Morningstar held its annual investment conference [Morningstar Investment Conference US (MICUS) 2023] this past week, beginning 24 April, in Chicago, where tulip gardens bloomed on the city’s walkways. 
COVID impacted the last three conferences: Zoom only in 2020, masks required and temperature taken for attendees in 2021, and joint Zoom and a return to normal for in-person attendees in 2022. This year Morningstar offered no remote option … no Zoom, no recording, just full-on, in-person attendance required to take advantage.
The venue remained McCormick Place, Chicago’s cavernous convention center, but fortunately, on the more modest Lakeside Center with its emerald views of Lake Michigan. Next year, I understand, Morningstar will move MICUS to the waterfront Navy Pier, a less expansive spot closer to downtown.
This year’s conference featured a prescient audio-visual-computational demo of “Mo,” a new AI tool programmed with Morningstar research, and several excellent keynote speakers, which remains a MICUS signature, including:
- Larry Summers, former U.S. Secretary of the Treasury, its 71st, known for his brilliance and outspokenness,
- Aswath Damodaran, who teaches at NYU’s Stern School of Business and is often called “dean of valuation,”
- Dan Ivascyn, chief investment officer at PIMCO and manager of its iconic Income Fund (PIMIX).
Evolving Investor
About 2200 attendees greeted Morningstar’s erudite CEO Kunal Kapoor as he kicked-off the conference under the theme “The Evolving Investor.” Basically, the evolving needs of investors, from youth when growth and accumulation preside, through career and broad demands of family, into retirement with goals of capital preservation, and finally estate planning … how advisors can best guide over a lifetime. As he does every year, Kunal depicted the overall market valuation, which remains about 11% under so-called fair market value, with half the stocks Morningstar follows rated 4 or 5 (aka undervalued). Then, he doubled down on Morningstar’s ratings system, reiterating it remains one of the most important tools in an advisor’s toolbox, helping sift through several hundred thousand investment products available today.
Throughout his welcome, he noted how risk tolerance is heavily influenced by the environment an investor begins … the importance of assessing what he called “durable risk tolerance.” He announced the elimination of the so-called “q” or quantitative metal ratings, combining those with ratings that literally (manually) are assigned by Morningstar’s (human) analysts. Using Morningstar products, Kunal hopes to make investing easier and risk management more personalized, recognizing that investors are overwhelmed with data, and some have trouble seeing value of advice. He believes direct indexing will be a game changer. And he reminded us that we are about to embark on the greatest generational wealth transfer in history at $84T.
He concluded his welcome with a live demonstration of Mo, which according to Kunal, in short order, was programmed with all of Morningstar’s research and data, then coupled with an audio-visual user interface to field and answer investing-related questions. He asked it general questions about picking an advisor and “Is the 60/40 portfolio still the right level of risk for my client Sam Morales today?” Mo’s answers seemed responsive and fluent, if a bit canned. Kunal explained the real-time process: ingest speech, convert voice to text, transmit text to open AI model, generate answers from 100 thousand data points, convert text to voice, animate via digital person … pretty cool.
In the display area, I used the opportunity to ask Mo if active funds were better than passive. He answered they generally were not but could be right depending on the situation. I could not help but feel that Mo represented today’s version of a personal tutor, HAL, or an animated Encyclopedia Britannica, at least.
A Conversation on Valuation
My first time to hear Professor Damodaran in person (Photo: Matthew Gilson Photography). A pure delight. Unassuming. Self-effacing. Yet at same time someone who seems confidant with what he knows and doesn’t know. He stated that no valuation is expert. Valuation provides an opportunity to tell a narrative around numbers, to mix numbers and stories, an appeal of both right and left brain.
He believes the painful financial outcome of 2022 was not an aberration, but the beginning of economic normalcy. “When the cost of capital is 10%, companies can’t afford to not have a business plan.” The return to normal in fact helps the quality companies distinguish themselves in the market.
The ever-increasing amount and speed of data, he proposes, can make markets less efficient. And like Warren Buffett and Charlie Munger, he believes doing nothing can serve us well, like in 4 weeks of March 2020.
He stated that there are “no more unhappy conversations that those that start with The Fed … We blame the Fed for everything and it makes us lazy.” The problem with high inflation is the attendant uncertainty, which makes it worse than a steady level.
He shared his skepticism about ESG financial products, which he thinks were created as something to sell, not improve returns. “There is no way, impossible, for a constrained portfolio to beat an unconstrained one.” His philosophy is that society should not look to companies to fix environmental issues. It should be the role of policy makers and government. Not doing so reflects a mistrust of institutions.
He’s working on a book about the life cycles of companies, which for most (should) last 25-30 years (e.g., Yahoo). Elon Musk in 2019 was like a teen-ager … looking in the mirror and asking what can I do to screw things up? He stressed the importance of matching the right CEO based on where a company is in its life cycle. A mismatch can be disastrous, like BBB … it needed Larry the Liquidator. Some companies should simply be liquidated; furthermore, only 60% should be re-investing capital.
On valuation of crypto? He states some things can’t be valuated, only priced, like art. It has no cash flow, so can’t make a valuation.
His website, Damodaran Online, is a wealth of information, all freely available.
