Category: Missives

We have entered the phase when the body politic and public opinion are aware that Facebook is disturbing our society. This is very important to us as investors, because the big tech companies make up a disproportionately large part of the S&P 500 Index. The Sherman Antitrust Act was written and enacted because our early leaders were concerned about ruining this experiment in Democratic Capitalism. They felt that the most likely “disturbance” would be “the concentration of capital in vast combinations.” We believe we have reached that point with the FAANG stocks. […]

The talk of inflation today looks much like housing did in 2007. Evidence is mounting everywhere that this is a real long-term problem that is only getting worse. You can read this in the media, but yet security prices don’t reflect how damaging this may be. Bond investors’ pivot from greed to fear could crush seemingly safe investments. Equity investors could be hurt by the stock market failure of an elongated equity euphoria that finally got the dumbest investors on board (millennials). This would be damaging to net worth for individuals and institutions alike. It just goes to show how powerful incentives are. What we will learn is how swiftly they can change. […]

[…] “Every time I look around” this financial euphoria episode is “making me crazy,” because of how long it has lasted, how much the math tied to its carnage makes sense and because the anecdotal evidence has been visible for some time. We are channeling our inner Alan Greenspan, who called the tech bubble “Irrational Exuberance” in late 1996, only to look foolish for nearly four more years. As Art Cashin said recently on CNBC, the Y2K technology spending explosion elongated the tech bubble for another two years. Is the COVID-19 pandemic any different in elongating this euphoria episode? […]

[…] 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.