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The Future of the Auto


I called the Tesla dealer in Atlanta for a test drive. Test drives were booked a week in advance; two weeks if you wanted to test drive on a Saturday.  If I ordered an S model it would be November before delivery.  The X Model had 12,000 deposits for a 2015 delivery.

It goes from 0-60 in 5.5 seconds.

It gets 300 miles to a charge at 55 mph, a little over 200 miles at 70 mph and over 400 miles at city driving around 30 mph. Unlike gas engines it is not dramatically inefficient at stop and go city driving.  The main power drain is speed.

The battery is guaranteed for 8 years.

The interior is elegant and simple. The console is essentially an iPad that easily controls everything.

It will recharge overnight at 220 but there are power stations being widely built that will recharge in an hour.  The Intercontinental in Buckhead, Atlanta  has several charging stations in its parking lot.

The car is one of the most beautiful on the market. Prices are about between $75,000 and $90,000.

This is the future of the auto.  It made me want to sell all of my shares of Exxon.

In three years Ford and GM will emulate this car.  It is the very essence of a disruptive technology.  No more big car lots.  This is the iPod of cars.

The state will have to rethink how it funds highways since the gas tax just became obsolete.  Will the greenies be willing to increase coal production to pay for the electricity to replace gasoline?

Did I tell how great looking this car is?

I want one.



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Virtue and Keynesian Policy


In a Charlie Munger interview he discusses the necessity of social virtue for Keynesian policies to work.  Societies like ours, the Germans, or the Japanese have the virtues required for Keynesian stimulus to work.  Greece on the other hand lacked these essential virtues, lost its work ethic and abused the government bounty let loose on the populace.  In such places Keynesian policies will not work.

To the extent we have lost some of our social virtues, Keynesianism works less well that it used to.  To the extent Krugman underestimates the ‘sin ratio’ his faith in Keynesianism is misplaced, though he remained generally complimentary of Krugman otherwise. (Perhaps he is referring to Krugman’s research on international trade more than his tirades at The New York Times?)

The looming question is what causes the decline in virtue.  Is it the secular transition so many western democracies experienced?  Is the growth in government transfer payments leading more and more to rely less on their individual abilities at fault?  Is it the rise of crony capitalism where government rather than consumers and entrepreneurs drive economic opportunity; using political power to allocate capital rather than market efficiency and effectiveness?

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Feeding a Culture of Envy


During the question and answer session of the annual Berkshire Hathaway meeting one from the audience asked about fuller disclosure of compensation of more than the top executives as required by the SEC.  Since there were so many managers getting top pay should this not be disclosed to the shareholders as well?

Buffet and Munger were in ready agreement that too many details on compensation should not be disclosed.  In their vast experience owning and actively involved on the boards of nearly a hundred companies such disclosure was not in the best interest of the shareholders.


Because the net effect was to ratchet up the pay. Rarely did an executive read about the high compensation of another executive and deem himself to be worth less.  As Munger so characteristically briefly noted, he saw no benefit in feeding the culture of envy that infects so many executive suites, including those owned by Berkshire Hathaway.

Few would think that less disclosure is better, but few have the wisdom and experience of Buffett and Munger.

Their pay, for the record, is $100,000 a year.  Each.

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A Business vs The Stock



One of the better questions submitted during the annual Berkshire Hathaway meeting concerned the poor track record of most conglomerates.  Few succeeded for any length of time.

Warren’s response was illuminating. Many conglomerates were just tricks played with the stock price creating an illusion of increasing shareholder value without addressing the underlying performance of the company.  ”The change in the stock price is more visible, but the change in the value of the business is more enduring.”

The value of a business is dependent on its ability to generate consistent and growing profits and cash flow.  It may or may not be recognized in the current stock price.  When you take a longer term approach as Berkshire does the fluctuation in the stock prices is largely irrelevant.

The culture at Berkshire is to buy great companies with great management and to finance them conservatively.  Must of the stock price games played by other consolidators entailed a tremendous amount of debt that left their business vulnerable to unpredictable market disruptions and put their companies in jeopardy.  Often excess or poorly timed debt caused conglomerates to sell their best companies at inopportune times to raise critical cash.  Berkshire is sitting on so much cash this never happens to them.

Warren refers to the businesses in his portfolio, not the stock. The value his conglomerate brings is allocate the substantial cash generated by their numerous businesses among the other businesses in his portfolio, but unlike so many other conglomerates he is less interested in flipping a company to take advantage of short term market swings.

