Tuesday, August 14, 2018

Links

"I’ve always said that the way to get a reputation for being a good businessman is to buy a good business.... It’s much easier than taking a lousy business...and showing how wonderful you are at it, because I haven’t seen that done very often." --Warren Buffett

The Race of Our Lives Revisited  - by Jeremy Grantham (LINK)
As a follow on to the original “Race of Our Lives” as part of the GMO Quarterly Letter from April 2013, Jeremy Grantham provides a detailed discussion of the long-term, slow-burning problems that threaten us today: climate change, population growth, increasing environmental toxicity. The piece focuses on the impact of all these three on the future ability to feed the 11 billion people projected for 2100, and highlights the severe implications of these issues if they are not resolved. One material advantage in addressing these issues is in the accelerating burst of green technologies, which may in the future be able to offset much of the accelerating damage from climate change and other problems. Yet despite these surprising technological advances, we have still been losing ground for the last few decades, particularly in the last few years. Somehow or other we must find a way to do better. We will need all the leadership, all the science and engineering, all the effort, and all the luck we can muster to win this race. It really is the race of our lives.
Facebook’s Story Problem — and Opportunity - by Ben Thompson (LINK)

Can The SEC Model Help Cure American Democracy? - by Carson Block (LINK)

The BABA 20-F....Financial Comedy Gold!! [H/T @wolfejosh] (LINK)

Turkey’s Growing Pains - by Peter Zeihan (LINK)

Latticework of Mental Models: Lollapalooza Effect (LINK)

5 Mental Models to Remove (Some of) the Confusion from Parenting (LINK)

Invest Like the Best Podcast: Boyd Varty – Track Your Life (LINK)

NASA launches a probe to study the most dangerous star in the sky: The Sun (LINK)

How To Read More Books — A Lot More - by Ryan Holiday (LINK)

Book of the day [H/T 25iq]: The Membership Economy: Find Your Super Users, Master the Forever Transaction, and Build Recurring Revenue – by Robbie Kellman Baxter

Sunday, August 12, 2018

Links

The Leader of the Future: Why Sergio Marchionne Fit the Profile ($) (LINK)

John Morgan: Operating With An Ace Up His Sleeve (LINK)

The Broyhill Mid-Year Letter (LINK)

The Equilibrium Delusion - by Frank Martin (LINK)

13D Research: Investors are desperately trying to cut through the glut of information in search of meaning and knowledge (LINK)

How Subscription Business Models are Changing Business and Investing (the Microeconomics of Subscriptions) - by Tren Griffin (LINK)

The 21 Uncomfortable Truths That I Have Learned About the Travel Industry - by Rafat Ali (LINK)

a16z Podcast: The Basics of Growth — User Acquisition (LINK)

a16z Podcast: The Basics of Growth — Engagement & Retention (LINK)

Masters in Business podcast: Lee Cooperman of Omega Advisors (LINK)

Thursday, August 9, 2018

Links

The Dangers of Persistence - by Vishal Khandelwal (LINK)

The above reminded me of a Kahneman quote worth frequently thinking about:
"When I work I have no sunk costs. I like changing my mind. Some people really don’t like it but for me changing my mind is a thrill. It’s an indication that I’m learning something. So I have no sunk costs in the sense that I can walk away from an idea that I’ve worked on for a year if I can see a better idea. It’s a good attitude for a researcher. The main track that young researchers fall into is sunk costs. They get to work on a project that doesn’t work and that is not promising but they keep at it. I think too much persistence can be bad for you in the intellectual world." --Daniel Kahneman (Source)
Natural Maniacs - by Morgan Housel (LINK)

Musk’s Money Mystery Intrigues SEC (LINK)

American Innovations Podcast: The Future Of | Health | 2 (LINK)

Scientists Take a Harder Look at Genetic Engineering of Human Embryos (LINK)

An Ancient Genetic Quirk Could Doom Whales Today - Ed Yong (LINK)

The Wonder Plant That Could Slash Fertilizer Use - by Ed Yong (LINK)

Wednesday, August 8, 2018

Links

Rare Charlie Munger and Li Lu Interview - Part I [H/T Linc] (LINK)

Li Lu on Charlie Munger's Greatest Influence (LINK)
I’ve witnessed him recovering from such hard blows one by one. Yet throughout all these blows, I’ve never seen him being pessimistic or desperate. He’s never complained about those terrible blows either. His attitude towards them is to take them as graceful and competent as he can. He’s objective and rational in everything. 
There is a Chinese saying that goes, "One should neither be pleased by external gains, nor be saddened by personal losses." Charlie is one of those people who can achieve such a state of mind.
Patreon Acquires Memberful, An Interview with Patreon CEO Jack Conte and Memberful CEO Drew Strojny (LINK)

Facebook’s Broken Censorship Machine - by Parker Thompson (LINK)

The Knowledge Project Podcast: Thinking in Algorithms (Ali Almossawi) (LINK)

Tuesday, August 7, 2018

Links

A previously unpublished interview (until a couple of weeks ago) with Steve Jobs from exactly 10 years ago today (audio and transcript) ($) (LINK)
MR. JOBS: How serious will mobile be relative to desktop is your question.... I think there are a lot of people, and I’m one of them, who believe that mobile’s going to get quite serious because there are things you can do...Obviously, mobile’s with you all the time, but there’s services you can provide with mobile that obviously are not relevant on a desktop, such as location-based services integrated into your application. 
They can be mighty useful and we’re just at the tip of that. That’s going to be huge, I think.
Why the Most Important Idea in Behavioral Decision-Making Is a Fallacy - by David Gal (LINK)
The popular idea that avoiding losses is a bigger motivator than achieving gains is not supported by the evidence
New Details About Wilbur Ross’ Business Point To Pattern Of Grifting (LINK)

China Thoughts and the Circle of Competence - by John Huber (LINK)

Country Risk: A Midyear Update for 2018 - by Aswath Damodaran (LINK)

Strategy vs. Tactics: What’s the Difference and Why Does it Matter? (LINK)

Big Questions with Cal Fussman (podcast) -- Jocko Willink: On Going to War with Your Weaknesses (LINK)

Women More Likely to Survive Heart Attacks If Treated by Female Doctors - by Ed Yong (LINK)

Monday, August 6, 2018

Links

GMO Quarterly Letter: Emerging Markets—No Reward Without Risk (LINK)

The Incredible Story of Gert Boyle and Columbia Sportswear (LINK)

For Real Vision subscribers, Jean-Marie Eveillard makes an appearance in a chat with Jim Grant (LINK) [If you're not a subscriber and would to join or take a free trial, you can sign up HERE.]

