THE MILLEGAN MEMO: NOVEMBER 2024
Brought to you by The Woodworth Contrarian Fund
(Various Headlines - The Millegans 2024)
Tariffs, The Election, and whether or not you can be a better investor by knowing the future. We decided to do something a little bit different this month. We have a few bite sized pieces on interesting topics that caught our eye as we look forward. We call it the Millegan Memo. Enjoy!
- Managing Partners Drew Millegan & Quinn Millegan
IF YOU KNEW THE FUTURE, WOULD YOU MAKE GOOD INVESTMENT DECISIONS?
Study finds investors can’t predict the market even when given tomorrow’s headline. The age old cliche - ‘if I had a crystal ball I could tell you exactly where to put your money and when.’ It doesn’t pan out as great as you think it would - at least not by the standards assessed in the recent study by Elm research. If you read the Wall Street Journal - you may have seen some of these details with an eye-catching headline about, funny enough, headlines. Elm research took 118 participants - all trained in finance - and gave them a random selection of 15 past WSJ front pages and the ability to make investment decisions the day before. About half of the investors lost money with one in six going bust. They were better at betting on bonds, but when investing in equities - they did poorly. You can even try the test out yourself to see if you can do any better.
Allocation and experience matters when investing. So if you wished you had a crystal ball to invest today on tomorrow’s news - it’s still difficult for most investors to know what moves to make with equities. It’s interesting to note that the researchers also brought in 5 more seasoned investors (heads of banks, etc.) that ended up returning 130% on average with a median gain of 60% - but it appeared in large part simply because the seasoned investors were better and more selective with their trade sizing. When looking at participants in their online portal for all to use - participants lost 30% on average among 1,500 investors. At the Woodworth Contrarian Fund, as experienced managers, we utilize long term contrarian stock picking by looking for existing undervalued assets instead of trying to find short term moves through crystal balls that can get caught up in market assumptions that are, even with tomorrow's news today, often still wrong.
TARIFFS AND YOU: BACK TO THE 1930s
(MSC New York at Port - Albin Berlin 2016)
Tariff tax hikes on US importers would be the highest in a century. With new leadership in the White House and a conservative majority in at least one of the houses of Congress secured, it looks like the Trump administration is very near having carte blanche to implement their preferred policies. Though we do not know exactly what will be prioritized first once the new government takes office on January 20th, what we do know is that the new administration has been a huge fan of taxes on imports. President-elect Trump has been quoted multiple times suggesting a universal 20% tax on all imports, with another 60% tax levied on imports from China specifically. Estimates are that the tariffs as-proposed would raise import taxes on US companies to levels not seen since the height of the Great Depression in 1934.
Not so deflationary. It is a common misconception that tariffs are a tax somehow levied on foreign companies only. Because countries have difficulty taxing non-local entities, the main lever that policymakers have to handicap foreign imports is simple - tax the target goods and/or services at the point of entry. Unfortunately, this means a lot of basic goods that US consumers rely on and firms that rely on foreign inputs would be subject to increased taxes with few local alternatives to turn to, and those local alternatives that do exist are often already much more expensive. Over 98% of clothing sold in the US, for example, is imported. Anything from coffee beans to washing machines could be subject to price hikes if the tariffs come to pass in their proposed form, with one recent study estimating that these tariffs could increase costs by up to $7,600 annually per household.
THE ELECTION: POLITICS ASIDE
(Silhouette of a Statue Near Trump Tower Chicago - Carlos Herrero 2015)
Conservatives sweep US elections. With about a week of distance between the current moment and election night, it has become clear that the Republican party has taken not only the Presidency and the Senate, but stands on the cusp of sweeping the House as well. If the Republicans pull out a few more wins they will effectively have control (or have appointed) all three branches of government. Some votes, such as those subject to the Filibuster in the Senate, require yet larger pluralities to pass decisions and may serve as roadblocks to some policies. Broadly speaking, however, Republicans are about to be in a position to pass whatever agenda they want without the need to compromise with a Democratic minority, wherever only an absolute majority of votes is required.
Certainty allows long-term thinking. Once companies are sure they know the rules of the game they are playing, it becomes much easier to make long-term decisions. As such, a lot of cash that was sitting on the sidelines waiting for an election result can now flow into markets. Whether or not a similar magnitude of capital appreciation would have occurred had liberals won the election is hard to say - but the fundamental nature of the market as a mechanism for discounting future value, and historical trends, make this sort of post-election bump more likely than not, regardless of who winds up in charge. Political upheaval aside, the US economy remains strong and resilient, outpacing its peers dramatically. As we move forward with certainty, it will be interesting to see the economic impact of policy change next year.
DEEP ROOTS. STUBBORN-GROWTH. OREGON-BASED.
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Drew Millegan (left) & Quinn Millegan (right) in front of the Charging Bull in New York City.
About the Managers: Drew Millegan with his brother, Quinn Millegan, (29 and 26 years old respectively) manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
Something missing from your portfolio may be a diversification into the Woodworth Contrarian Fund for accredited investors. Now is a great time to diversify your portfolio with an investment into a multi-award-winning fund. An exposure to a value-based contrarian strategy is a unique opportunity for your long term capital that you’re seeking aggressive returns for. With eight years of the Woodworth Fund under management, the Millegan Brothers are trained stock-pickers and experienced venture capital investors with a proven track record. Give us a call today to discuss a liquid investment with independent administration and independently audited monthly statements and a personal relationship.
