Category: Missives

On May the 17th of 2021, Discovery announced a merger with the media assets of AT&T. After an initial burst of enthusiasm, investors have turned sour on the deal. We have been through a very similar experience with Discovery (DISCA) back in November of 2017 and believe that these circumstances “rhyme.”

To say that we were surprised by some of the discussion at the Berkshire Hathaway Annual Meeting would be an understatement. The conversation Warren Buffett and Charlie Munger leaned into on inflation was possibly the most interesting. Warren and Charlie gave large credit to Larry Summers for his willingness to stand alone on the effects of today’s fiscal and monetary policy on prices. We thought this was an ideal time review Buffett and Munger’s discussion and see what conclusions we could draw.

Now that the leaders of the most popular tech companies are going into outer space, we thought it appropriate to consider the return implications of this urge to “explore strange new worlds.” We believe the investor’s enemy is stock market failure. Stock market failure is a function of financial euphoria. Financial euphoria can be tracked historically. […]

As we have been holding calls with prospective and current investors of our firm, we have been arguing that the stock market is underwhelming the success of the economy. The lift off in economic activity could be far more troubling to stock market investors than their giddiness merits. The song that continues to come to my mind is David Bowie’s “Space Oddity” as we believe that today, unlike the past 10 years, is an economic oddity.

[…] Warren Buffett and Charlie Munger emphasize that the key to investment success is weak competition. Recently, two sets of investors, newbie investors through Reddit (and other chatrooms) and hedge fund managers running non-transparent portfolios of immense size, were both blessed and cursed by unusual success at the same time. One of the worst things a market can do to you is reward you for bad behavior and that has happened way more than normal. A quick review is necessary. […]

[…] A classical education and the texts that form its base have lasted because there is truth that has been tested time and time again. The reason value has lasted is because it has truth that has been tested time and time again. We may not quote stocks in eighths or quarters like John Maynard Keynes or Benjamin Graham did, but we think in congruent terms. Our work is “done to last forever.” Our clients benefit from the permanence of this. The public will be a victim In Sententia Tempore. We applaud our investors for having the gumption to stick to dead, but timeless thinking. They fear stock market failure and the opinion of the times.

Lina Khan is being appointed to the Federal Trade Commission by President Biden’s administration. There are rumblings of resistance from Republican Senators like Mike Lee from Utah. This missive is devoted to helping our investors understand these matters and the impact this could have on stock market returns over the next ten years. Remember, the key to success in common stock ownership is avoiding stock market failure.

[…] A classical education and the texts that form its base have lasted because there is truth that has been tested time and time again. The reason value has lasted is because it has truth that has been tested time and time again. We may not quote stocks in eighths or quarters like John Maynard Keynes or Benjamin Graham did, but we think in congruent terms. Our work is “done to last forever.” Our clients benefit from the permanence of this. The public will be a victim In Sententia Tempore. We applaud our investors for having the gumption to stick to dead, but timeless thinking. They fear stock market failure and the opinion of the times.

[….] We are asking you to use your “head” and “forget” owning stocks at enormous price-to-sales ratios or ones which are massively over-owned by indexes and other passive vehicles. We know your “heart is sayin’, don’t let go!” Most investors in financial euphoria episodes “intend” to “hold on to the end” and suffer the consequences. We call the consequences stock market failure.

Warren Buffett’s annual letter was great in all the easy ways and disappointing in the ways that matter the most to his shareholder partners. Last week, Charlie Munger reiterated the idea that successful investing is “an unusual combination of patience and aggression.” The communication of the May 1, 2020 Annual Meeting and this letter tell us that the aggression was absent in the spring and appears to be in hiding in January of 2021.