If you want an average successful life, it doesn’t take much planning. Just stay out of trouble, go to school, and apply for jobs you might like. But if you want something extraordinary, you have two paths:
1. Become the best at one specific thing.
2. Become very good (top 25%) at two or more things.
The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.
The second strategy is fairly easy. Everyone has at least a few areas in which they could be in the top 25% with some effort. In my case, I can draw better than most people, but I’m hardly an artist. And I’m not any funnier than the average standup comedian who never makes it big, but I’m funnier than most people. The magic is that few people can draw well and write jokes. It’s the combination of the two that makes what I do so rare. And when you add in my business background, suddenly I had a topic that few cartoonists could hope to understand without living it.
I always advise young people to become good public speakers (top 25%). Anyone can do it with practice. If you add that talent to any other, suddenly you’re the boss of the people who have only one skill. Or get a degree in business on top of your engineering degree, law degree, medical degree, science degree, or whatever. Suddenly you’re in charge, or maybe you’re starting your own company using your combined knowledge.
Capitalism rewards things that are both rare and valuable. You make yourself rare by combining two or more “pretty goods” until no one else has your mix. I didn’t spend much time with the script supervisor, but it was obvious that her verbal/writing skills were in the top tier as well as her people skills. I’m guessing she also has a high attention to detail, and perhaps a few other skills in the mix. Probably none of those skills are best in the world, but together they make a strong package. Apparently she’s been in high demand for decades.
Definitely think there's something to this. Perhaps even people historically -- for example, I'd be very curious about Victor Hugo's favorite books, etc
Not sure why you believe float is over-rated. Buffet himself has said that a $1 in float is equal to a $1 of value. BH's market cap is about $300 BN & their float is about $90BN which means Buffett considers the float to be about ~25-33% of the total value of BH.
Another measure of Mr. Buffett’s firepower: Berkshire Hathaway’s insurance float, paid in premiums that can be invested until claims have to be paid. Float was about $89 billion on March 31 2016, compared to about $88 billion at the end of 2015.http://blogs.wsj.com/cfo/2016/05/09/at-berkshire-hathaway-ca...
Well, I might be wrong, let's get that out of way first.
Second, market cap is actually $420B, but Buffett was talking about value, and BRK value is much higher, certainly over $500B.
But this is the way I see it. Berkshire could easily sell $90B in ten year bonds for some low rate, let's say for 4%. Those bonds are better than float in some ways? one is it's easier to use more if the proceeds to buy long term investments, much of float has to be tied up in safe and liquid investments approved by regulators such as short term bonds. So the long term returns should be higher using borrowing vs. float.
The counter is that float is free, often better than free the way Berkshire insurance ops are run. Let's assume BRK averages being paid 1% a year to hold the float, that makes the cost advantage to float 5% a year. If he can earn 2% more a year because of the fewer restrictions on what he uses borrowing for over float, the net difference per year would 3%, or less than $3B a year, or less than 1% a year in additional investment returns.
Now that's a significant benefit but far from a huge edge. It also might easily be less than that. One reason I might be wrong is "why not both?" If float doesn't preclude debt, then the float benefits stand alone, and could easily be worth $6B-$9B a year, and that's a pretty big benefit (2-3% a year).
But I don't believe both can be done because all that float requires WEB to hold dry powder against unforeseen mega-losses. If he maxes out BRK borrowing and his insurance subs suffer massive losses, he can only raise money through a horribly priced secondary or forced asset sakes and he'd never allow himself to be backed into that corner.
Part of the money insurance customers pay the insurance company for insurance. They are required to hold reasonable amounts in safe investments to pay out claims with, and the insurer gets to earn interest or investment gains on it. The longer term the insurance commitment the more aggressively the insurer can invest part of it, because it won't be "owed" for years,
This is what I wrote to a friend in an email on this post:
A few challenges with the trying to replicate the Berkshire model on the internet:
##Lower cost of Capital (Float): One of the unsaid rules of BK is that their cost of capital is cheaper than most operating companies because of thier insurance float (Ajit Jain, General RE, GEICO etc). So, they can take an existing business & assume absolutely no changes to their changes & still make better ROI because their capital structure is more efficient. It is a different matter that they take portfolio companies like BNSF & use float to expand their capital projections (this is like making a private investment vs a public investment.