Lessons from Michael Batnick (Big Mistakes) - by Tren Griffin (LINK)
Related book: Big Mistakes: The Best Investors and Their Worst Investments
Worth paying for - by Seth Godin (LINK)
When you bring a product or service to the free market, the market decides what it’s worth. If you don’t want to be treated like a commodity (a race to the bottom), there are two paths: 
Through scarcity: This is worth extra because there’s not a lot of it or we’re the only one who’s got it. 
Through connection: This is worth extra because everyone else is already using it. 
A little or a lot.
a16z Podcast: Earned Secrets (LINK)
What does it really take to start a startup (or work at one)? In this episode of the a16z Podcast — based on a Q&A with Ben Horowitz as part of an event hosted by a16z’s Technical Talent and People Practices team for a16z portfolio company summer interns 2018 — Ben shares quick thoughts and advice geared towards those early in their tech careers.
EconTalk Podcast: Frank Dikotter on Mao's Great Famine (LINK)
Related book: Mao's Great Famine
The Art of Manliness Podcast: The Life of a Dragon — The Untold Story of Bruce Lee (LINK)
Related book: Bruce Lee: A Life
Scientists Have Uncovered a Disturbing Climate Change Precedent - by Peter Brannen (LINK)

Book of the day (will be released next month): 21 Lessons for the 21st Century - by Yuval Noah Harari

Friday, August 3, 2018

Links

"Some of the worst business decisions I’ve ever seen are those that are done with a lot of formal projections and discounts back.... The trouble is that you get to believe the figures. And it seems that the higher mathematics, with more false precision, should help you. But it doesn’t. The effects, averaged out, are negative when you try and formalize it to the degree you’re talking about." --Charlie Munger

"It’s a terrible mistake to think that mathematics will take you a long place in investing. You have to understand certain aspects of mathematics. But you don’t have to understand higher mathematics. And higher mathematics may actually be dangerous and it will lead you down pathways that are better left untrod." --Warren Buffett

Appealing Fictions - by Morgan Housel (LINK)

The Behavioral Science Behind "Share A Coke" (LINK)

On-Stage Videos from Skift Tech Forum 2018 (LINK)

Matt Mullenweg, the co-founder of WordPress, on the Recode Decode Podcast (LINK)

Adam Fisher on the Recode Decode Podcast discussing his book Valley of Genius: The Uncensored History of Silicon Valley (LINK)

Alain de Botton chats with Krista Tippett (podcast) (LINK)

Diverse genome study upends understanding of how language evolved (LINK)

Sex Makes Naked Mole Rats Live Longer (LINK)

Thursday, August 2, 2018

Links

The Amazing Story of the Car Bumper King - by Ian Cassel (LINK)
In November 2011, Shahid Khan bought the Jacksonville Jaguars for $770 million. He was the first ethnic minority to own a team in the NFL. Forbes lists Shahid Khan’s net worth at $7.4 billion. 
Who is Shahid Khan?
John Hempton's thoughts on Xero (LINK)
I was quoted in the Australian Financial Review on Monday stating that Xero is the only Australian company with the potential to be a $100 billion global tech behemoth. 
As the market cap is less than USD5 billion now I am saying a 20 bagger is possible.
Greenlight Capital's Q2 Investor Letter (LINK)

Reversing Trends at the RVIA? - by Frank K. Martin (LINK)

American Innovations Podcast: The Future Of | Food | 1 (LINK)

Tom Peters on The Art of Manliness Podcast discussing his book The Excellence Dividend (LINK)

The European Union rejected genome edited crops - by Matt Ridley (LINK)

Double Hubble Planets - by Phil Plait (LINK)

Tuesday, July 31, 2018

Links

"The only thing any of us can do completely on our own is to have the start of a good idea." --Kathy Sullivan (quoting a line that she heard once that resonated with her, as told in The Coming Storm)

What kangaroos can teach us about saving lives - by Bill Gates (LINK)

Lawrence Cunningham talk on his book The Warren Buffett Shareholder (videos) (Part 1, Part 2)

Nobody Pays Attention to FX Fees (LINK)

Grant’s Podcast: The battle of the interest rates (LINK)

Invest Like the Best Podcast: Cathie Wood – Investing in Innovation (LINK)

Michael Scott Moore on Joe Rogan's podcast discussing his book The Desert and the Sea: 977 Days Captive on the Somali Pirate Coast (LINK)

33 Ways To Be An Insanely Productive, Happy, And Balanced Person - by Ryan Holiday (LINK)

A Behind-the-Scenes Peek at the Smithsonian’s New Dinosaur Hall - by Ed Yong (LINK)

The US National Archives YouTube Channel has some cool, historical videos (LINK) [Included among the videos is a short interview with Kathy Sullivan (quoted above) about 6 years before she became the first American woman to walk in space.]

Storms, stories, and survival

In Michael Lewis' just-released Audible Original, The Coming Storm, he tells an interesting story about someone that went to interview people in towns that had been hit by tornadoes. The people in and around those towns had created stories about why their homes weren't likely to be struck by a tornado (tornadoes don't cross a certain river, a certain road, hit a certain side of town, their homes were protected by hills, etc.). As Lewis writes, when discussing what the interviewer (Kim) learned (my transcription of the audio):
It isn't that people wantingly disregard warning. It's that they think it won't hit them. The paper Kim subsequently co-authored pointed out that people associate "home" with "safety." This feeling was reinforced each and every day nothing horrible happened inside it. People acquired a false confidence that they would not be hit. Some inner calculation led them to believe that if it's never happened here, it never will. 
And as Lewis then quotes Kim, "Where tornadoes go is totally random...The steering winds are in the upper atmosphere. But people aren't thinking of the forces of the atmosphere. They're thinking of their place on the ground."

The psychology behind all of the above is worth thinking about in all areas of life, investing included. Seeing patterns among randomness and feeling safe among the familiar are things previously noticed by psychologists. And as I've mentioned before, the human mind is made to fall for stories and miscalculate the odds when a good narrative is in place. There are likely many people that held stocks like General Motors or Wachovia or Washington Mutual for decades leading up to 2008 that thought because things had ended well before, all would be okay once that latest financial storm had passed. And there are probably some long-time holders of General Electric in recent months that figured their dividend would never be cut.

