The Risk Pool

I went out to Northern California to visit my aunt who is working through cancer treatments. The gentlemen (Dave) that she lives with gave a book to me called "The Risk Pool" and let me know when he read it he thought about my childhood. Dave's a nice guy and I thanked him for the book adding it to the stack.

I finally pulled the book out and read it this month. The story is about a boy who grows up in the late 40's and 50's in upstate New York. His father comes back from the war and decides he is going to focus on himself, eventually leaving wife and son. The mother goes into a shell and the boy eventually goes to live with his father for a few years before going back to live with his mother. While the connection with specific facts does not match up to my childhood several of the general themes do.

The main thing that does not match up is that I never new my father. My mother did not marry him and I have never had contact with him. However, my mother did marry a man, Walt, who I spent time with from eight to fourteen. All young men want a father and I thought Walt would be the person that stepped in. There was one problem, Walt was an alcoholic. Walt's primary hang out was a bar. When I was younger the pattern was I would go with Walt somewhere with anticipation of a Father and Son outing and he would end up at a bar, at first it was the Villa. He would hand me all the change in his pocket and head in. I would go buy some candy and sit in the car, for hours. He would eventually come out. On Sundays, he played bar league softball and would take me with him - quality time. They all drank beer and I was supplied with an unlimited supply of Coke. After the game, he would go to the bar and I would sit in the car.

Eventually Mom and Walt became serious and decided to live together. We moved to Union City (East SF Bay Area) into an apartment. His bar in Union City was the Eight Ball. This is where my relationship with Walt, his friends and time at the bar begin to match up with the Risk Pool. I was allowed to go into the Eight Ball and hang out. Since Walt was there all day it worked for me. Similar to Ned in the book, I learned to play pool and could pretty much clean up all players and have an endless supply of Coke and free pool. The owner of the bar, Stan, would eventually come back to the pool room and let me know the adults were ready for me to go home and have dinner.

Similar to Ned, I was "Walt's kid" - he was "Sam's Kid". Walt did things that in relation to me that his friends did not approve of as did Sam. I grew up with, by default, this large group of characters at the bar. None of the people were "healthy" role models, let me see if I can remember some names. There was "Wild Bill", a guy that drank like crazy at night and the weekends but put together steel frames for skyscrapers in San Francisco during the day. He was a 49's fan by the way. There was "Hawiian Pete", allegedly from Hawaii he would bury a pig in a fire pit on occasion and they would all eat it. "Big Dan" was a huge guy with a handlebar mustache, he was married to another alcoholic that drove us down the wrong side of the road on several occasions. "Lucky" was a merchant marine that was in and out. He took us up in a plane once, not for sure how much drinking was going on there but I suspect anyone named Lucky didn't drink and fly. "Don the muffler man" worked at a muffler shop. This guy deserves a whole paragraph.

Don lived in the same apartments as us for some time. I spent time with the kids of some of these characters if they were close to my age. His son was Donnie (of course). Don's drink of choice was rum and coke and I don't believe I ever saw him without said drink in hand - even when driving. He had a AMC Javelin that was built for speed at all times. If Don went from one four way stop to another he would reach 100mph between each one and maybe would only stop at selected ones. I thought I was dead on multiple occasions in his car. As to his parenting style, his wife had a piece of paper on the wall titled "Donnie's Sh#% List". Anything Donnie did during the day that was inappropriate was written on the sheet. When Don came home, first thing Donnie received a spanking for each item. At the muffler shop, the entire bathroom was covered with Penthouse centerfolds - every square inch. But my favorite story is when Don became angry with the apartment manager one day. The apartment manager was on the bottom floor of the apartments with only a sidewalk separating his door from the parking lot. Don backs his Javelin all the way up to the door of the apartment to block it. He then proceeds to knock on the door, scream at the guy then get into the Javelin and absolutely smoke the tires all the way out of the parking lot. I believe that was the last month that family was there.

So these are the people that Walt introduced me to. In the book, Ned and Sam reconnect as Ned matures and there is an ongoing relationship. Sam continues his alcoholic ways and is in and out of Ned's life until he dies of lung cancer. Unfortunately, or at least I thought at the time, Walt left us when I was 14 and that was the last I saw of him. Drinking and the "bar" was the most important thing to Walt - always was.

So Dave put me back in touch with that part of my life. It's something I have always put behind me and never really considered it as a life that I would want to live. However, it is part of the fabric that weaved me. When I was younger there were many times it embarrassed me but as an adult I can look back and see it was really something that I was placed into. It's a sad life for the people that see their drinking friends as their true friends - regardless of the sophistication of the atmosphere. The real friend is the drink - the people are just there to make them feel better about themselves.

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.