hope you all will too.

Warm regards,

Chuck Osborne, CFA
Managing Director

~Great Minds

There are no more plastic straws in our house. Have you joined the bandwagon? For those of you who have not heard, there has been a very rapid and very public backlash against the plastic straw. It started when a picture of a turtle with a straw stuck in its nose went viral on social media.

When I first heard to the story, I had not seen the photo because I am neither social nor do I care for media, but I felt very sorry for the turtle. I understand why such a picture would tug at the heartstrings. Then I quickly realized how telling this story is of our current society: We’ve blamed the straw.

Please do not misunderstand, I have no problem with my wife banning plastic straws in our house. If it were up to me all straws would be banned and our children would drink out of a cup like a big boy and girl. I’m not fond of the straw, but that is just me. I also have no problem with efforts to cut down on waste. I grew up at a time when Coke bottles were made of glass and you actually returned them to the store to be reused. Waste not.

However, I can’t help but thinking that if that same turtle had been photographed when I was young the message would have been, “Stop littering.” The turtle did not wander into a fast food restaurant and grab a straw and shove it up its nose. The straw didn’t leave its package in search of a turtle to wound. No, some human threw that straw into a body of water. It isn’t the straw’s fault; it is the litterbug’s fault, whoever he or she is. Yet, we have blamed the plastic straw. If the litterbug had simply thrown a paper straw into the river, then it would have biodegraded. (Well maybe, depending on how many paper straws are in the river.)

This morning the Trump administration asked the SEC to study the impact of moving away from companies reporting earnings quarterly and toward reporting semi-annually. Corporate leaders have told the administration that this would boost growth. Similar to the straw story, I personally would have no issues with this. Many of the foreign companies we have invested in report semi-annually. We are investors, not traders, so one quarter’s results do not matter that greatly to us. However, this too is revealing of our society. “It’s not my fault that I run this company in a short-sighted way, it is the quarterly report’s fault.”

Except, the best companies and the best corporate leaders do not do this. Amazon founder and Chairman Jeff Bezos immediately comes to mind. He has famously ignored the supposed “need” to show good results every quarter, and has instead constantly invested in his business for the long haul. As a result he runs one of the most powerful companies in the world. It hasn’t hurt the stock either, much to my regret, because it has always seemed too expensive to us. Oh well, that isn’t Jeff’s fault.

The best companies have always been the ones that focus on the long-term business. They want relationships with their customers and clients, not just transactions, and therefore they treat them the right way. They value their employees and the communities in which they work. This is nothing new; it has always been that way. The companies who blindly focus on this quarter’s earnings report are the ones that fade into oblivion.

So, like the backlash on plastic straws, I think the Trump administration’s earnings reporting suggestion is somewhat silly. It isn’t necessarily harmful, and it may even lead to some better management. However, we don’t need to get rid of straws as much as we do need to stop litter bugs, and we don’t need to stop quarterly reports as much as we do need to stop short-sighted management. We need to admit, as Jimmy Buffett finally concluded, it is my own [d***] fault!

Warm regards,

Chuck Osborne, CFA

~“It’s Not My Fault”

Facebook has found what appears to be a Russian plot to interfere with the 2018 mid-term elections. This is the breaking news of the week. What has become obvious to most observers is that Russia is not trying to influence the results of elections as much as they are trying to further divide our already divided electorate.

Of course this is unprecedented, except that it probably isn’t. Creating fake news about one’s political opponents has been around at least since the founding of our nation and probably a lot longer. Benjamin Franklin used his printing press to help spread some fake news, as did his political rivals. My ancient history/Shakespeare is a little rusty, but weren’t there some false rumors involved in the eventual assassination of Julius Caesar by a crowd of conspirators, including his good friend Brutus? Et tu, Brute?

I certainly don’t mean to downplay the seriousness of Russia meddling in our politics, but it does seem to me that there is an easy solution to all of this: Bring back common sense, and don’t believe everything you read. I would add to this one further instruction: …especially if you want to believe it.

One of the benefits of spending my adult life in the investing world is that I get to spend a lot of time learning about how humans make decisions. Investing is, after all, about making decisions. Most people think decisions are made by carefully analyzing data and using our reasoning skills to identify the right path. To invest or not to invest, or to vote for this candidate over that one.

