Mr. Buffet - Snowball and the Business of Life

Just finished Warren Buffet's biography ("The Snowball, Warren Buffet and the business of life") - thank you JP Morgan Chase. It was a great read and generally dead on what you would expect as Buffet enters his adult life. However, there are a few surprises and a few "reminders".

When Warren was young he was an interesting character. One thing that stands out is that he stole his sister's bike. You would never think of that as part of his personality but as things unfold you can see how it happened. From a very young age, and likely since birth, Warren was singularly focused on creating wealth. His behaviour lined up with this singular focus - at all times. One story that reinforces his early business maturity is reflected in the event where a businessman needed someone to liquidate a warehouse of dog food. The gentleman was located in Omaha and needed someone that was in Washington DC to clear the warehouse (Warren was living there at the time) and the only person he trusted was Warren - who was a teenager. Warren came through and cleared the inventory within a week.

Warren also sought out some of the greats in investing landing with Benjamin Graham ("Intelligent Investor"). We often like to make investing complex bought Warren sought investments that were straightforward - investments that could produce cash and had a safety margin.

I saved on quote from Buffet's book because it wraps up how I believe most investors should invest. "...stocks are things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is another way to get killed The best way to avoid both of these is to buy low cost index funds, and buy over time. Be greedy when others are fearful, and fearful when others are greedy, but don't think you can outsmart the market." "If a cross-section of American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors" (pg. 825). This method is wonderfully simple and eliminates stress. Unfortunately, some people feel only complicated advice or secretive methods have value.

Buffet also believed in concentrated risk and often purchased entire companies. He could do this because this is all he did and he surrounded himself with capable operators. Having said that, as you read the book you will see that Buffet made several decisions that were not good investments and caused him significant financial pain. His portfolio of decisions were accretive over time but not without pain.

Buffet's personal life was interesting. He had this interesting skill of avoiding any relational pain to the point of letting his wife leave Omaha and relocate to San Francisco permanently. The author doesn't come forward directly on what happened but the implication was she had interests outside of Warren but none were disclosed. Warren never addresses this personally but pretends all is well. Additionally, Warren actually has another woman move in to his home in Omaha to take care of him. Practically, Warren has two wives - one for the public and one for him domestically. When his first wife passes away he eventually marries the second.

The most significant thing that came out of this book, for me, is Warren's view on the transfer of wealth. Buffet world numbers are staggering for most of us but the concept is consistent. Buffet does not believe in transferring wealth through the generations and has left most of his money to the Gates Foundation. What is significant about this is that he did not leave his money to his own legacy but to somebody Else's. Warren will go to the grave without a perpetual legacy. The remaining portion of his legacy goes to his children's' foundations. I also believe that generational transfer of wealth is not healthy. The future generations of Carla and myself will only receive educational support. Any other wealth achieved, which at this point appears nominal, will be given back to society in some way.

If you like investing and business - you will enjoy this book.

The Planned Economy - Comrade

A subtle shift has occurred, although I am not sure I am seeing it yet. The Federal Government has always encouraged certain investment behaviour through our tax system. However, we have always been free to choose to invest to our tax benefit or ignore the tax benefit. This last year we have seen the Federal Government decide how money should be invested in our economy in a significant way.

Consider:

* TARP - This was a good investment. The Federal Government likely tripled their investment. I am giving "W" credit.
* Shovel ready projects - seems to be a delay. However, we can argue that not many capitalists would invest in roads and bridges outside of the "despised" toll takers. Investment in roads and bridges is generally a government play.
* Weather proofing homes - ok, now we are getting into the planned economy. Given the choice to invest capital - read your taxes would be reduced, would we freely choose to improve the efficiency of our home energy use - not likely.
* Invest in health care - I thought that was what comes out of my pay stub every week regardless of how much money I make??

The current administration is in the beginning phase of how to best plan the economy for the upcoming year. Do we need to go there? Do we need to know how many blue Trabants need to be produced, how many green gym shorts, etc.??

Does the current administration believe that thousands of iterations of the marketplace making decisions is more intelligent then a group of intellectuals in Washington DC?

We will see - I believe the shift has begun - enjoy your gym shorts and please share your thoughts.

Tiger

Might as well spend a few minutes discussing Tiger since the buzz is everywhere. We all have inconsistency in our thoughts or actions vs. our image to some degree. I know this is something that I have always struggled with. The way others perceive you is rarely consistent with your true personality and actions.

