The Digest #122

Buffett vs. Saylor, Medical Debt, Capital Gains Tax cut?, Jim Chanos, Howard Marks, Andrew Marks, Mohnish Pabrai, Jim Simons

“If you don’t have leverage, you don’t get in trouble. That’s the only way a smart person can go broke, basically. And I’ve always said, if you’re smart, you don’t need it; and if you’re dumb, you shouldn’t be using it. So I’m not a big fan of leverage.”

— Warren Buffett, Chairman and CEO of Berkshire Hathaway

“Go mortgage your house and buy bitcoin with it. And if you’ve got a business that you love because your family works for the business, it’s in your family for thirty-seven years, and you can’t bear to sell it, mortgage it, finance it, and convert the proceeds into the hardest money on earth which is bitcoin.”

— Michael J. Saylor, Chairman and CEO of MicroStrategy

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Articles

Buffett’s Charity Lunch Draws $19 Million Bid, June 17, 2022. When Warren Buffett announced that 2022 will be the final year of his participation in a charity lunch to benefit the GLIDE Foundation, there was speculation that his decision might be health-related. This is a possibility for someone who is 91 years old, but I suspect that Mr. Buffett knew that the scarcity factor of the “last auction” would bring enormous benefits for the foundation. Sure enough, the $19 million bid from an anonymous donor is more than quadruple the previous record bid set in 2019. (GLIDE Foundation)

Munger Donates $1 Million of Daily Journal Stock for Equity Compensation Plan On June 16, Charlie Munger donated 3,720 shares of Daily Journal common stock valued at $1 million to form a pool of shares to be used for the company’s new equity compensation plan. This gift was disclosed in March when the company announced that Mr. Munger would be stepping down as Chairman. At the same time, Steven Myhill-Jones was appointed Chairman and Interim CEO. It will be interesting to see how Daily Journal’s software business evolves over time. (SEC Form 4)

Sick and struggling to pay, 100 million people in the U.S. live with medical debt by Noam Levey, June 16, 2022. As this article suggests, the medical system in the United States continues to struggle. In addition to high costs and deductibles, the lack of price transparency continues to be a problem eighteen months after a law went into effect that was designed to improve disclosure of pricing. I am fortunate enough to not have medical debt, but I never have any idea about the price of services before they are rendered. As I type this, I continue to be in the dark regarding the final costs of an optometry appointment that took place several weeks ago. I can think of no other situation where I incur an expense without knowing the cost in advance. (NPR)

35 Lessons on the Way to 35 Years Old by Ryan Holiday, June 16, 2022. “Modern life is hard. Just think of all the things people have to know how to do today—from technology to the unwritten rules of polite society. Think of all the information thrown at a person from the moment they wake up. Think of the emotional acuity required to operate in daily life today. When you understand this, and how incredibly unequipped many people (see: some whole generations) are for this, it should help you be a lot more patient. They just can’t handle it. That explains so much of their behavior. Doesn’t excuse but it exposes.” (RyanHoliday.net)

Sen. Grassley Proposes Doubling the 0% Investment Income Tax Bracket by Richard Rubin, June 14, 2022. I would take this proposal with a huge grain of salt at this stage. A doubling of the 0% capital gains/qualified dividend tax bracket would be an enormous windfall for individuals who primarily earn investment income. Early retirees who have yet to draw social security and are not subject to required minimum withdrawals from IRAs would be the most obvious beneficiaries: “Mr. Grassley would … more than double the income levels at which capital gains and dividend income starts being taxed so that the 0% tax bracket for that investment income would end when income reaches $89,075 for individuals and $178,150 for married couples.” (WSJ)

On Retirement by Thomas J. Bevan, June 18, 2022. I agree with almost everything the author writes about issues related to retirement that few want to acknowledge. This has quite a bit in common with my recent article, The Trouble with FIRE. “Work gives you purpose and the end of work can quickly mean the end of purpose and with that senescence soon accelerates. We need reasons to get up in the morning, we need things to strive for and to work towards mastering. For the type of aggressive saver mentioned above the quest to save enough to retire is what brings meaning to their lives. The journey is the point and the destination is not only anticlimactic but also antithetical to what they actually want. There aren’t enough mini umbrella strewn margaritas in the world to assuage the misery of the existential boredom that the lack of purpose brings.” (The Commonplace)

