The Digest #125
The First iPhone, Orange Julius, From L.A. to Boise, The Scientific Method, Lies About the World, Ian Cassel on Microcaps
Fifteen Years of iPhones
“An iPod, a phone, and an internet communicator... an iPod, a phone … are you getting it? These are not three separate devices! This is one device. And we are calling it iPhone! Today Apple is going to reinvent the phone … and here it is.”
— Steve Jobs, January 9, 2007
Berkshire Director Ron Olson Buys $661,000 of Class B Shares On July 5, Ron Olson purchased 895 Class B shares for his personal account and 1,515 Class B shares for his charitable foundation, a total investment of approximately $661,000 at an average cost of $274.35. This is a relatively minor addition to Mr. Olson’s holdings of Berkshire Hathaway. He now holds 145 Class A shares and 27,742 Class B shares worth a total of just under $69 million. For more information on the holdings of Berkshire Hathaway’s directors, please read Berkshire’s Directors Have Skin in the Game. (SEC Form 4)
Berkshire accelerates Occidental Petroleum stock purchases by Alex Crippen, July 8, 2022. Warren Buffett continued buying Occidental Petroleum stock last week as the price of crude oil briefly dipped below $100. “After paying a total of almost $1.3 billion for another 22 million shares of Occidental Petroleum over five consecutive trading days (June 29 through July 6), Berkshire Hathaway now has an 18.7% stake of 175.4 million shares valued at more than $10.6 billion. … At $984 million, Berkshire's reported purchases in July are already greater than the $869 million it spent on OXY shares in all of June, but well below the roughly $7 billion it spent in March.” (Warren Buffett Watch)
Tax concerns lead judges to hold on to Berkshire Hathaway stock despite ‘conflict nightmare’ by Debra Cassens Weiss, July 7, 2022. Berkshire Hathaway has numerous subsidiaries, many of which themselves have subsidiaries that are not widely known to ultimately be owned by Berkshire. This has led judges who own Berkshire stock to fail to recuse themselves in certain cases. Some judges have substantial unrealized gains in Berkshire, leading to proposals that they should be allowed to diversify individual holdings on a tax deferred basis. However, it seems more than a little absurd to think that a judge who owns Berkshire Hathaway would be unable to fairly preside over a dispute involving Orange Julius, a minor Dairy Queen subsidiary and quite immaterial to Berkshire’s overall results, especially if the judge himself is unaware of the connection! (ABA Journal)
‘Black Swans’ and ‘Perfect Storms’: Wall Street Reaches for Clichés by Gregory Zuckerman, July 8, 2022. Be careful referring to a market decline as a black swan: “Mr. Taleb is just as critical of those who invoke the concept he wrote about. In The Black Swan, he describes events that carry extreme impact and are outside the realm of regular expectations. “Very few people understand what the term means. It’s tremendously frustrating,” said Mr. Taleb. It offends him that some people use the term for this year’s market doldrums and cryptocurrency collapse, which many had anticipated and which aren’t unusual by historic norms “You have to be a moron to think these are rare, unpredictable events,” he said. (WSJ)
From L.A. to Boise: How Migration Has Changed During the COVID-19 Pandemic by Peter H. Haslag and Daniel Weagley, March 18, 2022. “We examine how the broad changes in work arrangements and lifestyles brought on by the COVID-19 pandemic have affected the location decisions of households. We use proprietary data on over 360,000 residential, interstate moves over the last five years with accompanying survey data. We find more than 12% of moves between April 2020--December 2021 were influenced by COVID-19, with a significant shift in migration towards smaller cities, lower cost of living locations, lower tax locales, and locations with fewer pandemic-related restrictions. Higher income households are moving out of more populous cities at greater rates, and they are moving more for lifestyle reasons and less for work-related reasons, consistent with increased location flexibility due to shifts to remote work arrangements.” (Social Science Research Network)
Volatility and Durability: 2022 Mid-Year Update, July 6, 2022. “We started experiencing a change about 6 months ago, but have no clue if it’s a temporary shift or a more structural one. Our offers, which didn’t go up with everyone else’s and won’t go down if others’ do, have gotten more competitive. Bankers seem more concerned with quality of capital and are far more flexible on process. And, some of the new-to-the-game competition is finding operating businesses harder than they expected. We remain focused on playing our game, which suddenly feels like the game everyone is trying to play.” (Permanent Equity)
Wide Awake by Doomberg, June 4, 2022. A discussion of the scientific method: “If you are in favor of limiting criticism of scientific hypotheses or constraining debate about the meaning of evidentiary data, science grinds to a halt. Even if you think the people doing the critiquing are being disingenuous, or they are funded by nefarious characters seeking to exploit ambiguity for monetary gain, or you convince yourself that the mere airing of such critiques is a danger to society, the moment you give in to the temptation to censor counterarguments – to label them as misinformation, for example – you’ve lost. Either you are willing to outlast your opponents in an extended debate by patiently and calmly rebutting all critiques, or the soundness of your hypothesis must be considered suspect.” (Doomberg)
Related Article: The Scientific Consensus, Rational Reflections, October 14, 2020.