However, Mr. Woods appears to have created a gap far wider than most can accomplish (sans Bernie Madoff). It is good to see the decision he has been made is to step away from the public spotlight and focus on his family and marriage. In the end, his efforts towards his family and marriage will be the greatest achievement of all. I hope Tiger can have do this and, in the end, come back professionaly to achieve his goals in golf.

Golf is a game that kicks so many talented individuals to the curb. We have seen one star after another either fail to live up to their billing or get there and quickly fade away. The fact that Tiger has had his issues and has still been able to focus at the level of greatness says something about his singular ability to focus.

Good luck Tiger - if you only save your family then you are a champion in my book.

Herr Drucker

The Economist had a nice write up in Schumpeter on Rembembering Drucker. Peter Drucker is my management hero and I have absorbed most of his writings. The article makes the point that Drucker hit the sweet spot between managment of the organization (people) and management of the organization through metrics (accountability). People allow the organization to have success - you can't grow without the right people. Metrics keep us accountable to each other. The right people, with the right metrics ALWAYS leads to success.

We have left Peter Drucker for people stealing cheese, getting on the right bus, blinking and all of that popcorn management. Drucker was involved in the beginning of management theory and as the Economist points out, management is not a progressive science. The trade offs of management and the human condition have not changed for thousands of years. Know what your people do and genuinely care about them as human beings. As the Hawthorne effect shows - do this and the lights come on.

Travel Musings

The total deterioration of the US airline industry is difficult to live through. The airlines have drifted into an impossible model of competing for every fare at the sacrifice of the quality of the experience. Being placed into a seat with zero leg room (an I am not tall) and paying for a snack is almost to the point of laughable.

The US needs to decide if an investment in a rail grid is favorable to an investment in a regulated airline industry - pick one and invest. There is a portion of the population were being in NYC in three hours is not critical. Let's save flying for those willing to pay a premium to be somewhere fast. Let's have trains to get everyone else around who doesn't absolutely have to be there overnight....

Ayn Rand

The Economist had a nice write up on Ayn Rand. There are two new books out on her life. If you are not sure where you stand on the role of government - read some of Ayn Rand's work. She was able to see the Great Deal for what it was - central planning. She saw government as nothing more than an excuse for power-grabbing. She said intellectuals and bureaucrats pose as champions of the people against the powerful. But in reality they are empire builders motivated by envy and greed.

Her thoughts can certainly be debated but they are interesting at this time in the United States. We can't forget the surge of collectivist thought that ran through the United States during and after the Great Depression. Maybe Ayn's thoughts are a little severe - but they are clear and direct. It is easier to have focus and passion when you get to live through the Russian revolution and see its aftermath. She saw firsthand what the champions of the people brought forward.

Time will tell us many things about our country - let's hope the past 100 years are not too easily forgotten.

All Day at OU

Carla and I went to the University of Oklahoma today with Caitlin. She is considering a program called "Humanities in Medicine". The program is through the Honors college and allows students to focus on more courses that are not science or math related while still completing their core pre-med courses. The program is a great fit for Caitlin as she has interests in a variety of areas. It was difficult to sit in a room and see her respond to some pretty difficult questions from some very bright and direct people. She handled it well.

The nice thing about the program is a reserved slot in OU's medical school. She also had a very good visit at Oklahoma Christian last week and is very excited about what OC has to offer. I'm just thankful that she has choices and has matured into such a nice young lady. Blessings.

Stand Down Rush

The WSJ allowed Rush some space in the opinion section over the weekend. For those not in the know, Rush decided he would invest in a group that is trying to purchase the St. Louis Rams but was subsequently asked to bow out due to previous remarks he made about Donovan McNabb. Rush takes an interesting tact to deflect his actions.

Rush considers others at fault for his actions and takes the time to point out that Reverend Al Sharpton and Reverend Jesse Jackson have made what he calls racist comments in the past. What right does the media have to ask these men about my statements - Rush implies. Since, apparently, in Rush's eyes, these men are the real racists. If you find someone else who did wrong, it excuses your wrongs?

Rush goes on to point out he believes in a "colorblind society where every individual is treated as a precious human being without regard to his race?". Here is the quote that allowed him to "resign" from ESPN.

"I think what we've had here is a little social concern in the NFL. The media has been very desirous that a black quarterback do well,'' Limbaugh said. "There is a little hope invested in McNabb, and he got a lot of credit for the performance of this team that he didn't deserve. The defense carried this team."