From the BK 2015 Letter on how capex is linked to float:
After a poor performance in 2014, our BNSF railroad dramatically improved its service to customers last year. To attain that result, we invested about $5.8 billion during the year in capital expenditures, a sum far and away the record for any American railroad and nearly three times our annual depreciation charge. It was money well spent. BNSF is the largest of our “Powerhouse Five,” a group that also includes Berkshire Hathaway Energy, Marmon, Lubrizol and IMC. Combined, these companies — our five most profitable non-insurance businesses — earned $13.1 billion in 2015, an increase of $650 million over 2014.*
##Bullet proof Revenue (Moat): One of the operating assumptions behind BK's acquisition is that the business does well regardless of management. Therefore, if the revenue assumptions hold (i.e. this is the moat part of the strategy)- then the float kicks in & does magic.
However, the challenge with using a BK model in tech i.e. acquiring companies & being hands off without PRODUCT ENERGY- the products atrophy & revenues goes. The reason that BK hates tech is because there is moats are hard to sustain & it is too competitive.
I am looking at Tiny's portfolio: http://www.tiny.website/ & I am hard pressed to think of any product that has moat. I would suspect that once the founder leaves in almost all of these cases, the products will atrophy.
Without getting into all the details about what Berkshire is and what their methodologies are, the author merely wants to be nothing more than a "conglomerate" of tech/internet businesses, and was emphasizing his ability to close fast(er).
I think we can all agree thats about as similar as it gets to Berkshire Hathaway, and what the author is doing is not really that unique or similar.
I view the article as nothing more than a way to get press and hope to try and improve the author's deal flow in case anyone who reads the article is interested in selling their business, and if I had to guess the author got at least a few leads from it.
This is an outstanding comment. Few people understand what Buffet and Munger mean when they discuss "moat" and even fewer understand the importance of cost of capital in BK's investment successes.
It may be possible to build a BK of the internet but it's not easy to imagine how.
Buffett has famously stayed out of tech companies because he (self admittedly) doesn't understand them.
A BK of the internet would buy ugly tech companies, turn them around, and sell them. Buffett is definitely not the only guy in that business, but he's probably been the most successful. An internet version of that would have to really really understand technology and the markets driving it, along with understanding the modern financial system and sources of capital (to finance buying the companies). It is kind of a weird combination.
However, I do think we're going to start seeing waves of consolidation in tech, and maybe some interesting turnarounds.
The moats in tech are mostly around IP and hardware, look at Apple, Google, Microsoft, Intel, Nvidia and AMD. The larger ones have a moat complemented by a warchest for acquisition and lawsuits.
> The moats in tech are mostly around IP and hardware
And network effects. That was true with most of the OS providers since the OS was an independent component, and obviously matters for some of the modern bigcos (Facebook, Amazon to some extent [third party sellers], Ebay).
> One of the operating assumptions behind BK's acquisition is that the business does well regardless of management
Is that the case? I am currently reading the collection of Warren Buffets' Annual Letters to the Shareholders (https://www.amazon.com/Berkshire-Hathaway-Letters-Shareholde...) and in every letter, he attributes a significant part of the success of their companies to good management.
He likes to praise his management and his management is sometimes good. BUT - when he buys or invests in a business - he wants to only do it such that ROI will work even if the management is not good. Thats the difference between a tech small business where the founder / product guy has to be switched on and be excellent otherwise - your business goes haywire. Here is an example off Buffett and his thinking on management:
I knew nothing about the management of Moody's. The - I've also said many times in reports and elsewhere that when a management with reputation for brilliance gets hooked up with a business with a reputation for bad economics, it's the reputation of the business that remains intact.
If you've got a good enough business, if you have a monopoly newspaper, if you have a network television station - I'm talking of the past - you know, your idiot nephew could run it. And if you've got a really good business, it doesn't make any difference.
