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The Digest #114
Peter Cundill, Greg Abel, Passive Investing, Higher Yields, Mohnish Pabrai, Raising Cane's, Berkshire Questions
“Just as many smart people fail in the investment business as stupid ones. Intellectually active people are particularly attracted to elegant concepts, which can have the effect of distracting them from the simpler, more fundamental, truths.”
Meet Greg Abel, the Iowan chosen to succeed Warren Buffett by Donnell Eller, April 24, 2022. This is an interesting profile of Warren Buffett’s likely successor as CEO of Berkshire Hathaway: “Like other parents, Abel just wants to spend time with his kid, help him learn a sport and have fun, says Shayne Ratcliff, whose son's hockey team shares practice times with Abel's son's team at the new $45 million, 300,000-square-foot RecPlex. "You'd never know, just talking with him," said Ratcliff.” (Des Moines Register) This article is paywalled but there is a six month trial subscription offer for one dollar.
Elon's Twitter Play: Valuation and Corporate Governance Consequences by Aswath Damodaran, April 21, 2022. This article contains a valuation of Twitter and related commentary. “I believe that while there are some who come to Twitter for news and witty repartee, many come to the platform for the same reasons that they slow down on highways to look at car crashes, i.e., to witness, and sometimes partake in, deranged arguments about trivial issues. Much as we like to complain about the ugliness and anger that we see on social media, it is exactly those forces that draw users to it, and arguing that Elon Musk will make it worse, misses the point that he symbolizes the strengths and weaknesses of the Twitter platform better than any other person walking the face of the earth.” (Musings on Markets)
The Pioneers of Passive Investing, April 20, 2022. Last week, I wrote a review of Robin Wigglesworth’s recent book, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever. The book is about the origin of passive investing, the growth of funds that seek to target indices, and how this growth has altered markets in recent decades. There is also discussion of the power of passive investors using their votes to promote ESG initiatives. The article is for paying subscribers only, but you can sign up for a seven day trial. (Rational Reflections)
Cut Your Retirement Spending Now, Says Creator of the 4% Rule by Anne Tergesen, April 19, 2022. “For decades, retirees have relied on the 4% rule to determine how much was safe to spend in retirement. Now, the rule’s inventor says current market conditions may require an even more conservative approach. The combination of 8.5% inflation with high stock and bond market valuations makes it difficult to forecast whether the standard playbook will work for recent retirees, said retired financial planner Bill Bengen, who first devised the 4% rule in 1994.” (WSJ)
How to Stop Your Fund Manager From Feeding on Your Cash by Jason Zweig, April 22, 2022. Money market funds are still yielding next to nothing despite treasury bill rates increasing since the Federal Reserve began raising short term rates. This article explains why this is the case and presents alternatives, such as purchasing treasury bills using treasurydirect.gov. I recently started purchasing treasury bills again. The six month bill issued last week yields 1.27% which is more than twice the rate of my credit union’s saving account. (WSJ)
Does Wall Street Need New Storytelling? by Frederik Gieschen, April 19, 2022. “A few months ago, Michael Lewis was asked about the enduring popularity of his ‘80s Wall Street epic Liar’s Poker. Lewis painted a contrast between today’s sanitized corporate environment and his experience of the Salomon trading floors with its rowdy traders and their screaming and food frenzies. Compared to that boisterous era of greed and excess, “Wall Street has gotten so dull,” he said. “It is essentially a tech job. It is totally silent. For better or worse, it's lost a lot of its color.” (Insecurity Analysis)
A Clash of Two Systems by Nassim Nicholas Taleb, April 19, 2022. “There are now two imperial models: either a heavy model, like that of Russia, or a coordination of states on the model of NATO. We will see which one will emerge victorious from the current conflict. This war not only pits Ukraine and Russia against it, it is a confrontation between two systems, one modern, decentralized and multicephalous, the other archaic, centralized and autocephalous. Ukraine wants to belong to the liberal system: while being Slavic-speaking, like Poland, it wants to be part of the West.” (Medium)
The Game You Don’t Need to Play by Lawrence Yeo, April 2022. “Status is one of humanity’s great poisons, but it’s so deeply engrained in our evolutionary makeup that we continue to drink from its fountain whenever we can. It’s an unsurprising fact that animals arrange themselves based on hierarchical power structures, but what’s surprising to me is how readily human beings follow that same behavior without much thought.” (More to That)
No One Expects Young Men To Do Anything and They Are Responding By Doing Nothing by Rob Henderson, April 24, 2022. “People think that if a young guy comes from a disorderly or deprived environment, he should be held to low standards. This is misguided. He should be held to high standards. Otherwise, he will sink to the level of his environment.” (Rob Henderson’s Newsletter)