Lifestyles by Morgan Housel, July 6, 2022. This is an interesting account of the story of two men who took part in a competition in 1968 to sail around the world the fastest. “The two men, Donald Crowhurst and Bernard Moitessier, are astounding examples of how the quality of your life is shaped by whom you want to impress. Their stories are extreme, but what they dealt with was just a magnified version of what ordinary people face all the time, and likely something you’re facing right now.” (Collaborative Fund)
Lies You’ve Been Told About the World by Sahil Bloom, July 6, 2022. This is a list of twenty-three lies you’ve been told about the world. These are “lies” in the sense that conventional wisdom has popularized certain notions that do not hold up to close scrutiny. I particularly agree with the fallacy of believing that you don’t have to work hard to succeed. I also recommend Paul Graham’s recent essay, How to Work Hard, which is a much longer explanation of why hard work is a prerequisite for achieving great things in life. There are no easy shortcuts. (The Curiosity Chronicle)
Instead of Going to College, I Read These Books by Tom Hallman, June 24, 2022. This is a story of a seventy year old woman who never went to college but worked her way through a list of books recommended by her high school teacher who realized that most of her students would not have an opportunity to go to college. “Mrs. Clark felt it was her particular duty to help young students navigate a changing and ever more complicated world. And thanks to a simple classroom handout, at least one young woman who couldn’t afford college was the better for it.” (Reader’s Digest) h/t @_obiwan
The Artist Gives Us the Vision by Lawrence Yeo, July 6, 2022. “Alan Watts once said, ‘It’s always the artist that gives us the vision.’ What he means is that we often don’t realize what beauty is until an artist frames it as such. The artist alone has the power to turn the ordinary into the extraordinary, and vice versa.” (More to That)
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Ian Cassel — All Great Things Start Small, July 7, 2022. 1 hour, 11 minutes. Ian Cassel’s goal is to “own the smallest, most illiquid, least institutionally owned, misunderstood businesses that are run by intelligent fanatics.” Microcaps have often suffered from a bad reputation as “penny stocks”, but it is logical that the most promising opportunities for enterprising small investors would exist in areas of the market that are too illiquid for large institutions to invest meaningful amounts of capital. I reviewed Cassel’s 2016 book, Intelligent Fanatic Project, and recommend reading it as well as listening to or reading this interview. (Infinite Loops)
Legendary Investor Jim Rogers Talks About the Federal Reserve, War in Eastern Europe, and Commodities, July 6, 2022. 30 minutes. “Quantum Fund and Soros Fund Management co-founder Jim Rogers joins Harry Melandri for a special episode of The Next Big Trade. Rogers, discussing the possibility of a bear market, notes that he doesn’t have much confidence in the Federal Reserve. He also explains why he sees a lot of value in precious metals and agricultural commodities.” (The Next Big Trade)
Dino Polska: Serving Small-Town Poland, July 6, 2022. 49 minutes. Transcript. This is an interesting analysis of how a grocery chain operating in small towns in Poland was founded and established its competitive position after the fall of communism. Despite significant improvements in standard of living over the past three decades, Poland is still poorer than its neighbors in Western Europe and there are growth opportunities for businesses providing basic goods and services in an upwardly mobile society. I found this discussion interesting both in terms of the company itself and the broader trends taking place in Poland, including significant immigration of refugees from war-torn Ukraine. (Business Breakdowns)
Steve Saretsky Says Canada’s Red-Hot Housing Market Will Cool, June 28, 2022. 45 minutes. The real estate market in major Canadian cities such as Vancouver is increasingly unaffordable. The fact that Canadians do not have access to fixed rate thirty year mortgages, which is the norm in the United States, exposes homeowners to additional risks. This is a good discussion of trends in Canadian real estate in recent years with some speculation on what the future holds. (Real Vision Podcast)
The Death of Stars, June 9, 2022. 58 minutes. This is a relatively non-technical discussion of how stars evolve. “Melvyn Bragg and guests discuss the abrupt transformation of stars after shining brightly for millions or billions of years, once they lack the fuel to counter the force of gravity. Those like our own star, the Sun, become red giants, expanding outwards and consuming nearby planets, only to collapse into dense white dwarves. The massive stars, up to fifty times the mass of the Sun, burst into supernovas, visible from Earth in daytime, and become incredibly dense neutron stars or black holes. In these moments of collapse, the intense heat and pressure can create all the known elements to form gases and dust which may eventually combine to form new stars, new planets and, as on Earth, new life.” (In Our Time)
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