Wednesday, July 24, 2019


"We don’t formally have discount rates. Every time I start talking about all this stuff, Charlie reminds me that I’ve never prepared a spreadsheet. But, in effect, in my mind I do. We are going to want to get a significantly higher return, obviously — in terms of cash produced relative to the amount we’re outlaying now — for a business than we are from a government bond. That has to be the yardstick at a base. And how much more do we want? Well, if government bond rates were 2 percent, we’re not going to buy a business to earn 3 or 3 1/2 percent expectancy over the years. We just don’t want to commit our money that way. We’d rather sit around and wait a little while. If they’re 4 3/4 percent, you know, what do we hope to get over time? Well, we want to get a fair amount more than that. But I can’t tell you that we sit down every morning and I call Charlie in Los Angeles and say, 'What's our hurdle rate today?' I mean, we’ve never used the term. We want enough so that we feel very comfortable if they closed down on the stock market for a couple of years, if interest rates go up another hundred basis points or 200 basis points, we’re still happy with what we’ve bought. I know it sounds kind of fuzzy, but it is fuzzy." --Warren Buffett (2007)

"The concept of a hurdle rate makes nothing but sense, and yet a lot of terrible errors are made by people who are talking about hurdle rates. Just because you can measure something and guess it, doesn’t mean that it’s the controlling variable in what you’re dealing with in a messy world. And I don’t think there’s any substitute for thinking about a whole lot of investment options and thinking about why one is better than another and what the likely returns are from each, et cetera, et cetera. And the trouble with the hurdle rate concept — not that we don’t have one, in a sense — is it doesn’t work as well as a system of comparing things. In other words, if I have something available that I think will give me 8 percent for sure and I can buy all I want of it, and you’ve got a perfectly good investment that I think will earn 7, I don’t have to waste 5 minutes with you. You’re like the mail order service offering the bride through the mail and she’s got AIDS. You know, I can go on to some different subject. The concept of opportunity cost is so little taught in investment. They teach it in the freshman course in economics in all the major universities, but when you get to the corporate finance departments and so forth, it doesn’t lend itself with the kind of mathematics they want to use, so they ignore it. But in the real world, your opportunity costs are what you want to make your decisions based on." --Charlie Munger (2007)

"Yeah. And even if you had something you were really familiar with and were very sure on the 8 percent, 8 1/2 wouldn’t tempt you if somebody came along, as a practical matter." --Warren Buffett (2007)


A list of Q2 2019 Investment Letters & Reports (LINK)

A History and Overview of Visa (Part 1, Part 2)

The Fed is Always Looking For Risk, But These Officials Seek The Unimaginable Ones (LINK)

Amazon partners with Realogy, sending the real-estate brokerage giant’s shares soaring (LINK)

Stansberry Investor Hour: 109: How to Be an Above-Average Investor [with Chris Pavese, ~26:09 mark] (LINK)

The School of Greatness Podcast: Mark Sisson: Building a $200 Million Dollar Personal Brand [Starting ~6:32 mark] (LINK)

The Quietly Changing Consensus on Neutering Dogs (LINK)

Book of the day: Novacene: The Coming Age of Hyperintelligence - by James Lovelock [Via Stewart Brand on Twitter: "The most thrilling book I have read in years.... It’s short, easy to read twice. Maybe necessary to read twice."]