Category: Missives

[…] The last thing the cynic is thinking with the McNealy problem is that we are using the past as a guide with Microsoft and Cognizant Technologies (the past) to look at DocuSign (the future). We are also speaking to financial euphoria that we haven’t seen since the late 1990’s, when Scott McNealy was the CEO of Sun Microsystems. The cynic would say that those past instances are irrelevant and you must look at how great these companies are. They will utter the four most damaging words known to investors: it’s different this time. Let us not forget this is an American specialty. “As the nineteenth-century financial writer William Fowler observed, ‘Imagination in this country, lives in the future rather than the past.’ Only in America could a man declare that history was bunk.” This is the McNealy problem.

We have argued for years that the biggest mistake being made by Berkshire Hathaway was not giving shareholders access to the thoughts and investment discipline of their two talented stock pickers, Ted Weschler and Todd Combs. After all, Buffett calls the shareholders “partners” and has not allowed his partners to understand anything about the strategies and results of upwards of $30 billion of shareholder capital. […]

[…] As I’ve often quoted in our conversations with investors lately, Buffett said in the 1998 Berkshire Hathaway Shareholder Meeting that to beat Bobby Fisher you have to play him in any game but chess. To beat the S&P 500 or bonds looking out over 10 years, we believe housing provides our investors a game to succeed. Housing drives average wealth. We theorize that home equity as a percentage of total net worth will go to higher highs than we have ever seen in the data. All this will be driven by the supply shortage and the demographic bump of millennials succeeding. Wall Street gets no such bump.

In the summer of 2020, we didn’t know quite a few things about how Americans would react when they got their social and entertainment choices back. We didn’t have vaccines yet and the media took everyone to the scariest place they could as they framed the future. Why are investors reacting in a similar way to this 2021 spike in positive cases? What opportunities does this create for the long duration common stock investor?

[…] While we are not claiming to be getting our oil companies for birdfeed, it brings up the idea of distraction for the Sunday family in the movie and investors now. The Sundays had strangers show up looking to hunt quail, not knowing they were looking for oil. Outside of one family member believing there was a rue, they were willing parties when the sale price was negotiated at what looked like low prices in the movie. These people had never seen oil drilled on their land, thus didn’t understand the opportunity that lied ahead. […]

The goal of our work is to avoid getting stuck as fashion disappears. We have no urge for getting beat up by our companies suffering from civil law moving against them. We enjoy using these divine laws to run our portfolios. Thanks to John Locke, we hope to avoid stock market failure.

The goal of our work is to avoid getting stuck as fashion disappears. We have no urge for getting beat up by our companies suffering from civil law moving against them. We enjoy using these divine laws to run our portfolios. Thanks to John Locke, we hope to avoid stock market failure.

These young investors have adopted certain mantras. Maybe none more famous than the term HODL. HODL is short for hold on for dear life. What is striking to us is that, while the term is well-founded, they know that to create a large net worth you must hold a position for a very long time. This increases your net worth, while keeping the government away from taxing your unrealized capital gains. In effect, you just hold on as long as you can.

Most millennials have never seen an era where value has done well. The last 12 months seem like an aberration in their careers relative to the booming growth markets of the 2010’s. The investors that have witnessed value do well time and time again are more than likely baby boomers, not to count Charlie and Warren out (we never do). However, the silent generation is fewer by the day, though they have seen the tug-of-war in the value-versus-growth continuum more than future generations.

We have been long-term owners of Amgen (AMGN), Merck (MRK) and Pfizer (PFE) among the major pharma/biotech companies. We believe they trade at a ridiculous discount to similar companies in other industries. However, we think we understand why they were underperforming similar stocks and it was a self-inflicted wound. The industry allowed the media to define them as drug companies.