Much noise has been generated by MidAmerican’s purchase of First Solar’s $2 billion Topaz solar energy project. Yes, MidAmerican is Berkshire’s utility/ energy subsidiary and this sizable acquisition has certainly been cleared by Warren Buffett. That does not mean that “Buffett is buying/ betting on solar” as a category. It is Berkshire taking advantage of an opportunity.
In another building block in the “Banking: Global Mess” series, the World Bank says in a report released yesterday that the Latin American financial systems still seem sound, but there are a few yellow flags. The embedded 3-min video interview (inside) is a nice summary of findings.
We highlight three articles about old truths and new business models. First the truth about economic models, according to the Scientific American magazine; second an old and huge sector disrupted by tiny start-ups; and third an entirely new business model that is becoming very relevant.
Bill Miller himself once said: “This is a brutal business, success equals survival. If you have survived, you will have succeeded”. We have said it a little differently since 1988: to finish first, you must first finish. Mr. Miller, famous for his 15-year streak of beating the S&P 500, has announced that he will step down as co-manager of the Legg Mason Value Trust in April 2012. Is Mr. Miller’s rise and subsequent fall a matter of genius becoming overconfidence or simple probability theory playing out – as per Taleb? Not knowing the inside workings of Legg Mason, no one can really claim to know the answer. To help us think about it, we collect several links inside.
The IMF has recently issued a report on China’s financial system’s stability that has grabbed plenty of headlines, and yet today it seemed that there were pessimistic articles about banking all over the world. European and US banks are also the subject of stories that highlight risk, interconnectedness, poor balance sheets etc.. While the financials’ situation isn’t necessarily news, it is the trend that’s interesting. Inside we collect quite a few articles about the world’s financial system, all of them very from yesterday or today. Collectively they plant a bleak picture, one that seems very different from what we (still) observe in Brazil’s banking system. It’s very hard to separate signal from noise, especially so in the middle of a crisis, but it’s great food for thought.
We’ve read two stories yesterday that “clicked” together. One was Seth Godin’s post on media choices and how one must now deal with scarcity of attention. Another was a NYT story on the Disney deal with Youtube. Disney has incredible content, but they don’t have kids’ “ears” anymore – incredibly enough for people over 30, Youtube does. On the other hand, Disney brings Youtube credibility with advertisers and families (the latter worry their kids only go on Youtube to watch what they perceive as useless, mindless, purposeless videos). What can we do as long-term investors? Probably nothing, and that’s OK.
Always great to be able to catch up on reading, or almost, and here are a few articles that caught our attention – along with two book lists bound to make us fall behind in our reading again.
Huge, sprawling article on Business Insider about Groupon since the early beginnings. It’s telling when an article about the big article is 3 pages long. Normally we would recommend reading the summary for conciseness – and because the day only has 24h – but the big article is a keeper. They got almost all of it right, except for the culture change part. It is more important, and far more disruptive, than they make it seem.
According to the news, this is the line MF Global insiders used when questioned why they went along with Jon Corzine’s trades: “He was from Goldman Sachs”. Thus Mr. Corzine guided MF Global to a very public, very messy bankruptcy – and hundreds of millions of dollars of client money are missing. We wrote just days ago, regarding the “key people” aspect of a company: “Ultimately, it’s all about the key people (…) – it’s vital to understand their real motivations, aspirations, personalities and incentive/moral systems. Not what they say it is, what it really is.” Finding out about a given company’s true culture is just as difficult and time consuming, and as we can see in this example, just as important.
Three recent stories with one theme in common: the rise of the middle class and the availability of credit. Looking at banks or diversified financials top-down is not our specialty and, as we’ve said in our Q3 2011 report, “is only of interest to us in order to gauge an important part of the risks”. Keeping this in mind, one of the articles is bullish and points to recent reports showing that credit here has actually accelerated in September, despite talks of banks – and financial authorities – reining in loan growth. The other two articles are also bullish but still reflect, in a way, the difficulties of sustaining such growth.
