Ann: Funds Under Management - September 2023, page-117

Don't worry about me or my respect, I don't matter. The issue at hand is Magellan.

Sure I completely agree with that different opinions make a market. No problem. I accept that.

Now if you took a stock like CBA - my personal opinion would be that at $100, it's too expensive. But in the long-run, with a ~5% yield and growth drivers from migration and its privileged position in an oligopolistic industry, I'd still say you're making a good long-term decision because the structural tailwinds for CBA only mean one thing - a higher price and bigger dividends.

In this case though (of MFG) every possible thing that could work against a business... is working against it.

Think of Magellan as a person who is both crippled & unemployed (nobody is giving it mandates - see the research house reports/downgrades), in massive amounts of debt (the lunacy that is there employee stock plan), the fiercely competitive market - Magellan is like an office admin competing against 1000 other office admins for the same job. The difference? Other office admins (Vanguard and BlackRock) do a BETTER job for a LOWER price.

And, this crippled person also blows more money beyond their means (100% profit payouts and special dividends). That's the same as depleting all your savings when you know you have big expenses coming up. Those portfolio manager and sales rep salaries and big fat director bonuses? They're going to be unaffordable if you're generating less income because of less FUM resulting in less fees. Right? Less salaries means more of these PMs leaves, resulting in yet more research downgrades. It's a vicious cycle that's virtually impossible to break.

If management at least came up with a creative strategy to turn around its business, I would absolutely say that these guys deserve a chance. Think of examples like quick pivots into AI by Microsoft, Netflix's ad-supported plans, BlackRock's great move to buy iShares and diversity into both an active & passive house. These are risks that businesses take to survive.

But what to do we see from Magellan and its comrade Platinum? More of the same - more underperformance, more of no strategy from management, more excessive and hubristic payouts. It's all reflected in their dwindling share price. The definition of insanity is to do the "same thing over and over again" - and I can't think of a more fitting application for that phrase than to Magellan.