Given the length of the current upturn, there are many in the investment business yet to experience a downturn of any real consequence that may have trouble putting things in perspective should the weather change. And it's why it is also important for those of us that haven't personally experienced other events—like serious bouts of inflation, for example—need to take Charlie Munger's advice to read history

Reshaping ones view of the world through knowledge can help one be prepared, and hopefully survive, the next storm, whether it's of the weather or economic variety. As Lewis writes (my transcription of the audio):
Who is more likely to survive a tornado: the person who's personally experienced one, or the person who has not? The advantage of experience is more or less obvious. The disadvantage of not having had the experience, less so. But it might be the more important factor.  
All kinds of things might happen to you in life. By sheer accident, only a few of them do. That tiny subset shapes your view of the world to a shocking degree. If a tornado has never hit your town, you think it never will. 

Monday, July 30, 2018

Links

"You don’t get paid for what’s already happened. You only get paid for what’s going to happen in the future. The past is only useful to you in the extent to which it gives you insights into the future, and sometimes the past doesn’t give you any insights into the future. " --Warren Buffett

Searching for the World's Best Investments? Begin by "Inverting." - by Lewis Johnson (LINK)

Facebook Lenses - by Ben Thompson (LINK)

Jack Ma’s Giant Financial Startup Is Shaking the Chinese Banking System (LINK)
Ant Financial is transforming how Chinese run their daily finances, drawing flak from big banks and warning shots from the government
Mean Reversion & The Placebo Effect - by Ben Carlson (LINK)

This Parasite Drugs Its Hosts With the Psychedelic Chemical in Shrooms - by Ed Yong (LINK)

Sunday, July 29, 2018

Links

"First, define your own circle of competence with intellectual honesty. You have to know what you don’t know to determine what you know. Second, have the highest degree of fiduciary duty and imagine that every dollar you take from a client is coming from your own middle-class parents who are entrusting their life savings to you." --Li Lu

Chairman of Multibillion-Dollar Investment Firm Elected as New Caltech Trustee (LINK)
Li Lu, the founder and chairman of Himalaya Capital, a multibillion-dollar firm focused on long-term investments in Asia and the United States, has been elected to the Institute’s Board of Trustees.
Real World vs. Book Knowledge - by Morgan Housel (LINK)

Ideas and Institutions: A Growth Story - by Andrew Haldane (LINK)

A collection of Q2 investor letters (LINK)

Short-seller Jim Chanos breaks down his best investment ideas (video...Chanos starts around 11:18) [H/T Linc] (LINK)

The Oral History of Travel's Greatest Acquisition Booking.com (LINK)

One American’s quest to teach Italy — the motherland of espresso — how to do it better (LINK)

Lessons from Elad Gil and High Growth Handbook - by Tren Griffin (LINK)
Related book: High Growth Handbook
The Office-Messaging Wars Are Over. Slack Has Won. (LINK)

Rob Arnott on the Masters in Business Podcast (LINK)

The Jolly Swagmen Podcast: The Man Who Defied Europe - Yanis Varoufakis (LINK)

The Art of Manliness Podcast: The Daring Odyssey of Apollo 8 (LINK)
Related book: Rocket Men: The Daring Odyssey of Apollo 8 and the Astronauts Who Made Man's First Journey to the Moon - by Robert Kurson 
Leonardo Da Vinci’s To Do List (Circa 1490) (LINK)

Have we finally found liquid water on (well, under) Mars? Maaaaaaaybe. - by Phil Plait (LINK)

***

For Audible members, Audible's latest sale is Sci-Fi & Fantasy audiobooks for $4.95 [And if you're not a member, and haven't yet done a free trial, you can get a free trial and 2 free audiobook credits by signing up HERE.]. Some of the titles that stood out to me are below:

The Hitchhiker's Guide to the Galaxy

Snow Crash

The Hobbit

The Fellowship of the Ring

Brave New World

2001: A Space Odyssey

Thursday, July 26, 2018

Links

"Everything we do comes back to opportunity cost. But it, to some extent — in fact, to some considerable extent — we are guessing at our future opportunity cost. Warren is basically saying that he’s guessing that he’ll have opportunities in due course to put out money at pretty attractive rates of return, and therefore, he’s not going to waste a lot of firepower now at lower returns. But that’s an opportunity cost calculation. And if interest rates were to more or less permanently settle at 1 percent or something like that, and Warren were to reappraise his notions of future opportunity cost, he would change the numbers. It’s like Keynes said, 'What do you do when you change your view of the facts? Well, you change your conduct.' But so far at least, we have hurdles in our mind which are basically — well, they involve, implicitly, future opportunity cost." --Charlie Munger [2003]

Tariffs on Auto Parts Would Be Disastrous, Linamar CEO Says (video) (LINK) [Linamar's stock is also trading below where Meryl Witmer recommended it about 18 months ago.]

National Meeting 2018: Clashing over Commerce with Douglas A. Irwin (video) (LINK)
Related book: Clashing over Commerce: A History of US Trade Policy
Liquid water 'lake' revealed on Mars [H/T Linc] (LINK)

After Last Year's Hurricanes, Caribbean Lizards Are Better at Holding on for Dear Life - by Ed Yong (LINK)

Book of the day (also added to the Business Biographies section on the Books page): Treated Like Family: How an Entrepreneur and His "Employee Family" Built Sargento, a Billion-Dollar Cheese Company

Wednesday, July 25, 2018

Links

"If we’d kept our earlier modes, if we’d never learned, we wouldn’t have done very well. The game of life is a game of everlasting learning. At least it is if you want to win." --Charlie Munger

The time/decision gap - by Seth Godin (LINK)

Mohnish Pabrai talk: "Trust vs. Truth" (LINK)

Auto industry legend CEO Sergio Marchionne dies at age 66 (LINK)

Alphabet may become the Berkshire Hathaway of the internet age on its massive technology bets [H/T Matt] (LINK)

Berkshire's Todd Combs Aided Buffett in Showdown Over USG Transaction [H/T Linc] (LINK) [Details in the SEC filing, HERE....search for 'Combs'.]

Venezuela's Inflation to Reach 1 Million Percent, IMF Forecasts (LINK)

The Knowledge Project Podcast: Shane Parrish chats with Annie Duke (LINK)
Related book: Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts
Invest Like the Best Podcast: Bethany McLean – Business Gone Bad and the Art of Persistence (LINK)
Related book (September release): Saudi America: The Truth About Fracking and How It's Changing the World
Bloomberg's Ashlee Vance has an interesting video series called "Hello World" worth checking out (LINK)

A dead star is eating its planets - by Phil Plait (LINK)

Is This Fungus Using a Virus To Control An Animal's Mind? - by Ed Yong (LINK)

Books of the day:

My Father's Business: The Small-Town Values That Built Dollar General into a Billion-Dollar Company

Free Radicals: The Secret Anarchy of Science [mentioned by Bethany McLean in the podcast above]

Warren Buffett and Charlie Munger on good and great businesses

This is an excerpt from the 2003 Berkshire Hathaway Annual Meeting (afternoon session, question 23) that I thought was worth posting here for future reference (and a great question from @AlexRubalcava):

AUDIENCE MEMBER: Hi there. My name is Alex Rubalcava. I am a shareholder from Los Angeles. 

