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Warren Buffett’s 2015 letter to the shareholders of Berkshire Hathaway and 2016 annual shareholder meeting

Every last Saturday of February, a must read for the weekend comes out: Warren Buffett’s letter to the Shareholders of Berkshire Hathaway [PDF, 2.4 MB].

Me at BRK 2011 annual shareholders meeting.

Me at BRK 2011 annual shareholders meeting.

This year’s letter was published on February 27th, and despite the fact that I normally share some lines about it in the blog just after having read it (1), this year I wanted to wait a couple of months before writing this post in order to conveniently share it today, the day before the annual shareholders meeting, to be held tomorrow Saturday April 30th, as it will be streamed live for the first time ever. I had the chance to attend such shareholder meeting in 2011 (see my review here) and I strongly recommend to those who haven’t to take a look at the stream at Yahoo Finance, from 9am Central Daylight Time.

From this year’s letter, I wanted to bring attention to the description of the acquisition at the end of 2015 of Precision Castparts Corp (for 32bn$ cash), the highlight of the year, and to the following quotes or passages on their hands-off management style, on their flexibility to allocate capital, on what a 2% real GDP growth means, on mortgage risk retention on the side of lenders, the discussion on the linkage between productivity and prosperity (a bit too long to be transcribed as an excerpt – from the page 20 of the letter to the 22) and on the need to act on climate change.

***

On their hands-off management style:

After the purchase, our role is simply to create an environment in which these CEOs – and their eventual successors, who typically are like-minded – can maximize both their managerial effectiveness and the pleasure they derive from their jobs. (With this hands-off style, I am heeding a well-known Mungerism: “If you want to guarantee yourself a lifetime of misery, be sure to marry someone with the intent of changing their behavior.”)

On their flexibility to allocate capital:

Our flexibility in capital allocation – our willingness to invest large sums passively in non-controlled businesses – gives us a significant edge over companies that limit themselves to acquisitions they will operate. Woody Allen once explained that the advantage of being bi-sexual is that it doubles your chance of finding a date on Saturday night. In like manner – well, not exactly like manner – our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for Berkshire’s endless gusher of cash. Beyond that, having a huge portfolio of marketable securities gives us a stockpile of funds that can be tapped when an elephant-sized acquisition is offered to us.

On what a 2% real GDP growth means (2):

America’s population is growing about .8% per year (.5% from births minus deaths and .3% from net migration). Thus 2% of overall growth produces about 1.2% of per capita growth. That may not sound impressive. But in a single generation of, say, 25 years, that rate of growth leads to a gain of 34.4% in real GDP per capita. (Compounding’s effects produce the excess over the percentage that would result by simply multiplying 25 x 1.2%.) In turn, that 34.4% gain will produce a staggering $19,000 increase in real GDP per capita for the next generation. Were that to be distributed equally, the gain would be $76,000 annually for a family of four. Today’s politicians need not shed tears for tomorrow’s children.

On the different views to be taken of certain intangible assets amortization no matter what accounting rules say about them (3):

[…] serious investors should understand the disparate nature of intangible assets. Some truly deplete in value over time, while others in no way lose value. For software, as a big example, amortization charges are very real expenses. Conversely, the concept of recording charges against other intangibles, such as customer relationships, arises from purchase-accounting rules and clearly does not reflect economic reality. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenses when earnings are calculated – even though, from an investor’s viewpoint, they could not differ more.

[…] We now have $6.8 billion left of amortizable intangibles, of which $4.1 billion will be expensed over the next five years. Eventually, of course, every dollar of these “assets” will be charged off. When that happens, reported earnings increase even if true earnings are flat. (My gift to my successor.)

I suggest that you ignore a portion of GAAP amortization costs. But it is with some trepidation that I do that, knowing that it has become common for managers to tell their owners to ignore certain expense items that are all too real. “Stock-based compensation” is the most egregious example. The very name says it all: “compensation.” If compensation isn’t an expense, what is it? And, if real and recurring expenses don’t belong in the calculation of earnings, where in the world do they belong?

Wall Street analysts often play their part in this charade, too, parroting the phony, compensation-ignoring “earnings” figures fed them by managements. Maybe the offending analysts don’t know any better. Or maybe they fear losing “access” to management. Or maybe they are cynical, telling themselves that since everyone else is playing the game, why shouldn’t they go along with it. Whatever their reasoning, these analysts are guilty of propagating misleading numbers that can deceive investors.

