Fist off: long live Charlie! I'm going to weep like a little girl when he's gone. And second: thank God for Peter Boodell. He is the Plato of our time.
Peter Boodell: 2008 Wesco Shareholder Meeting: Detailed Notes.
CM: Testing, can you hear in back? Mr Denham has an announcement.
Denham: We ask you not to use your video recorders, thanks. ...
There will be a long Q&A preceded by Socratic solitaire conducted by the Chairman. Meeting is adjourned.
We now begin Q&A, starting with a long game of Socratic solitaire. During questions, do not ask what we are buying or selling. Any other question is fair game, but we don’t agree to answer them.
TRADITIONAL PATTERNS OF INVESTMENT GIVE SOLID RETURNS, VERSUS TAKING YOUR CHANCES AT THE VIDEO GAME
ReplyDeleteBerkshire Hathaway, as represented by Charlie Munger, is an example of traditional investment strategies providing solid returns.
What are traditional investment patterns? Investing in companies that are well run; and as a result are productive, efficient, and are likely to out perform the competition in their business sector, therefore, growing the company.
That doesn't sound "traditional," that sounds like solid investment strategy, and it is, but, today, in an attempt to maximize returns, many in the investment community, have taken a leap into the high flying derivatives market.
If you bet right, returns exceeding the market average can be made, of course, if you bet wrong, you can lose your shirt.
Derivatives are a complex transaction, largly dependent on computers, logarithms, and at the end of the day -- does the object of the "bet" go up or down, and did the bet correctly predict the direction of the object in the market.
All this is largely, independent of the object, itself. The "investment" doesn't provide capital for the company, or provide capital for a company to produce more of the commodity, i.e., investing in gold mining companies that then take the investment and produce more gold.
In a way, it's easy, just like a video game, but just like a video game, it's remote from reality (oh, sure, the money is real enough).
And what might be the most significant factor, a lot of the "betting" is done on margin: credit, debt -- two sides of the same coin -- which has helped fuel credit expansion to the point where the whole house of cards could come falling down.
Traditional investment success smiles on detailed knowledge of the companies to be invested in. Money is actually being invested in companies, which then employ the capital to make the company grow.
Charlie Munger is engaging in "Socratic Solitaire" because too many, in the investment community aren't listening to his wise counsel.
Why is that? Because behavior has been rewarded, and handsomely at times. But maybe more important, the derivative market, in some sense, is independent of the overall fundamentals of the economy. Whether the economy is strong with healthy policies or not, companies and commodities, "objects," are always going up and down. So even when bad polices are depressing the market, or setting up the market for a fall -- after a wild ride -- bets can be made.
America, and "the street" will be better off if folks get back to the hard work of knowing companies well enough, to have confidence to invest in them, and see them grow as a result of that additional capital being put to productive use.
Wall Street can help America and more important, themselves, by investing capital so that it's being put to its highest productive use.
When Wall Street does that, its the engine of America.
And all Americans can be proud of the Wizards of Wall Street.
KNOWLEDGE IS POWER: ABIOTIC POWER
ReplyDeleteSuperior knowledge and understanding is critical to smart investing. One must know the company one is deciding whether or not to invest in. But, also, one should know the product or service the company produces.
How much more important is it for the company's officers and directors to know their product?
The answer is obvious.
The origin of oil has always been controversial, regardless of what the geologists say. The science supporting "fossil" theory is shaky at best.
The reason to know and understand the best science currently available should be self-evident: Those that know and understand the science will have the best chance to explore in the right place and discover the largest amount of petroleum.
It's interesting to know that while Stalin was a blood thirsty tyrant, when it came to crude oil, he employed the brightest minds, and most advanced technology, the communist state had to compete with the West. See Stalin And Abiotic Oil, at the left-hand column, under The Science Of Abiogenic Petroleum Origin.
Stalin had no choice -- that often is the mother of invention -- but use capitalistic devices in order to compete with the West, as a result of its oil poor status.
And what did Stalin's "Dream Team" come up with? A deeper understanding of the origin of oil. (Maybe, you are a sceptic, but say what you will, Russia went from an oil poor country to an oil rich country, the world's leading oil producer, today, by employing abiotic principles in its hunt for crude oil within its own borders.)
Stalin had to scrap and claw and innovate to be competitive with the West in this strategic commodity.
Today, the West's oil industry is in the same position Stalin was in: It has to scrap and claw and innovate, try new things to successfully compete with naturally endowed state oil companies.
Old accepted truths have to be jettisoned, discarded, so that better ideas, more successful ideas can be brought to bear on the challenge to find oil.
Knowing abiotic oil principles is necessary for successful exploration and discovery of oil, where no man had thought to look before.
Is that blood-thirsty tyrant Stalin, and his legacy, going to out compete, in hindsight, the West's oil industry, now that the shoe is on the other foot?
Hell no! Should be the answer.
But clinging to an outmoded, outdated, archaic theory 250 years old is the first thing that has to go, if the West's free enterprise, private oil companies are going to out compete sluggish state oil companies that luckily sit on easy oil.
The free enterprise oil company will be eclipsed if it clings to the shaman like utterances of a hide-bound circle of closed-minded geologists and their Peak oil co-horts.
When your servants' associates want to kill your industry, it time to get a new set of servants...before the old servants poison the food.
The smart people know what has to be done.
Are they as ruthless as old Joe Stalin to "get the job done?"