I have a question about the financial characteristics of the businesses that you like to acquire and invest in. 

In your reports and other writings, Mr. Buffett, you state that you like to acquire businesses that can employ a large amount of capital to high returns. 

And in reading the writings and speeches of yourself, Mr. Munger, I’ve seen you say in Outstanding Investor Digest and other publications, that you enjoy investing in companies that require very little capital. 

And I was wondering if these statements are at odds, or if they are two sides of the same coin? And if you could elaborate using Berkshire companies, that would be great. 

WARREN BUFFETT: Sure. It’s a good question. 

The ideal business is one that earns very high returns on capital and could keep using lots of capital at those high returns. I mean that becomes a compounding machine. 

So if you have your choice, if you could put a hundred million dollars into a business that earns 20 percent on that capital — say 20 million — ideally, it would be able to earn 20 percent on 120 million the following year, and 144 million the following year and so on. That you could keep redeploying capital at these same returns over time. 

But there are very, very, very few businesses like that. The really — unfortunately, the good businesses, you know, take a Coca-Cola or a See’s Candy, they don’t require much capital.

And incremental capital doesn’t produce anything like the returns that this fundamental return that’s produced by some great intangible. 

So we would love the business that earn — that could keep deploying, in fact, even well beyond the earnings. I mean we’d love to have a business that could earn 20 percent on a hundred million now. And if we put a billion more in it, it would earn 20 percent more on that billion. 

But like I say, those businesses are so rare. There are a lot of promises of those businesses, but we’ve practically never seen one. There’ve been a few. 

Most of the great businesses generate lots of money. They do not generate lots of opportunities to earn high returns on incremental capital. 

You know, we can deploy X at See’s and earn a lot of money, but if we put 5X in we don’t earn any more money to speak of. We can earn high returns on X at The Buffalo News, but if we try to make it 5X we don’t earn any more money. 

They just don’t have the opportunities to use incremental capital. We look for them, but they don’t.

So, the great — you’ve seen — I mean, we will talk theoretically about the businesses that can earn more and more money with incremental capital at high returns. 

But what you’ve seen is that we’ve bought businesses, largely, that earn good returns on capital, but in many cases, have limited opportunities to earn anything like the returns they earn on their basic business with incremental capital. 

Now, the one good thing about our structure at Berkshire is that we can take those businesses that earn good returns in their business but don’t have the opportunity for returns of those similar magnitude on incremental money, and we can move that money around to buy more businesses. 

Normally, if you’re in the — take the newspaper publishing business, which has been a fantastic business over the years — you earned terrific returns on your own invested capital. 

But if you went out to buy other newspapers, you had to pay a very fancy price, and you didn’t get great returns on incremental capital. 

But the people in that business felt that the only thing they knew was newspaper publishing or media of one sort or another, so they felt that their options were limited.

We can move money anyplace that it makes sense, and that’s an advantage of our structure. Now, whether we do a good job of it or not’s another question, but the structure is enormously advantageous in that respect.

We can take the good business, the See’s Candy — See’s has produced probably a billion dollars pretax for us since Charlie and I wouldn’t have gone up 100,000, you know, back in 1972. 

If we tried to employ that in the candy business we’d have gotten terrible returns over time. We would have gotten anything to speak of. But because we moved it around it enabled us to buy some other businesses over time, and that’s an advantage of our structure. 

Charlie? 

CHARLIE MUNGER: Yeah. And if you take a business that is a good business, but not a fabulous business, they tend to fall into two categories. 

One is the business where the whole reported profit just sits there in surplus cash at the end of the year. And you can take it out of the business and the business will do just as well without it as it would if it stayed in the business. 

The second business is one that reports the 12 percent on capital but there’s never any cash. It reminds me of the used construction equipment business of my old friend, John Anderson. And he used to say, “In my business, every year you make a profit, and there it is, sitting in the yard.” 

And there are an awful lot of businesses like that, where just to keep going, to stay in place, there’s never any cash. 

Now, that business doesn’t enable headquarters to drag out all the cash and invest it elsewhere. We hate that kind of a business. Don’t you think that’s a fair statement? 

WARREN BUFFETT: Yeah, that’s a fair statement. We like to be able to move cash around and have it find its best use. And, you know — but that’s our job. And sometimes we find good uses. 

It would be terrific if every one of our great businesses, and we’ve got a lot of great businesses, had ways to deploy additional capital at great rates, but we don’t see it. 

And, frankly, you know, it doesn’t happen — I mean Gillette has a great razor and blade business, I mean, fabulous. 

There’s no way they can deploy the money they make in the razor and blade business to keep putting more money in that kind of business. It just doesn’t take that kind of capital. They have to deploy some money of it, but it’s peanuts compared to the profits. 

And the temptation then is to go out and buy other businesses, and of course that’s what Charlie and I do when we face that, but we don’t think that, overall, the batting average of American industry in redeploying capital has been great. Nevertheless, it’s what we try and do every day. 

In a sense, we sort of knock the very procedure that has gotten us to where we are. Is that a fair statement, Charlie? (Laughs) 

CHARLIE MUNGER: Absolutely. And that has always worried me. I don’t like being an example of an activity where most people who try and follow it will get terrible results. And we try and avoid that by making these negative comments. (Laughter) 

WARREN BUFFETT: We’d make negative comments anyway. (Laughs) 

Tuesday, July 24, 2018

Abundance, scarcity, and search...

From Josh Wolfe's latest (and excellent) interview on Real Vision (subscription required):
Any time that something is abundant, you want to ask: What's scarce? And any time that something's scarce, you want to say: OK, what's abundant? 
Throughout the 90s, the thing that became abundant because of the democratization of the tools of producing content, was text. Text everywhere. And so articles were published and blogs were published and Twitter and Facebook posts and all this kind of stuff. And the scarce thing became search. Whether it was within Twitter, or within Facebook, or, of course, Google, that became one of the most valuable things. Being able to search through the abundance of content and text. And of course, that turned also to photos and images and sound files and all that. 
Today, with the ability to produce, of questionable veracity, an enormous amount of content, again I think the valuable thing is search. But the search is for truth. Is that picture undoctored? Is that video undoctored? 