Depreciation charges are a more complicated subject but are almost always true costs. Certainly they are at Berkshire. I wish we could keep our businesses competitive while spending less than our depreciation charge, but in 51 years I’ve yet to figure out how to do so. Indeed, the depreciation charge we record in our railroad business falls far short of the capital outlays needed to merely keep the railroad running properly, a mismatch that leads to GAAP earnings that are higher than true economic earnings. (This overstatement of earnings exists at all railroads.) When CEOs or investment bankers tout pre-depreciation figures such as EBITDA as a valuation guide, watch their noses lengthen while they speak.

On mortgage risk retention:

Barney Frank, perhaps the most financially-savvy member of Congress during the panic, recently assessed the 2010 Dodd-Frank Act, saying, “The one major weakness that I’ve seen in the implementation was this decision by the regulators not to impose risk retention on all residential mortgages.” Today, some legislators and commentators continue to advocate a 1%-to-5% retention by the originator as a way to align its interests with that of the ultimate lender or mortgage guarantor.

At Clayton, our risk retention was, and is, 100%. When we originate a mortgage we keep it (leaving aside the few that qualify for a government guarantee). When we make mistakes in granting credit, we therefore pay a price – a hefty price that dwarfs any profit we realized upon the original sale of the home. […]

Some borrowers, of course, will lose their jobs, and there will be divorces and deaths. Others will get overextended on credit cards and mishandle their finances. We will lose money then, and our borrower will lose his down payment (though his mortgage payments during his time of occupancy may have been well under rental rates for comparable quarters). Nevertheless, despite the low FICO scores and income of our borrowers, their payment behavior during the Great Recession was far better than that prevailing in many mortgage pools populated by people earning multiples of our typical borrower’s income.

On the need to act on climate change:

This issue bears a similarity to Pascal’s Wager on the Existence of God. Pascal, it may be recalled, argued that if there were only a tiny probability that God truly existed, it made sense to behave as if He did because the rewards could be infinite whereas the lack of belief risked eternal misery. Likewise, if there is only a 1% chance the planet is heading toward a truly major disaster and delay means passing a point of no return, inaction now is foolhardy. Call this Noah’s Law: If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.

(1) See the review I made of 2009, 20122013 and 2014 letters.

(2) In relation to that I recommend reading Thomas Piketty’s “Capital in the 21st Century” (of which I may write a review at a later point in time). There he explains how for most of history, human kind has lived a small growth rate and we may well come back to that.

(3) Every year letter discusses that, always with some variation, I keep recommending a detailed look at it.

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Warren Buffett’s 2014 letter to the shareholders of Berkshire Hathaway

Every last Saturday of February, a must read for the weekend comes out: Warren Buffett’s letter to the Shareholders of Berkshire Hathaway [PDF, 499KB]. This year, it is the 50th anniversary since Buffett took over the company, and thus together with the letter both him and Charlie Munger, his partner and vice chairman, have included as well two letters describing the last 50 years, what made them so successful and what can be expected in the following years. The 3 letters together make up 42 pages, a strongly recommended read.

From this year’s letter, I wanted to bring attention to the following quotes or passages on simplicity of some transactions, on the sale of TESCO, the distinction between volatility and risk, not using borrowed money to invest, consequences of using shares instead of cash for acquisitions, the synergies announced in M&A, the importance of cash, trust and bureaucracy:

***

On simplicity of some transactions and trust. Last year he introduced the acquisition of Nebraska Furniture Mart, this year is the turn of National Indemnity:

[…] since 1967, when we acquired National Indemnity and its sister company, National Fire & Marine, for $8.6 million. Though that purchase had monumental consequences for Berkshire, its execution was simplicity itself.

Jack Ringwalt, a friend of mine who was the controlling shareholder of the two companies, came to my office saying he would like to sell. Fifteen minutes later, we had a deal. Neither of Jack’s companies had ever had an audit by a public accounting firm, and I didn’t ask for one. My reasoning: (1) Jack was honest and (2) He was also a bit quirky and likely to walk away if the deal became at all complicated.

On pages 128-129, we reproduce the 1 1 ⁄2-page purchase agreement we used to finalize the transaction. That contract was homemade: Neither side used a lawyer. Per page, this has to be Berkshire’s best deal: National Indemnity today has GAAP (generally accepted accounting principles) net worth of $111 billion, which exceeds that of any other insurer in the world.

Offer Letter for National Indemnity (retrieved from BRK 2014 annual report [PDF, 2.2MB])

Offer Letter for National Indemnity (retrieved from BRK 2014 annual report [PDF, 2.2MB])

On the advantages of using an animated character as advertising tool in low cost operations:

[…] No one likes to buy auto insurance. Almost everyone, though, likes to drive. The insurance consequently needed is a major expenditure for most families. Savings matter to them – and only a low-cost operation can deliver these. […]

[…] Our gecko never tires of telling Americans how GEICO can save them important money. The gecko, I should add, has one particularly endearing quality – he works without pay. Unlike a human spokesperson, he never gets a swelled head from his fame nor does he have an agent to constantly remind us how valuable he is. I love the little guy.

