Gongol.com Archives: February 2024
February 24, 2024
Five essential items of advice from Warren Buffett
The 2023 annual letter to Berkshire Hathaway shareholders contains Warren Buffett's latest set of observations and advice to his fellow investors -- but they are freely available to anyone. He begins with a heartfelt tribute to Charlie Munger, who was Buffett's brilliant lieutenant for more than half a century. The letter continues with words that sound especially consistent with a thinker who wants to draw a heavy line underneath his most consistent and enduring opinions. ■ Buffett on the 2008 financial panic: "We did not predict the time of an economic paralysis but we were always prepared for one." ■ It seems funny to see a current-day reference to an event which is now a decade and a half in the rear-view mirror. But it is the unusual quality of the reference which makes it so important. Buffett knows that there have been panics in the past, and there will be panics again. And the farther we get from the last one, the greater the risk that its lessons will have been largely forgotten now. It isn't fashionable for a company to keep an unfathomable amount of ready money on its balance sheet: Buffett is acknowledging that Berkshire's more than $160 billion in cash (and cash-like Treasury bills) looks excessive by popular standards. But some businesses are more than just machines for generating short-term profit; in this case, Buffett views Berkshire as an intrinsically valuable national asset to America, and its capacity to weather even the worst conceivable economic storms is what keeps it safe. ■ Buffett on being wary of people with the wrong incentives: "Wall Street -- to use the term in its figurative sense -- would like its customers to make money, but what truly causes its denizens' juices to flow is feverish activity. At such times, whatever foolishness can be marketed will be vigorously marketed -- not by everyone but always by someone." ■ It isn't fair to call the financial industry "crooked": There are crooked participants, of course, but the industry itself is heavily regulated in order to discourage outright theft and fraud. But the behavior of the financial sector is all too often directed by wicked incentives. One of those wicked incentives is the fact that, almost always, people working in the financial sector benefit from increased activity (via commissions, spreads, and other forms of payment), while personal investors are the ones who pay the price. "Buy and hold" isn't the right decision 100% of the time, but it's the right decision the vast preponderance of the time. But "buy and hold" investors don't pay for skyscrapers in lower Manhattan. ■ Buffett on the nation's energy infrastructure: "When the dust settles, America's power needs and the consequent capital expenditure will be staggering. I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire's two partners at BHE [Berkshire Hathaway Energy], I made a costly mistake in not doing so." ■ Berkshire's investment in the utility sector is nothing new; it's a quarter of a century old. And it has a reputation for good behavior so strong that politicians expressly invite them to come to their markets. So when that kind of experienced, reputable company looks at the regulatory environment and warns that conditions are developing that will stand in the way of keeping up with the country's energy demand, which is rising mildly but shifting in constitution from coal-heavy to natural-gas-led with a growing blend of renewables, it calls for attention. A robust, low-cost supply of energy is one of the most useful things a society can have at its disposal. What stands in the way of that supply could end up limiting future economic and technological choices. ■ Buffett on share repurchases by publicly-traded companies: "All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium." ■ Share repurchases (or stock buybacks) should be evaluated just like any other investment: If the market price is higher than the intrinsic value, it's a bad investment. If the intrinsic value is higher, then it may be a good investment (depending on what other choices are available). If a company buys back shares in itself at good investment prices, then it's doing right by its shareholders. But if it's buying the shares at bad prices -- perhaps with the intention of increasing the market price by stimulating demand -- then then the company's management is decreasing the company's intrinsic value, just as it would be if it were buying overpriced real estate or wasting money on a frivolous rebranding. ■ Buffett on stock markets and the people who make them: "Though the stock market is massively larger than it was in our early years, today's active participants are neither more emotionally stable nor better taught than when I was in school." ■ No single lesson is more applicable to every aspect of life than the one behind Buffett's loving critique of the stock markets. He is merely offering an investing-specific observation that human nature doesn't really change. Circumstances and conditions change, but people in this generation are motivated by the same emotions and instincts that drove our ancestors a thousand years ago. Speed and greed drive many a speculator. Those who can apply patience, detachment, and a sound evaluation of price versus value are the ones who do best in the long term.
265-mph tailwinds translate to extremely fast ground speeds
The teammates we want and need
In the future, books will be written about how the Ukrainian armed forces learned to do so much, so fast, on such a relative shoestring budget. In the words of analyst Molly McKew, "Ukrainians secured a shipping lane without any jets/long range anything & have basically dismantled the Black Sea Fleet without a navy[.] So maybe we should help them defeat Russia faster so their expertise/capacity can help solve other security challenges". ■ Something is terribly wrong with anyone who fails to see the tremendous value in finding and helping allies like Ukraine.
Current models forecast a drop from a 72° high on Monday afternoon in Des Moines to a 15° low on Wednesday morning.
New rule: If you find yourself typing the letters "IYKYK" ("If You Know, You Know"), delete your draft and throw your phone into a pot of boiling soup or under the tires of the nearest cement truck. The only thing accomplished by any post containing "IYKYK" is to irritate the people who don't know what you're talking about. The people who do know don't need to be told that they know the secret code...they already know!
Where the wind blows softly across the plain
Some of the residents of Adams County think there are too many wind turbines in southwest Iowa already. But this is really at the heart of the issue: The chair of the county's board of supervisors "said that the population of Adams County has decreased by 42% since the 1970 census." Wind turbines create substantial value (including taxes!) for places that have been de-populating -- and where raising taxes on local farmers is unlikely to go over well. That's a major net social good.