Monday, July 23, 2018

Links

"Raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to. The definition of a moat is the ability to charge more." --Marc Andreessen

Where to Go After Product-Market Fit: An Interview with Marc Andreessen (LINK)

Lessons from Jim O’Shaughnessy - by Tren Griffin (LINK)

Free Trips Under Fire: SEC Wants Your Broker To Work For You - by Jason Zweig ($) (LINK)
If the Securities and Exchange Commission has its way, brokers will have to make big changes to how they sell investments. 
For the first time, brokers would be explicitly required to act in the best interests of their customers, not their own paychecks, when they make investment recommendations. 
Furthermore, as SEC Chairman Jay Clayton made clear in an interview, some sales contests — those competitions in which brokers earn rewards for selling specific investments — are in danger of extinction.
Tesla Asks Suppliers for Cash Back to Help Turn a Profit ($) (LINK)
Tesla Inc. has asked some suppliers to refund a portion of what the electric-car company has spent previously, an appeal that reflects the auto maker’s urgency to sustain operations during a critical production period. 
The Silicon Valley electric-car company said it is asking its suppliers for cash back to help it become profitable, according to a memo reviewed by The Wall Street Journal that was sent to a supplier last week. Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016, according to the memo.
Private Pension Product, Sold by Felon, Wipes Investors Out ($) (LINK)
Scott Kohn, a 64-year-old felon, ran a company from a Nevada strip-mall mailbox that investors claim took them for more than $100 million in losses. 
Mr. Kohn’s company, Future Income Payments, appears shut, according to court filings. His investors are likely to be wiped out, according to lawyers representing them, who plan to sue scores of firms that sold Future Income products as soon as this week. At least 25 states have taken enforcement actions or are investigating the company, it said in April. 
The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.
Can outsiders redefine the insurance industry? (LINK)

Masters in Business Podcast: John Carreyrou on Theranos & Bad Blood (LINK)
Related book: Bad Blood
Skift Podcast: The Amazon Factor in Travel (LINK)

How to Say “No” Gracefully and Uncommit (podcast -- book excerpt) (LINK)
Related book: Essentialism: The Disciplined Pursuit of Less
The G.O.P. Stands By as Trump Upends American Security - by Evan Osnos (LINK)

An Enormous Study of the Genes Related to Staying in School - by Ed Yong (LINK)

Michael Lewis' first Audible Original, The Coming Storm, will be released next week and is available for pre-order (free for Audible members).

Friday, July 20, 2018

Links

"If you make yourself a very reliable person and stay reliable all your life, faithfully doing whatever you engage to do, it will be very hard for you to fail at anything you want." --Charlie Munger

Stock Analysis and the Illusion of Control - by Vishal Khandelwal (LINK)

a16z Podcast: High Growth in Companies (and Tech) (LINK)
Related book: High Growth Handbook – by Elad Gil 
Y Combinator Podcast: Helping Veterans Transition into the Private Sector – Jocko Willink and Mike Sarraille (LINK)

The secret lives of seabirds - by Matt Ridley (LINK)

Humans Have Unleashed a ‘Landscape of Fear’ - by Ed Yong (LINK)

John Sellars on Marcus Aurelius (LINK)

"Of man’s life, his time is a point, his substance flowing, his perception faint, the constitution of his whole body decaying, his soul a spinning wheel, his fortune hard to predict, and his fame doubtful; that is to say, all the things of the body are a river, the things of the soul dream and delusion, life is a war and a journey in a foreign land, and afterwards oblivion." --Marcus Aurelius

Thursday, July 19, 2018

Links

"So, I urge you, if you’re trying to decide on the wisdom of repurchases, or of share issuances, that you don’t think in terms of book value. You don’t think in terms of specific P/Es. You don’t think in terms of any little model. But you think in terms of.... A) pick businesses you can understand and, then, think what you really would pay to be in those businesses. And...what counts over time is whether the repurchases are made at a discount from that figure." --Warren Buffett (1996)

"I think the best use of cash, if you don’t have a good use for it in the business, if the stock is underpriced, is to repurchase it. And if it’s overpriced, you got no business buying in a single share. But a lot of companies do it." --Warren Buffett (2004)

Thoughts on Share Repurchases and Capital Allocation (LINK)

Oaktree's Marks: Stocks are probably fairly priced here (video) (LINK)

The European Commission Versus Android - by Ben Thompson (LINK)

Grant’s Podcast: Summertime and the living is easy (LINK)

Revisionist History Podcast: Analysis, Parapraxis, Elvis (LINK)

American Innovations Podcast: Nuclear Energy | A Glowing Future | 6 (LINK)

There Is No Escape for Corals - Ed Yong (LINK)

How Viruses Cooperate to Defeat CRISPR - by Ed Yong (LINK)

Wednesday, July 18, 2018

Links

"The most important thing in investments is not having a high IQ, thank God. I mean, the important thing is realism and discipline. And you don’t need to be extraordinarily bright to do well in investments, if you are realistic and disciplined." --Warren Buffett

Buffett's Berkshire Hathaway loosens policy on stock buybacks (LINK)
Related previous post: Warren Buffett on Share Repurchases
O’Shaughnessy Quarterly Investor Letter Q2 2018 (LINK)

Mindsets: Optimism vs. Complacency vs. Pessimism - by Morgan Housel (LINK) [This reminded me of Charlie Munger's labeling of himself as a "cheerful pessimist," as well as the story Bill Miller told about Warren Buffett in Miller's Q2 2008 letter.]

Short-selling legend Chanos says short Envision Healthcare (video) (LINK)

Top short seller Chanos' strategy for shorting stocks (video) (LINK)

Facebook CEO Mark Zuckerberg on the Recode Decode Podcast (LINK)

George Soros Bet Big on Liberal Democracy. Now He Fears He Is Losing. (LINK)

Why diagnosing Alzheimer’s today is so difficult—and how we can do better - By Bill Gates (LINK)

What Can Odd, Interesting Medical Case Studies Teach Us? - by Siddhartha Mukherjee (LINK)

Tuesday, July 17, 2018

Links

WORKING CAPITAL: An Essay on Bodies, Blood, and Buckets (LINK)

Polaroid, Apple’s spiritual successor (LINK)

Business Lessons from Rob Hayes (First Round Capital) - by Tren Griffin (LINK)

Jack Laporte's Biggest Investment Mistake - by Lewis Johnson (LINK)

The Future of America’s Economy… - by Frank K. Martin (LINK)

If You Watch “THE NEWS”… I Have Some Bad News For Your Success & Happiness - by Ryan Holiday (LINK)

Five ways to make your presentation better - by Seth Godin (LINK)

Invest Like the Best Podcast: Value is Dead, Long Live Value (LINK)

NPR Planet Money Podcast: Episode 853 - Peak Sand (LINK)

EconTalk Podcast: Russ Roberts on the Information Revolution, Politics, Yeats, and Yelling (LINK)