On his lack of decisiveness in selling TESCO:

[…] An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.

At the end of 2012 we owned 415 million shares of Tesco, then and now the leading food retailer in the U.K. and an important grocer in other countries as well. Our cost for this investment was $2.3 billion, and the market value was a similar amount.

In 2013, I soured somewhat on the company’s then-management and sold 114 million shares, realizing a profit of $43 million. My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior “thumb-sucking.” (Considering what my delay cost us, he is being kind.)

During 2014, Tesco’s problems worsened by the month. The company’s market share fell, its margins contracted and accounting problems surfaced. In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.

We sold Tesco shares throughout the year and are now out of the position. (The company, we should mention, has hired new management, and we wish them well.) Our after-tax loss from this investment was $444 million, about 1/5 of 1% of Berkshire’s net worth.

On volatility versus risk:

Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.

On not using borrowed money to invest:

[…] borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.

A confession after having introduce the major mistake of acquiring Berkshire (a sinking textile company) out of stubborness:

Can you believe that in 1975 I bought Waumbec Mills, another New England textile company? Of course, the purchase price was a “bargain” based on the assets we received and the projected synergies with Berkshire’s existing textile business. Nevertheless – surprise, surprise – Waumbec was a disaster, with the mill having to be closed down not many years later.

On his initial strategy of buying low priced small companies and why he changed it:

[…] Most of my gains in those early years, though, came from investments in mediocre companies that traded at bargain prices. Ben Graham had taught me that technique, and it worked.

But a major weakness in this approach gradually became apparent: Cigar-butt investing was scalable only to a point. With large sums, it would never work well.

In addition, though marginal businesses purchased at cheap prices may be attractive as short-term investments, they are the wrong foundation on which to build a large and enduring enterprise. […]

On using shares instead of cash for acquisitions:

Consequently, Berkshire paid $433 million for Dexter and, rather promptly, its value went to zero. GAAP accounting, however, doesn’t come close to recording the magnitude of my error. The fact is that I gave Berkshire stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7 billion. As a financial disaster, this one deserves a spot in the Guinness Book of World Records.

Several of my subsequent errors also involved the use of Berkshire shares to purchase businesses whose earnings were destined to simply limp along. Mistakes of that kind are deadly. Trading shares of a wonderful business – which Berkshire most certainly is – for ownership of a so-so business irreparably destroys value.

On the trumpeted synergies announced in M&A:

(As a director of 19 companies over the years, I’ve never heard “dis-synergies” mentioned, though I’ve witnessed plenty of these once deals have closed.) Post mortems of acquisitions, in which reality is honestly compared to the original projections, are rare in American boardrooms. They should instead be standard practice.

On cash:

At a healthy business, cash is sometimes thought of as something to be minimized – as an unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.

American business provided a case study of that in 2008. In September of that year, many long-prosperous companies suddenly wondered whether their checks would bounce in the days ahead. Overnight, their financial oxygen disappeared.

At Berkshire, our “breathing” went uninterrupted. Indeed, in a three-week period spanning late September and early October, we supplied $15.6 billion of fresh money to American businesses.

On trust and bureaucracy:

With only occasional exceptions, furthermore, our trust produces better results than would be achieved by streams of directives, endless reviews and layers of bureaucracy. Charlie and I try to interact with our managers in a manner consistent with what we would wish for, if the positions were reversed.

The books that are recommended this year in the letter are:

  • “Where Are the Customers’ Yachts?”, by Fred Schwed,
  • “The Little Book of Common Sense Investing”, by Jack Bogle,
  • “Berkshire Hathaway Letters to Shareholders”, compilation by Max Olson,
  • a new book in preparation commemorating the 50th anniversary of Berkshire Hathaway under present management.

Another article about Jim Ling in D magazine (from 1982) is recommended to understand the mentality of some CEOs running holdings at the time and why some negative perception towards holdings continue to exist today.

Finally, in the two last letters from Buffett and Munger, in which they review the future prospects of Berkshire there is some language that will no doubt stir again the rumours of whether Buffett may step down as CEO and / or chairman anytime soon. We will see.

For nostalgic investors, in this year’s annual report it is embedded Berkshire’s 1964 annual report (pages 130-142).

See the review I made of 2009, 2012 and 2013 letters.

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Mister India

I was reminded by the following tweet from a fellow Toastmaster from Finland of a funny anecdote from a few years ago.