The business is much more than the stock.

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A Community of Capitalists


I attended my first shareholders’ meeting of Berkshire Hathaway in Omaha this weekend.   My investment manager, Gary Watkins (Banyan Capital), has been a shareholder and regular attendee of these meetings for some time.  I had heard of these meetings as the ‘Woodstock of Capitalism’.

As I walked over to the convention center at 7:00 AM a few blocks from the hotel (we booked the reservation almost a year ago- hotels in Omaha book up quick for this event) I observed the crowd gathering outside.  Gary had gone over at 3:00 AM to secure good seats.  They were close enough that I could have hit Warren Buffet with a rock, not that this thought would occur to me in any other context other than to describe how close the seat was. Thank you Gary.

The crowd was as middle America as a Norman Rockwell painting.  This is not the typical crowd you would expect at a shareholder’s meeting of one of our largest conglomerates.  There were elder couples, very casually dressed; perhaps retired or a small business owner.  There were young couples, many with children.  There were also many other small investment managers like Gary, and some investment rock stars like Mario Gabelli who I passed going to my excellent seat.

But most of the wealthy here were like those in The Millionaire Next Door:  understated.  It was fitting given that Warren Buffet, one of the wealthiest men in America, is similarly understated.  He lives in the same house in Omaha he bought in 1958.

The crowd was largely white, but the most dominant minority was Asian.  There seemed to be relatively few Blacks or Hispanics.  Others who had been to previous meetings noted that the Asian segment was much larger than they had seen in the past, but that it had been growing.

There were many students, many from Columbia, Warren’s alma mater.  As the attendees filtered into the arena the atmosphere seemed like a cross between a large church revival and a rock concert.  There had to be over 35,000 in the hall and even the crappiest seats; those behind the stage with no view were filled to capacity.

For over 5 hours, with one break, this entire audience sat mesmerized listening to two old men field questions.  To the left were three business journalist including Andres Ross Sorkin, Carol Loomis, and Becky Quick from CNN who filtered submitted questions.  To the left were three financial analysts (they don’t smile much) who channeled questions.  Questions were also taken from individuals from various stations in the audience.

Warren Buffet and Charlie Munger sat at a table in the middle and answered questions ranging from the philosophical (How do you find your core competence?) to the technical (Why would you add capital to a division that it only showing 1/10 of 1%  return on capital).

Warren is the gregarious first responder.  He has a joy about his work that is inescapable.  His ability at age 83 to recall precise specific performance numbers of the 80 companies they own is incredible.  He can instantly recall the amount of rail traffic on his Burlington Northern Railroad for the last comparative quarter, and then address the next question about the price he paid for Nebraska Furniture Mart 30 years ago both with flawless precision.

Charlie Munger (90 years old), his partner for over 50 years, sits expressionless most of the time looking like a cross of the famous farmer with a pitchfork in the classic art piece American Gothic and Yoda from Star Wars.  Like Yoda when he speaks it is profound and wise; unlike Yoda he is even more sparse with words and far more clear.

These two characters could have been a comedy skit on Saturday Night Live, or they could have been giving a philosophy lecture. The crowd hung on every word these two brilliant, wealthy and humble men would impart.  It was often Munger’s surprisingly brief response to complex questions that the audience found most entertaining.  It takes an immense amount of wisdom and understanding to be so brief in such circumstances.

Besides sharing a common interest in the financial success of the company this community shared an understanding of how capitalism works far beyond the technical aspects taught to every MBA.  They understand the moral aspects and the virtues it requires.

They understand that capitalism is not just about numbers and faceless categories of people.  It is about businesses that are productive, thriving and opportunistic that serve customers.  It is about Dairy Queen, Nebraska Furniture Mart, Tony Lama cowboy boots, See’s Candy, Borsheims Jewelers, Heinz Ketchup, Geico Insurance, Iscar cutting tools, Burlington Northern Railroad and dozens of other successful companies in the Berkshire portfolio.

This seems lost of the current debate about equality and the distribution of wealth.  Our market system allows everyone to participate in this historically unique phenomenon, but there are very few who have the wisdom and virtues of Warren Buffet and Charlie Munger to deploy capital as wisely as they have.  They have benefitted thousands of shareholders, probably millions of employees, and certainly many millions of customers and suppliers to their companies.

It is a community of capitalists that attended this meeting and it is that community that drives this economy.