How to Be Happy by Brady, April 21, 2022. “Treat everything you do as if it is the most important thing you could possibly be doing. You’ll soon find that it is. Give everything you’ve got to it. That’s purpose. That’s the path to true happiness that everyone is seeking. We just have to remember this and walk in it. Simple, if not always easy.” (Think on These Things)
10-K Diver — Finance For Everyone, April 21, 2022. 10-K Diver is one of the “highest signal” accounts on Twitter. He writes educational threads to explain complex financial topics in a way that a broad audience can understand. It was interesting to listen to his viewpoints on a range of issues in this discussion. (Infinite Loops)
Investing in Stocks w/Mohnish Pabrai, April 23, 2022. This is a good discussion covering Mohnish Pabrai’s investment approach, but I found the conversation about his charitable foundation, Dakshana, equally interesting. (The Investor’s Podcast)
Pricing vs. Valuation and Companies in Transition: When “Safety” is not Cheap, April 24, 2022. “In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss pricing versus valuation, especially in the context of "transition" companies, such as Netflix. We also talk about the implications of so-called safe equities trading at high multiples.” (This Week in Intelligent Investing)
Raising Cane's: Todd Graves, April 25, 2022. A classic bootstrap success story: “By his early 20s, Todd Graves knew exactly what he wanted to do—open a restaurant near Louisiana State University that would make four things better than anyone else: chicken fingers, crinkle-cut fries, Texas toast, and coleslaw. After he and his partner Craig Silvey got rejected from every bank in Baton Rouge, Todd set out to fund his dream by working two treacherous jobs; first at an oil refinery and then on an Alaskan fishing boat. With roughly $150,000, he remodeled an old bike shop and opened his first restaurant in 1996.” (How I Built This)
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Berkshire Hathaway Annual Meeting
Over 40,000 people are expected to attend the Berkshire Hathaway annual meeting in Omaha on Saturday, April 30. The meeting will be webcast live via CNBC starting at 9:45 am. I will not be in Omaha this year but will be watching the webcast.
I submitted a question related to a topic that I wrote about in more detail last month in Berkshire’s Future Depends on Voting Control. The question is potentially too long to be asked, but since it has to do with a potential stock split of the A shares, I wanted to make sure that enough context is included.
Here is my question:
Most individual investors in Berkshire Hathaway have traditionally opted for Class B shares due to the high price for a share of Class A stock, currently over $500,000. While Class B shares typically trade at 1/1500 of the price of a Class A share reflecting the difference in economic rights, Class B shareholders only have 1/10,000 of the vote of Class A shares.
I am concerned about the future of voting control at Berkshire Hathaway once Mr. Buffett’s estate administrators convert his Class A shares to Class B and distributes them to foundations in the ten years following Mr. Buffett’s death.
The number of Class A shares is destined to shrink dramatically in the decades to come. The high price per A share makes it likely that these remaining A shares will end up in the hands of institutions, some of which might be inclined to pressure the board to adopt policies that break with Berkshire’s traditional culture. The recent effort of CALPERS to remove Mr. Buffett as Chairman is only the latest example of an institution with an agenda attempting to push changes that would obviously harm shareholder interests.
Although I have never supported splitting the Class A shares in the past, would it potentially make sense to split the A shares 10:1 or 20:1 in order to make them more accessible to individual investors who would prefer to control A shares in order to have full voting power to preserve Berkshire’s unique culture in the future?
I suggested an additional ten questions that others might want to ask in a Twitter thread (actually just nine questions since the final one is a joke). If you have a question of your own to submit for the annual meeting, you can send it to Becky Quick at firstname.lastname@example.org.
I am going to start including Twitter threads in the Weekly Digest. Although I find threads in Twitter difficult to navigate, they are becoming increasingly popular even for relatively complicated topics.
One way to make reading Twitter threads easier is to reply to a thread with “@threadreaderapp unroll”. This activates a bot that will tweet back a nicely formatted web page with all of the tweets in the thread.
This is an interesting thread on how Chick-Fil-A achieved its remarkable success. Crazy long lines are the norm at Chick-Fil-A drive-throughs and have sparked controversy in many places, including Santa Barbara, according to a Wall Street Journal article published on April 25.
Devil’s Card Game
Berkshire Hathaway’s Performance
Chris Bloomstran wrote a thread reviewing Berkshire’s performance over multiple time periods vs. the Standard & Poor’s 500.
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