Dan Carlin's Hardcore History Podcast: Show 62 - Supernova in the East I (LINK)

Book of the day (released today): High Growth Handbook – by Elad Gil 

Friday, July 13, 2018

Links

"The history that Charlie and I have had of persuading decent, intelligent people, who we thought were doing unintelligent things, to change their course of action has been poor.... So I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it. I mean, you’ve got that option. Now, you also have the option of trying to persuade them to change their mind. But it’s just very, very difficult." --Warren Buffett

The Lifecycle of Greed and Fear - by Morgan Housel (LINK)

Of China and Oil - by Peter Zeihan (LINK)
Related book: The Absent Superpower: The Shale Revolution and a World Without America
Walt Disney had a vision for tomorrow—and the means to sell it (LINK)

Anne Wojcicki: "Co-Founder and CEO of 23andMe" | Talks at Google (LINK)

Failing Upwards: Science Learns by Making Mistakes. | Phil Plait | TEDxBoulder (video) (LINK) [He also wrote a follow-up blog post on his talk, with a transcript, HERE.]

"You have to let go of ideas that don’t pan out or else you’ll never see the bigger picture. And if you let it go you’ve learned from it, and won’t make that same mistake again." --Phil Plait

Thursday, July 12, 2018

Intelligent Fanatics

I'm  pleased to announce that, if you have been planning to become a member of the Intelligent Fanatics website and haven't yet done so, you can now support this blog by signing up for Intelligent Fanatics using THIS LINK. I signed up shortly after the site started and have been a happy customer. If you do sign up now, you'll get locked in at the current price ($59.99) for life. For more information on the site, click on the link and check it out. The referral link will also be posted on the right side of this blog's home page, under the Support section.

Links

"The game in our kind of life is being able to recognize a good idea when...it rarely is presented to you. And I think that’s something you have to prepare for over a long period. What is the old saying? That opportunity comes to the prepared mind? And I don’t think you can teach people in two minutes how to have a prepared mind. But that’s the game." --Charlie Munger

How 20-Year-Old Kylie Jenner Built A $900 Million Fortune In Less Than 3 Years (LINK) [I think the mental model for understanding the business success revolves around understanding the way the internet has changed the competitive advantages around supply and demand relationships. As Ben Thompson has written: "The most successful companies no longer control supply but rather demand; moreover, that shift is not due to the actions of any one company but rather to the fundamentally changed structure of the market.... This is the critical insight: it has always been obvious that owning all customers is preferable to owning all suppliers; before the Internet, though, that was impossible. There was too much friction. In other words, the implication of the Internet is the enablement of new models that actually make much more sense, yet were previously unviable because of said friction."]

Ruane, Cunniff & Goldfarb Investor Day Transcript (May 2018) [H/T Eli] (LINK)

Journalist Elon Musk questioned over Tesla reporting speaks (video) (LINK)
Scott Wapner is joined by Linette Lopez, the Business Insider senior finance reporter whom Elon Musk criticized over Twitter on her Tesla reporting. With Yale's Jeffrey Sonnenfeld and Bethany McLean, Vanity Fair.
The Knowledge Project Podcast: The Science of Doing Good, with William MacAskill (LINK)

Revisionist History Podcast: Strong Verbs, Short Sentences (LINK)

American Innovations Podcast: Nuclear Energy | Backlash | 5 (LINK)

An interview with George Church: Reversed Aging, Pig Organs, and the Future of Humankind (LINK)

A Hallmark of Alzheimer's May Actually Begin as a Defense Against Viruses - by Ed Yong (LINK)

Wednesday, July 11, 2018

Links

"Study the past record of the stock market, study your own capabilities, and find out whether you can identify an approach to investment you feel would be satisfactory in your own case. And if you have done that, pursue that without any reference to what other people do or think or say." --Benjamin Graham [Source]

Ben Graham's 1955 Senate Testimony (LINK)

I was reminded of the above after reading this comment from Warren Buffett at the 1997 Berkshire Hathaway Annual Meeting:
What two years in this century has the Dow had the greatest overall gain? The two years in the 1900s are 1933, which most of you don’t think of as a banner year, and 1954. And in both of those years, the Dow was up over 50 percent, counting dividends. 
In March of 1955, because of that, the fact that the Dow had gone up — bear in the mind that the high on the Dow was 381 in 1929 and it took 25 years before that was surpassed. And in 1954, the Dow went from, say, 280 up to 404, or something like that, just a little over 50 percent.  
So what did they decide to do? They decided to have congressional hearings about it. And they did.  
In March of 1955, they had hearings in the Senate Banking and Currency Committee, Chairman Fulbright. And my boss, Ben Graham, was called down to testify. And it’s fascinating reading. Bernard Baruch was there, all kinds of people. 
Where’s the value in value investing? [H/T @williamgreen72] (LINK)

Worthless Just Two Years Ago, West Texas Sand Now Brings in Billions (LINK)

Required reading for marketplace startups: The 20 best essays (LINK)

TED Talk: How to build synthetic DNA and send it across the internet | Dan Gibson (LINK)

How Rats Remake Coral Reefs - by Ed Yong (LINK)

The New Story of Humanity's Origins in Africa - by Ed Yong (LINK)
Several new discoveries suggest that our species didn’t arise from a single point in space. Instead, the entire continent was our cradle.
The Long Now Foundation event -- Chris D. Thomas: Are We Initiating The Great Anthropocene Speciation Event? (video) (LINK) [also available as a podcast]
Related book: Inheritors of the Earth: How Nature Is Thriving in an Age of Extinction [This book earned quite the praise from Stewart Brand: "...the best book on evolution since Darwin."]

Tuesday, July 10, 2018

Links

"There are no secrets in [the investing] business that only the priesthood knows.... It’s all out there in black and white. It’s a simple business.... It requires qualities of temperament way more than it requires qualities of intellect...You do need a certain temperament that enables you to think for yourself. And then you have to develop a framework — and I developed it from reading Ben Graham, I didn’t come up with it myself — very simple framework. And then you have to look for opportunities that fit within that framework as you go through life, and you can’t do something every day...You can learn every day, but you can’t act every day." --Warren Buffett

Buffett Starts to Say Goodbye to a Pile of Equity-Index Options [H/T Linc] (LINK)

I Can’t Hear You: How the New Information Landscape Fuels Tribalism - by Russ Roberts (LINK)

Nassim Nicholas Taleb on the Likeville Podcast (LINK)
Related book: Skin in the Game
Grant's Podcast: Mix and match (LINK)

Jordan Peterson talks with Lewis Howes (podcast) (LINK)

David Graeber in conversation with Rory Sutherland (podcast) (LINK)
Related book: Bullshit Jobs
TED Talk: The rapid growth of the Chinese internet -- and where it's headed | Gary Liu (LINK)

The evolution of ancient Stoicism, and why it matters today (LINK)

Book(s) of the day: Penguin Little Black Classics Box Set

***

For qualified candidates, adventur.es is looking to fill a role that might just be "the best CFO job in Private Equity" (LINK)

Sunday, July 8, 2018

Links

a16z Podcast: Beyond Zero-Sum Thinking in the Game of Tech… and Life (with Marc Andreessen, Ben Horowitz, and Steven Johnson ) (LINK) [Marc Andreessen also Tweeted a bunch of book recommendations, HERE.]