In May 2011 Luca and I attended the annual shareholders’ meeting of Berkshire Hathaway (see here a post describing the experience). One of the activities for shareholders that we joined was to dine on Sunday evening at Piccolo’s, a steakhouse popularized by the taste of Warren Buffett, apparently a frequent customer (we indeed happen to have him dining together with Bill Gates two tables away).

The anecdote I wanted to share in this post stems from my rather strong Spanish accent when speaking English, together with the little vocalization effort that I put sometimes in my speech plus the use of the phonetic alphabet to spell words.

When I wanted to book a table at Piccolo’s to have that dinner, I was asked my surname, which is uncommon even in Spain, thus I spelled it: India, Romeo, Alfa, Sierra… Hours later, we arrived at the restaurant and informed the waiter that we had a reservation, at the name “Irastorza”. She went to check her registry. Swiftly and politely she said: “sure, come along with me”. I was close enough to her to see that in the book she had just noted: “India”.

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Transcript of 2014 Berkshire Hathaway Annual Q&A with Warren Buffett and Charlie Munger

Last Saturday, May 3rd, Berkshire Hathaway held in Omaha its annual shareholder meeting, attended by over 30,000 shareholders. The most expected part of that weekend is the Q&A session of the meeting, in which Warren Buffett and Charlie Munger answer to dozens of questions.

The meeting is neither televised, nor recorded or streamed. However, the financial website Motley Fool has done a terrific job publishing a transcript of the session. Find the link here and allow yourself at least a couple of hours to read through it (the Q&A session takes hours itself!). I strongly encourage the reading. As a teaser, find below some of the gems:

No CEO looks at proxy statements and comes away thinking that I should be paid less.” Warren Buffett.

“We can’t earn same return on capital with over $300 billion market cap. Archimedes said he could move the world with a long enough lever. I wish I had his lever” Buffett

“If you are in any social organization, if you keep belching at the dinner table, you’ll be eating in the kitchen” Buffett (on Boards of Directors)

“Cash or available credit is like oxygen: you don’t notice it 99.9% of the time, but when absent, it’s the only thing you notice” Buffett

“By the standards of the rest, we over-trust. […] because we carefully selected people who should be over-trusted” Charlie Munger

“There’s something about owning a brand to educate yourself about things you might do in the future.” Buffett

At the beginning, we knew nothing. We were stupid. If there’s any secret to Berkshire, it’s that we’re pretty good at ignorance removal.” Munger

“… if you think you understand, you’re not paying attention.” Munger

“There’s changes going on with all our businesses. We want managers to think about change, what’s going to be needed for the future” Buffett

“Being realistic when realizing your own shortcomings is important.” Buffett (on the circle of competence)

“There’s a point you start getting inverse correlation between wealth and quality of life” Buffett

“I think America made a huge mistake by letting the public school systems go to hell…” Munger

(on home mortgage market) “you had the biggest bunch of thieves & idiots running things, I’m not trusting private industry in this field” Munger

“The net utility from finance majors has been negative.” Buffett

Some other readings I recommend in relation to this post:

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Buffett and Branson on airline business

While reading a few days ago Warren Buffett’s Letter to the Shareholders of Berkshire Hathaway, I was reminded of NetJets, the fractionary ownership of planes business which has as parent company. The fact that BRK owns such a company is quite ironic bearing in mind the following quote from Buffett:

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

But then again, Richard Branson, another prominent businessman, founded Virgin Atlantic, which is now part of the Virgin Group, chaired by Branson, who is quoted saying:

“The quickest way to become a millionaire in the airline business is to start out as a billionaire.”

Are these cases of “do as I say, not as I do”?

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Warren Buffett’s 2013 letter to the shareholders of Berkshire Hathaway

Last Friday (28/02/2014), Warren Buffett’s 2013 letter to the Shareholders of Berkshire Hathaway [PDF, 252 KB] was released. As always, I strongly encourage you to read it (23 pages).

From this year’s letter, I wanted to bring attention to the following passages, on value creation, insurance business, intangible assets amortization, simplicity of some transactions, fundamentals of investing and a sound investing strategy.

***

On what is the focus of Warren and Charlie to create value:

“Charlie and I hope to build Berkshire’s per-share intrinsic value by (1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings through bolt-on acquisitions; (3) benefiting from the growth of our investees; (4) repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition. We will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.”

On the keys of insurance business:

“[…] a sound insurance operation needs to adhere to four disciplines. It must (1) understand all exposures that might cause a policy to incur losses; (2) conservatively assess the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) set a premium that, on average, will deliver a profit after both prospective loss costs and operating expenses are covered; and (4) be willing to walk away if the appropriate premium can’t be obtained.