I'm not sure I would paint Rush's comment as colorblind? Additionally, Rush did not apologize for his comment but said they were directed at the media - interesting slant as the comments also appear to be directed towards the NFL and Mr. McNabb. At this time, the part about the NFL and Mr. McNabb is not a convenient truth.

In turn, when Rush decides he wants to be part of the ownership of an NFL team, he is perplexed that the NFL, the NFL players union boss and several players are concerned about him being part of an ownership group. Several players actually say they would not play for a team involved with Rush.

Rush fails to see that his actions have produced the results. He blames others, specifically the media, for the conflict and describes the media as a "cancer on society". Here is the cancer Rush, it is people who do not take ownership for their actions, who can't accept the outcomes they are responsible for. You say you will not go away. What will not go away is your racist comment and your failure to apologize for it. Maybe if you start with an apology others will see you have come down off your mountain. Until then, they have only one choice, to believe that you believe completely in your original words - and your original words were not colorblind.

Stand Down Rush

Down Time

This was an unusual Saturday as it did not include a scheduled activity. Carla and I got up and went to breakfast. I am embarrased to say what time we woke up but let's just say it was after 8am. After breakfast we watched the mighty Sooners fall in a great defensive struggle with Texas. After that I spent an hour in my fantasy Porsche land reading of 911's for some time in my distant future. Caitlin and I spent some time on her college applications and I finished up some light honey do's for Carla. Natalie and I snuck out for some Starbucks (secret). Outside of that, just a little organization in my office and some reading before bed.

Now the sad statement - why is a day like today rare? Seems like we can take a hint from the French here and turn the throttle back a bit. Maybe it is just where Carla and I are with children.

If you are a 911 fanatic - let me know. If you are a 911 fanatic that doesn't see one in your garage for years to come - I feel your pain. We will get there my brother.

Tomorrow night Caitlin and I will go to the U2 concert. Looking forward to a great evening.

Common Sense?

Read the article by Solomon and Fitzpatrick on the front page of the WSJ today. The main topic is the pay "Czar's" (Kenneth Fienberg) removal of Ken Lewis' 2009 pay. The story also points out that Mr. Lewis will recieve almost $70 million in retirement benefits (read cash). This does not take into account what Mr. Lewis has already received from BofA. The article further discusses Stan O'Neal's receipt of $161.5 million when he left Merrill Lynch. Mr. O'Neal and Mr. Lewis pulled a combined $231.5 million in capital out of Bank of America over the last year. It would take $2.7 billion in revenue at 8.5% to create enough income to cover their compensation.

Several parties chime in that Kenneth Fienberg is "overreaching" and is "punitive". How much common sense does it take to stay away from the position that the two gentlemen actually earned their payouts?

I will take the position that neither of these gentlemen added the value they pulled out of the organizations they allegedly led. I further take the position that the supporters of Mr. Lewis and Mr. O'Neal enhance the view of congress and the American public that Wall Street is out of touch. If I were in Mr. Feinberg's position I would appoint an external party to evaluate just how much value either of these gentlemen added to their orgnazations during their tenure. If they did add value then certainly an equitable compensation can be arrived at for their tenure. If no value was added, then gentlemen - please jump on board the reality train with the rest of us.

Common sense tells us that if they added value, then they would not have needed a bail out - Ask Jamie Dimon. If you think JP Morgan Chase was bailed out then read Mr. Dimon's opinion on that. (http://www.chicagotribune.com/business/columnists/chi-mon-burns-dimon-0824-aug24,0,6678002.column) You can also look at JP Morgan Chase's stock performance over the last year vs. its peers.

Is there a Vacuum?

Some fifty years ago the world was thrown into the abyss with mass destruction of population centers. What really triggered the degredation of the human condition in Europe and to a lesser extent Asia? Was it a power grab by individuals? If so, what opened the door for these individuals to assume absolute power?

I propose that the only way individuals receive absolute power is when an economic vacuum occurs in a society. The Versailles Peace Conference opened the door for the instability in Europe and the rise of Hitler. Are we seeing something similar today, the early stage of the rise to power of individuals based on economic weakness? What are your thoughts? Are we seeing some of this in Russia? The United States? Latin America? Africa? The Middle East?

Here we go

This is my first post to my blog. I think I am primarily going to use this blog to discuss books I am reading and political thought. I am not going to focus on Republican vs. Democrat but more global macro issues (geopolitical?). Please challenge my thoughts.

President Clinton (love him or hate him he would get elected today over all candidates) said the book that most impacted him was Quigley's "Tragedy and Hope". This was a great read and also has impacted my world view. More to come on that...