Lessons from Josh Wolfe (Lux Capital) - by Tren Griffin (LINK)

Something I Changed My Mind About Recently - by Ben Carlson (LINK)

Masters in Business Podcast: Paul Vigna on Blockchain & Cryptocurrency (LINK)

Recode Decode Podcast: Box CEO Aaron Levie talks tech regulation and the future of jobs (LINK)

Open Offices Make You Less Open - by Cal Newport (LINK)

Why Are We So Certain About Our Mistakes? - by Ryan Holiday (LINK)

How to Undertake the Artist’s Journey - by Steven Pressfield (LINK)
Related book: The Artist's Journey
Spiders Can Fly Hundreds of Miles Using Electricity - by Ed Yong (LINK)

The Original American Dogs Are Gone - by Ed Yong (LINK)

Thursday, July 5, 2018

Links

 "I don’t look at the primary message...of [Ben] Graham, really, as being...anything to do with formulas. In other words, there’s three important aspects to it.... One is your attitude toward the stock market. That’s covered in chapter eight of The Intelligent Investor. If you’ve got that attitude toward the market, you start ahead of 99 percent of all people who are operating in the market. So, you have an enormous advantage. Second principle is the margin of safety, which again, gives you an enormous edge, and actually has applicability far beyond just the investment world. And then the third is just looking at stocks as businesses, which gives you an entirely different view than most people that are in the market. And with those three sort of philosophical benchmarks, the exact — the evaluation technique you use is not really that important. Because you’re not going to go way off the track, whether you use Walter’s approach — Walter Schloss’s — or mine, or whatever." --Warren Buffett

1991 Barron's interview with Seth Klarman [H/T @NeckarValue] (LINK)

If You Say Something Is “Likely,” How Likely Do People Think It Is? - by Andrew Mauboussin and Michael J. Mauboussin (LINK)

Investing and the Art of Catching Falling Knives - by Vishal Khandelwal (LINK)

The Absolute Return Letter, July 2018: The Italian Job (LINK)

29 Life-Changing Lessons That Will Make You Successful And More Strategic - by Ryan Holiday (LINK)

Your company’s culture is not unique, psychologist Adam Grant says (LINK)

Invest Like the Best Podcast: The Future of Media, with Niel Roberson (LINK)

Grant's Podcast: Nobody knows notin' (LINK)

American Innovations Podcast: Nuclear Energy | Meltdown | 4 (LINK)

Revisionist History Podcast: The Imaginary Crimes of Margit Hamosh (LINK)

TED Talk: How we're saving one of Earth's last wild places | Steve Boyes (LINK)

A Game-Changing AI Tool for Tracking Animal Movements - by Ed Yong (LINK)

How to Grow Old: Bertrand Russell on What Makes a Fulfilling Life (LINK)

"The best Armour of Old Age is a well spent life preceding it; a Life employed in the Pursuit of useful Knowledge, in honourable Actions and the Practice of Virtue; in which he who labours to improve himself from his Youth, will in Age reap the happiest Fruits of them; not only because these never leave a Man, not even in the extremest Old Age; but because a Conscience bearing Witness that our Life was well-spent, together with the Remembrance of past good Actions, yields an unspeakable Comfort to the Soul." --Cicero (via "Praising Old Age" in Poor Charlie's Almanack)

Monday, July 2, 2018

Links

How I Evaluate an Investment - by Brent Beshore (LINK)

Lessons from Cliff Asness - by Tren Griffin (LINK)

Sustaining Wealth is Harder Than Getting Rich - by Ben Carlson (LINK)

On Passion and Its Discontents - by Cal Newport (LINK)

Peter H. Diamandis interviews Joshua Dahn, the principal and co-founder (with Elon Musk) of the Ad Astra School [H/T @maxolson] (video) (LINK)

J.P. Morgan Reading List Collection 2018 (LINK)

For Audible members, the new $5.95 sale that runs until July 8th has a few titles that stood out to me:

Den of Thieves - by James B. Stewart

Stuff Matters - by Mark Miodownik

Debt: The First 5,000 Years - by David Graeber

The Goal - by Eliyahu M. Goldratt, Jeff Cox

Red Notice - by Bill Browder

Warren Buffett on looking at the downside first...

"I always start from a position of fear. And then when I see something that looks attractive, I start getting greedy.... But I'm always looking at the downside on something first. I mean, if you can't lose money, you're going to make money. One reason we've done reasonably well, and this really goes back to when I was age 20 and learned from Graham, because my first 10 years were the best, is we've never lost a lot of money as a percentage of our net worth...in terms of permanent loss. Now, things may go down 50 percent. Berkshire's stock has gone down 50 percent four times in the time that I've owned it. But in terms of permanent loss....we've had plenty of losses, but they've never been the kind that really are destructive. And I always look at the downside first in anything." --Warren Buffett (March 1, 2010)

..........

Related quote:

"If a catastrophic outcome is possible or you can’t judge the downside, stay away." --Peter Bevelin 

[via the Librarian character in All I Want To Know Is Where I'm Going To Die So I'll Never Go There, and a complementary quote to the story about Buffett and Mid-Continent Tab from Friday]

Friday, June 29, 2018

Links... and What can go wrong?

"The best way to get what you want is to deserve what you want." --Charlie Munger

Daniel Kahneman on Expertise, Bias, and the Investment Industry [H/T Phil] (video) (LINK)

Ray Dalio at the Aspen Ideas Festival -- Success in Leadership and Life: A Function of Principles (video) (LINK)

Aspen Ideas Festival -- Deep Dive: Leading Transformational Change (video) (LINK)

Little Money Rules - by Morgan Housel (LINK)

Twists and Turns in the Tesla Story: A Boring, Boneheaded Update! - by Aswath Damodaran (LINK)

Rocket Men Precision - by Ben Carlson (LINK)
Related book: Rocket Men: The Daring Odyssey of Apollo 8 and the Astronauts Who Made Man's First Journey to the Moon
The Knock-On Effect Podcast: Rising dollar to unleash unusual ice cream flavors? (LINK) [Interesting topic of vanilla beans, which have risen in price from $20/kilo to about $600/kilo since 2016. It looks like there is also a recent article in the The Globe and Mail (Canada) on the topic.]

