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.
Less than 24h after publishing our rant on Economic models, we get John Kay’s brilliant piece in our inbox – “A wise man knows one thing – the limits of his knowledge”. It is the ultimate summary of the many dangers of modelling in general, not just in economics – among which dangers we count over-complicating things, but most importantly over-estimating a model’s value as predictive/forecasting tool. In fact, as the article argues and as we’ve seen countless times, we tend to over-estimate models even in their ability to analyze the past, especially if one is asking the wrong questions. We also cite a few quotes by Taleb and an article on Edge.org by Emanuel Derman.
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.
Today we have both a big, weekend-reading type article and a smaller one. The small one is a summary of Warren Buffett’s impressions about Japan, which he visited in another trip to an Iscar (IMC) plant abroad. The larger one is a New Yorker profile on Peter Thiel, the “dystopian utopian” VC/ hedge fund investor who founded Paypal and was the first outside investor in Facebook. No easy takeaways but he remains one of the most provocative thinkers in our realm.
Share buybacks have an “aura” of shareholder-friendliness. When done right, it’s a very efficient way of rewarding long-term shareholders and reaffirming management’s confidence in the company’s future prospects, usually after the shares have gone down. However, companies can get it wrong and sometimes very much so. Teased by an article, we discuss a few ways things can go wrong.
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.
In a thought-provoking op-ed, Ross Douthat tells a very summarized history of Jon Corzine (of MF Global infamy). He notes that America has been fertile ground for a kind of “reckless meritocracy” where brilliant, ambitious people who work very hard actually get to very high places – which is great – and then proceed to do themselves, their companies and society in general great harm by failing spectacularly. Mr. Douthat says this happens or has been happening “mostly by (this elite) being too smart for its own good”. We were ready to disagree with him until we got to the last two paragraphs – the text is actually great.
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.