From my reading this year: starting out, with his mentor, he invested in companies with poor management the could be improved. He dropped that practice long ago, however, in favor of buying good management along with a good business. Management parachuted in often does badly, since every business is different. He does look for businesses with an edge (such as a brand) that will persist, quite true; even when he doesn't understand exactly what that persistent edge in the market is (he or Munger gives the example of breakfast cereal, that way.)
I would recommend reading Paul Graham's Paul Graham's Plan for Spam- one of the early extremely useful ML approaches to fighting spam.
http://www.paulgraham.com/spam.html
In the article he outlines the challenges of taking a rules based approach:
The statistical approach is not usually the first one people try when they write spam filters. Most hackers' first instinct is to try to write software that recognizes individual properties of spam. You look at spams and you think, the gall of these guys to try sending me mail that begins "Dear Friend" or has a subject line that's all uppercase and ends in eight exclamation points. I can filter out that stuff with about one line of code.
And so you do, and in the beginning it works. A few simple rules will take a big bite out of your incoming spam. Merely looking for the word "click" will catch 79.7% of the emails in my spam corpus, with only 1.2% false positives.
I spent about six months writing software that looked for individual spam features before I tried the statistical approach. What I found was that recognizing that last few percent of spams got very hard, and that as I made the filters stricter I got more false positives.
False positives are innocent emails that get mistakenly identified as spams. For most users, missing legitimate email is an order of magnitude worse than receiving spam, so a filter that yields false positives is like an acne cure that carries a risk of death to the patient.
The more spam a user gets, the less likely he'll be to notice one innocent mail sitting in his spam folder. And strangely enough, the better your spam filters get, the more dangerous false positives become, because when the filters are really good, users will be more likely to ignore everything they catch.
I am a big fan of Lewis & I have read multiple accounts / variations of the sub-prime crisis. The Big Short tells only half the story but nevertheless a very important one especially by covering Michael Burry as patient zero for identifying the problem. However, the book does a big dis-service by not writing more extensively about John Paulson. He made the most amount ($15BN) shorting sub-prime mortgages & when you have a book called the Big Short but don't cover the biggest short, it seems incomplete. Gregory Zuckerman's "Greatest Trade Ever" should be read along with "Big Short" to get a more complete view of the crisis.
I remember reading Silicon Valley company being frustrated with whatever emails they had sent on company policy being forwarded to journalists (Kara Swisher??) . One hack they came up with was to slightly reword every email slightly to identify who did it.
Maybe - this solution would help in figuring out who the leakers are!
If you want an average successful life, it doesn’t take much planning. Just stay out of trouble, go to school, and apply for jobs you might like. But if you want something extraordinary, you have two paths:
1. Become the best at one specific thing. 2. Become very good (top 25%) at two or more things.
The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.
The second strategy is fairly easy. Everyone has at least a few areas in which they could be in the top 25% with some effort. In my case, I can draw better than most people, but I’m hardly an artist. And I’m not any funnier than the average standup comedian who never makes it big, but I’m funnier than most people. The magic is that few people can draw well and write jokes. It’s the combination of the two that makes what I do so rare. And when you add in my business background, suddenly I had a topic that few cartoonists could hope to understand without living it.
I always advise young people to become good public speakers (top 25%). Anyone can do it with practice. If you add that talent to any other, suddenly you’re the boss of the people who have only one skill. Or get a degree in business on top of your engineering degree, law degree, medical degree, science degree, or whatever. Suddenly you’re in charge, or maybe you’re starting your own company using your combined knowledge.
Capitalism rewards things that are both rare and valuable. You make yourself rare by combining two or more “pretty goods” until no one else has your mix. I didn’t spend much time with the script supervisor, but it was obvious that her verbal/writing skills were in the top tier as well as her people skills. I’m guessing she also has a high attention to detail, and perhaps a few other skills in the mix. Probably none of those skills are best in the world, but together they make a strong package. Apparently she’s been in high demand for decades.