Shareholder Engagement Is an Important New Skill for Boards by Lawrence A. Cunningham, June 14, 2022. This is a timely article on how shareholders and boards can establish a more productive and less confrontational relationship: “All too often, shareholders announce demands, believing a board must fall in line. Equally unproductive is the director who declares opposition to any overtures. Progress may take years, but an exchange of views is essential. Directors, therefore, do well to study and understand their interlocutor’s concerns and goals and evaluate whether those are in the best interests of the corporation and its shareholders. When that is not the case, the second job is to explain why, with reference to such factors as the company’s strategy, business model, organizational structure, employee demographics and shareholder base.” (Directors and Boards)

Keep It Going by Morgan Housel, June 17, 2022. “There are two kinds of investing burnout: financial and psychological. The first is when you’re leveraged, investing on margin, and your bid to maximize potential forces you out when the market turns. The second is psychological. It’s hard to predict how you might feel when a big chunk of your net worth evaporates in two weeks until it’s occurred. A lot of those investors will end up like a professional athlete who burns out, their mind giving up before their body.” (Collaborative Fund)

The True Self is the Person You Want Others to Believe You Are by Rob Henderson, June 19, 2022. “In a fascinating paper about the “true self” and authenticity, social psychologist Roy Baumeister theorizes that the feeling of authenticity (or lack thereof) comes from whether or not we are acting in line with the reputation we want. In other words, we feel most in line with our true self when we achieve our desired social image. Failure to achieve it, or losing it, makes us feel less authentic.” (Rob Henderson’s Newsletter)

To Increase Progress, Increase Desire by Max Olson, June 17, 2022. “Clayton Christensen’s theory on disruptive innovation shows that as average performance demanded goes up, the performance level supplied by products generally goes up faster, eventually surpassing the majority of the market. As a technology improves, its performance surpasses most market demand, and things became “good enough” over time. Customers aren’t willing to pay more for better performance. This leaves the market open for disruptors — either on the low-end (good enough performance but cheaper), or by having better performance on a completely different metric.” (FutureBlind)

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Podcasts

Jim Chanos on Why There’s More Pain Ahead, June 16, 2022. 52 minutes. “Legendary short seller Jim Chanos says that despite the plunge in stocks, there are numerous swathes of the equity market with plenty of downside risk. On this episode, the Chanos & Co. fund manager, argues that the market overall has simply not internalized what sustained higher rates will mean to business models and valuations across a variety of sectors, including real estate, utilities and consumer packaged goods. He walks through the various excesses that we've seen over the last several years, and why investors are all paying the price for them now.” (Odd Lots Podcast)

Howard Marks on Something of Value, June 16, 2022. 1 hour, 25 minutes. “Howard reflects on this memo, originally published on January 11, 2021, with his son Andrew Marks. They discuss why open-mindedness – at all ages – is key when investing in a rapidly changing world. Andrew is the co-managing partner of TQ Ventures, a technology-focused venture capital firm founded four years ago that has over 80 portfolio companies.” (Oaktree Capital)

Playing to Win with Mohnish Pabrai, June 13, 2022. 2 hours, 12 minutes. There are several very interesting anecdotes in this interview where Mohnish Pabrai shares details of his conversations with Charlie Munger over the years. “William Green speaks with Mohnish Pabrai, a famed hedge fund manager who is not only one of the best investors of his generation but a trailblazing philanthropist whose foundation, Dakshana, has lifted thousands of families out of poverty. Mohnish, the founder of Pabrai Investment Funds, speaks here about the principles that have driven his success and shares lessons he’s learned from his friendship with Warren Buffett and Charlie Munger.” (Richer, Wiser, Happier)

Sridhar Ramaswamy on Google, Search, and Neeva, June 13, 2022. 1 hour, 1 minute. “Former Google ads boss Sridhar Ramaswamy says that we live in a world that seems to give out free content when we use a search engine. But that world comes with a hidden cost--search results that distort what we find and serve advertisers rather than searchers. Ramaswamy talks with EconTalk host Russ Roberts about how Google works and why he started a new search engine, Neeva, with a different business model.” (Econ Talk)

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Jim Simons on Math, Common Sense and Good Luck

This is an interesting and wide ranging interview of Jim Simons that took place at the University of Oslo on May 25, 2022.

Readers might also be interested in my review of The Man Who Solved the Market by Gregory Zuckerman, a book about Jim Simons that was published in 2019.

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