This is not actually how humans make decisions, unfortunately. We make decisions mostly with our emotions, and then we look for facts that support the decision that we have already made. When data comes in that supports what we want to believe, then we accept it as true. If, on the other hand, we receive data that runs counter to our beliefs, then we reject it as false. Most in our society have long held the outlook that we are intelligent and everyone who disagrees with us is stupid. The troubling thing about our politics today is that we seem to be drifting toward a more serious view of, “we are virtuous and anyone who disagrees with us is evil.”

One can’t do this in my field, because the measuring stick for our decisions is absolute. An investment either worked out well or it didn’t. This blunt reality makes it harder to lie to oneself. That is a great lesson, but most people never learn it.

As a result, when a Trump supporter reads some story which makes Trump look good and his opponents look bad, they tend to believe it; and when someone who does not care for Trump reads something that makes him look bad, they tend to believe it. These stories can both be fact, or they might both be fiction.  How are we supposed to know?

Simple: Be skeptical, especially when you hear something that you would like to be true. Question the source. Likewise, don’t just dismiss those who disagree. They are not any more stupid than we are, after all. They might even be correct about some things.

In her book, Thinking in Bets, professional gambler Annie Duke suggests putting some money on the line. Investors learn to overcome their natural bias because if they don’t, they lose money. The same is true for gamblers. So, put some money on the line. The next time a friend tells you that the guy running for Congress in your district is actually a member of an alien race trying to take over planet earth…instead of just believing it, ask them how much they are willing to bet. Just like we did when we were kids. If they hesitate, then that will tell you if it is truth, or fake news.

Warm regards,

Chuck Osborne

~Fake News

“If you don’t have time to do it right, when will you have time to do it over?”  – John Wooden

One could live his whole life based on John Wooden quotes and do pretty well. This is one of my favorites. I suppose that is because I had an uncle who used to say something very similar. He would say, “Do it right the first time and you won’t have to do it over.” That advice has saved me a lot of time throughout my life.

It seems so simple, yet it isn’t. If I watch TV it is usually sports. As such, unlike many who now binge-watch shows commercial-free, I am still a slave to commercial breaks. While watching the recent NBA Championship I witnessed perhaps the strangest commercial break of my life.

The first commercial was for Facebook. It showed how wonderful the service was when it started, then how they had abused their users’ data. They apologized and promised to get back to what made them great in the beginning.

The second commercial was for Wells Fargo. It showed the storied history of one of the nation’s oldest banks, and talked about how they were built on trust, right up until the moment they betrayed that trust to create fake accounts. They apologized and promised to get back to what made them great in the beginning.

The third and final commercial was from Uber. You’ve got it: They showed how wonderful they used to be, apologized for their founder’s behavior, and promised that the new management would get back to what made them great in the beginning.

You just can’t make that up. Three commercials in a row with companies apologizing for not doing the right thing, but promising to do it over. It makes one wonder what in the world is happening in our corporate culture?

As a backdrop I am watching these commercials at a time when Norfolk Southern had decided it was a good idea to park idling trains behind our neighborhood for 19 straight days. Now we knew there was a train track back there when we moved into the neighborhood many years ago, and the passing trains have never bothered me. In fact, it is kind of cool. However, having a train stay there, constantly running for 24 hours a day for 19 days, is something completely different. Our oldest neighbors have been in the neighborhood for more than 40 years, and this had never happened in their memory.

When I started my career I had mentors whose primary strength was common sense. Today we have too many managers whose primary talent is having gone to the “right” business school. They are very intelligent, yet know nothing. My mentors were constantly self-effacing. They would start most sentences with, “You know I’m not that smart, but….” Today we have managers who never seem to question themselves.

Who didn’t question selling peoples’ data without permission? Who didn’t question the wisdom of setting up fake accounts? Who didn’t question the “playboy” culture at Uber? Who decided it was okay to treat a residential neighborhood like a train yard?

Doing the right thing is not just about being ethical – it would be great if we lived in such a world, but that is naive. Doing the right thing is also about having the common sense to understand that not doing the right thing will eventually bite you back. If you don’t do it right, then eventually you will have to do it over. Words to live by.

Warm regards,

Chuck Osborne

~Just Do the Right Thing