How One Number Could Change the Lives of People With a Rare Disorder - by Ed Yong (LINK)

Book of the day: Social Value Investing - by Howard W. Buffett and William B. Eimicke

Also, for Audible members, Pre-Suasion by Robert Cialdini is the Daily Deal today ($3.95).

*****

Posting may be light over the next 7-10 days, so before the weekend, I'll leave you with a little more wisdom from Warren Buffett (via Alice Schroeder) and Tony Deden. I enjoy learning something from one great investor that reminds me of a lesson from another, as it gives one a new perspective on which to build the mental model in one's mind. Deden's discussion in regards to the question "What can go wrong?" reminded me of a story Schroeder told about Buffett's investment in Mid-Continent Tab, when she described Buffett's first filter as being "What can go wrong?" First, the excerpt from Deden, where he made the point using his firm's investment in a salmon business (which I believe is Bakkafrost):
So we have a relatively important stake in the business of salmon farming, for argument's sake. Well, not just myself, perhaps, but we have a team that knows, more or less, everything there is to know about salmon farming literally everywhere in the world. We know what can go wrong. We know where the strengths are. We know where the abilities, where the skill is.    
And not just merely from what will happen in the price of...salmon today or tomorrow, the demand or supply of it, but in terms of those ingredients that contribute to the long-term viability of a business. But we also pay to understand what can go wrong. What can go wrong is really more important than what can go right, because over time, even a marginally good business will profit, will do well.    
So you really need to understand, you don't know what anything is worth until you know what can go wrong. Because we value things differently because we weigh components differently. There's no such thing as valuation metrics based on some standardized formula, unless you see it in connection with other issues.
And then Schroeder's story, from a 2008 talk, about Buffett and Mid-Continent Tab (from a file I have compiled on investing wisdom over the years, but I believe the original source for this excerpt is the CS Investing blog):
So when Wayne Ace and Warren Cleary who were two friends of Warren’s saw that IBM was going to have to divest in this business, and they thought, “We are going to buy a Carroll Press which was a press that makes these cards. And we are going to compete with IBM because we are based in the Mid West, we can ship faster. We can provide better service. And they went to Warren and they said, “Should we invest in this company and would you come in with us? And Warren said, “No.” 
Well, why did he say no? He didn’t say no because it was a technology company. He said no because he went through the first step in his investing process. This is where I think what he does is very automatic but it isn’t well understood. He acted like a horse handicapper. The first stop in Warren’s investing process is always to say, “What are the odds that this business could be subject to any type of catastrophe risk—that could make it (the business) fail? And if there is any chance that any significant part of his capital would be subject to catastrophe risk, he just stops thinking. NO. He just won’t go there. 
It is backwards the way most people think because most people find an interesting idea and figure out the math, they look at the financials, they do a projection and then at the end, they ask, “What could go wrong?” 
 Warren starts with what could go wrong and here he thought that a start-up business competing with IBM can fail. Nope, pass, sorry.  And he didn’t think anymore about it. But Wayne and Cleary went ahead anyway and within a year they were printing 35 million tab cards a month. At that point, they knew they had to buy more Carroll Presses so they came back to Warren and said, we need money—would you like to come in? 
So now, Warren is interested because the catastrophe risk is gone.  They are competing successfully against IBM. So he asks them the numbers, and they explain to him that they are turning their capital over 7 times a year. A Carroll Press costs $78,000 dollars and every time they run a set of cards through and turn their capital over, they are making over $11,000.  So basically their gross profit on a press (7 x $11,000 = $77,000) is enough to buy another printing press. At this point Warren is very interested because their net profit margins are 40%. It is one of the most profitable businesses he has ever had the opportunity to invest in. 
Notably people are now bringing Warren special deals to invest in—it is 1959. He has been in business for 2.5 years running the partnership. Why are they doing that? It is not because he is a great stock picker. They don’t know that. He hasn’t yet made that record.   It is because he knows so much about business, and he started so early he has a lot of money. So this is something interesting about Warren Buffett—people were bringing him special deals like they are today with Goldman Sachs and GE
He decided to come in and invest in the Mid-Continent Tab Company but, interestingly, he did not take Wayne and John’s word for it because the numbers they gave him were very enticing. But, again, he went through, and he acted like a horse handicapper. 
Now here is another point of departure. Everyone that I know or knew as an analyst would have created a model for this company and projected out its earnings or looked at its return on investment in the future. Warren didn’t do that. In going through hundreds of his files, I never saw anything that looked like a model. What he did is he did what you would do with a horse….he figured out the one or two factors that determined the success of the investment. In this case, it was the cost advantage that had to continue for the investment to work. And then he took all the historical data, quarter by quarter for every single plant and he obtained similar information as best he could from every competitor they had, and he filled several pages with little hen scratches with all this information and then he studied that information. 
Then he made a yes/no decision. He looked at—they were getting 36% margins, they were growing over 70% a year on a $1 million of sales—so those were the historical numbers. He looked at them in great detail like a horse handicapper would studying the races and then he said to himself, “I want a 15% return on $2 million of sales and said, Yes, I can get that.” Then he came in as an investor. 
OK, what he did was he incorporated his whole earnings model and compounding (discounted cash flow or DCF) into that one sentence.  He wanted 15% on $2 million of sales (a doubling from $1 million current sales). Why does he choose 15%? Warren is not greedy, he always wants 15% day one return on investment, and then it compounds from there. That is all he has ever wanted and he is happy with that.  …You are not laughing, what’s wrong? (Laughs)  
It is a very simple thing, nothing fancy about it. And that is another important lesson because he is a very simple guy. He doesn’t do any DCF models or anything like that. He has said for decades, “I want a 15% day one return on my capital and I want it to grow from there-ta da! The $2 million of sales was pretty simple too. It had a million in sales already and it was growing at 70% so there was a big margin of safety built into those numbers. 
It had a 36% profit margin—he said I would take half that or 18%. And he ended up putting in $60,000 of his personal, non-partnership money which was 20% of his net worth at that time. He got 16% of the company’s stock plus some subordinated notes.   And the way he thought about it was really simple. It was a one step decision. He looked at historical data and he had this generic return that he wants on everything. It was a very easy decision for him. He relied totally on historical figures with no projections.  
I think that is a really interesting way to look at it because I saw him do it over and over again in different investments.