[…] That old line, “The other guy is doing it, so we must as well,” spells trouble in any business, but in none more so than insurance.”

On the different views to be taken of certain intangible assets amortization no matter what accounting rules say about them:

“[…] serious investors should understand the disparate nature of intangible assets: Some truly deplete over time while others in no way lose value. With software, for example, amortization charges are very real expenses. Charges against other intangibles such as the amortization of customer relationships, however, arise through purchase-accounting rules and are clearly not real costs. GAAP accounting draws no distinction between the two types of charges. Both, that is, are recorded as expenses when earnings are calculated – even though from an investor’s viewpoint they could not be more different.

[…] Every dime of depreciation expense we report, however, is a real cost. And that’s true at almost all other companies as well. When Wall Streeters tout EBITDA as a valuation guide, button your wallet.”

On simplicity of some transactions and trust:

“I think back to August 30, 1983 – my birthday – when I went to see Mrs. B (Rose Blumkin), carrying a 1 1⁄4-page purchase proposal for NFM that I had drafted. (It’s reproduced on pages 114 – 115.) Mrs. B accepted my offer without changing a word, and we completed the deal without the involvement of investment bankers or lawyers (an experience that can only be described as heavenly). Though the company’s financial statements were unaudited, I had no worries. Mrs. B simply told me what was what, and her word was good enough for me.

[…] Aspiring business managers should look hard at the plain, but rare, attributes that produced Mrs. B’s incredible success. Students from 40 universities visit me every year, and I have them start the day with a visit to NFM. If they absorb Mrs. B’s lessons, they need none from me.”

Offer Letter for NFM (retrieved from BRK annual report [PDF, 6.5MB])

Offer Letter for NFM (retrieved from BRK 2013 annual report [PDF, 6.5MB])

On certain fundamentals of investing:

  • “You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
  • Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. […] omniscience isn’t necessary; you only need to understand the actions you undertake.
  • If you instead focus on the prospective price change of a contemplated purchase, you are speculating. […]
  • […] I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. […]
  • Forming macro opinions or listening to the macro or market predictions of others is a waste of time. […]”

A sound investing strategy:

“[…] The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.

[…] My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) […]”

His best investment ever:

“[…] I learned most of the thoughts in this investment discussion from Ben’s book The Intelligent Investor, […]

[…] For me, the key points were laid out in what later editions labeled Chapters 8 and 20. […]

I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would
underscore the truth of Ben’s adage: Price is what you pay, value is what you get. Of all the investments I ever
made, buying Ben’s book was the best […]”

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Time Value of Money

In courses about finance in the past, as part of job-related investment projections, for personal investments and as part of exercises related to posts in this blog I have discounted cash flows several times. Discounted? To those not initiated: it is about the time value of money.

Many course of finance start with the explanation of time value of money. You can find Wikipedia’s article here.

I recently came across the most descriptive and ancient (to my knowledge) explanation of the concept.

A bird in a hand is worth two in the bush”, Aesop, 600 B.C.

Seeking Wisdom: From Darwin to Munger, Peter Bevelin.

Seeking Wisdom: From Darwin to Munger, Peter Bevelin.

I found it while reading “Seeking Wisdom: From Darwin to Munger”, by Peter Bevelin, in which the author retrieved a passage from Warren Buffett’s 2000 Letter to the Shareholders of Berkshire Hathaway [PDF, 93KB, pg. 13]

Leaving aside tax factors, the formula we use for evaluating stocks and businesses is identical. Indeed, the formula for valuing all assets that are purchased for financial gain has been unchanged since it was first laid out by a very smart man in about 600 B.C. (though he wasn’t smart enough to know it was 600 B.C.).

The oracle was Aesop and his enduring, though somewhat incomplete, investment insight was “a bird in the hand is worth two in the bush.” To flesh out this principle, you must answer only three questions. How certain are you that there are indeed birds in the bush? When will they emerge and how many will there be? What is the risk-free interest rate (which we consider to be the yield on long-term U.S. bonds)? If you can answer these three questions, you will know the maximum value of the bush ¾ and the maximum number of the birds you now possess that should be offered for it. And, of course, don’t literally think birds. Think dollars.

Aesop’s investment axiom, thus expanded and converted into dollars, is immutable. It applies to outlays for farms, oil royalties, bonds, stocks, lottery tickets, and manufacturing plants. And neither the advent of the steam engine, the harnessing of electricity nor the creation of the automobile changed the formula one iota — nor will the Internet. Just insert the correct numbers, and you can rank the attractiveness of all possible uses of capital throughout the universe.

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