Berky Meeting Nuggets 2013

Here's this year's summary of the best business meeting you'll ever attend, the Berkshire Hathaway annual shareholders meeting, held this year on May 4th and presided over by Chairman Warren Buffett and Vice Chairman Charlie Munger.  (Go here for 2011, and here for 2012.)

On the Federal Reserve’s moves to keep lending flowing by pushing rates low:

Buffett said that he backs the Fed’s chairman, Ben Bernanke, and notes that the policy hasn’t led to inflation.  But still, interest rates will rise, and it will be a “shot heard around the world.”

On the trillions of dollars in debt in the past few years:

Buffett said he was glad the response to the economic downturn hasn’t been austerity, which would have hindered any sort of recovery.  Munger, who’s more conservative than his friend, agreed.  Buffett did praise the prior president, pointing out in particular 10 words of wisdom from the financial crisis: “if money doesn’t loosen up, this sucker could go down.”  While the national debt remains troublingly high, Buffett said, “this isn’t the country’s toughest hour by a large margin.”

On beating an index fund by buying shares in the 20 best companies in the United States:

Buffett said the results would probably be similar, then launched into a bigger point that there are professional investors, and then there are amateurs who invest.  Being the former requires a lot of work and research, which many, many amateurs don’t have the time or inclination to do.  The main problem for most people, he said, is “trying to behave like a professional when you aren’t spending the time in the game needed to be a professional.”

On climate change:

Buffett believes that climate change is real, and he said that it’s a difficult thing for Berkshire’s insurance operations to account for.  Munger then added that what actually seemed to work was the high taxes that European governments have levied on motor fuel.  “I think they’ve stumbled into the right policy,” he said. “I think the United States should have way higher taxes on motor fuel.”

Let's Give Each Other An Award

Their is nothing wrong with being wealthy, and there's certainly nothing wrong with being philanthropically wealthy.  However, do super-wealthy people understand the subtle arrogance of their often public philanthropy?

I thought about this last week, while browsing a local quarterly magazine that markets to the affluent of central Iowa.  Among the advertisements for custom home builders, art stores, fine dining, and spas, there are socialite pictures of the Des Moines hoi-polloi attending various charity galas and award ceremonies.

It's undoubtedly true that many of these folks have donated big amounts of time and money to charities and other civic causes.  They are to be commended for that. Apparently, they feel the same way, because the pictures in the magazine show many of the same folks at every one of the these formal affairs.

The circle goes something like this:  An very wealthy executive is named to a charitable or civic board, and after a while they are honored for their service (read: money), for which they get an award at a formal ceremony, at which another wealthy executive there rotates up to replace them on the board, and the cycle begins anew.

Over a long enough period of time, these wealthy civic socialites end up giving awards to each other for their meritorious service.  It must be tough giving an acceptance speech when you've heard them all before.

I admire wealthy people who are genuinely philanthropic, and I suppose there's no reason to begrudge someone willing to be an award-winning figurehead from which more money can be raised.  For some, however, there is clearly an attention-seeking aspect to it all.

It's a little bit like adults seeking to be the king or the queen of the prom.  Isn't it enough just to be a part of it?

Her Name is Lolo, She Was A Track Star

This was Drake Relays weekend in Des Moines, and elite track athletes (along with select collegiates and Iowa high schoolers) descended upon the city at one of the premier track meets in America.  The field was especially good this year, with big prize money drawing many current and future Olympians.

Among the many elites was Des Moines' own Lolo Jones, the pride of Theodore Roosevelt High School.  Lolo was a great collegiate hurdler, who gained fame in 2008 as a favorite to win the women's Olympic 100 meter hurdles in Beijing, and led the final with two hurdles to go, only to clip the second-to-last one and not place.

This had to be one of the more devastating moments in recent Olympic history.  I mean, it could easily replace the falling ski jumper as the 'agony of defeat' visual on Wide World of Sports.  In the face of this, Lolo was determined to return 4 years later and get a medal.  Against the odds, she qualified for the 2012 London Olympics, and made the final, but ultimately did not place again.

Since the disappointment of 2008, Lolo has been known as much for attention she's gained off the track, from her good looks (modeling) to some controversial statements she's made in national interviews and social media.  More recently, she's become a member of the U.S. women's bobsled team, with a chance at an Olympic medal in that sport in 2014.

This has all led to some resentment from other track athletes, about the attention Lolo gets for not winning.  I used to think that was just jealously, and she deserved a break.  Until two things happened.

First, a few years ago an athletic trainer working at the Drake Relays told me what a diva Lolo was to work with.  Now this week, after not winning at the Drake Relays again (she finished 4th), Lolo complained to the media that there was always more pressure at Drake, so many demands on her time, it affected her performance.  She was sure there would be more haters out there.

C'mon now.  People want to like Lolo for all she's been through, including a tough childhood.  But let's face it, no one has made a better career out of not winning than Lolo has.  She chose to do that modeling, those interviews, her tweets, the bobsled deal.  If she feels her Q-rating is falling now, that's on her.

After London, one writer compared Lolo to tennis' formerly popular and attractive non-winner Anna Kournikova, which really wasn't fair because Lolo did win world titles.  The other difference, however, is that after a while, Kournikova went away, and didn't try to re-invent herself in later years as anything other than the mediocre pro tennis player she was.

I'd say it's time to stop keeping track (no pun intended) of Lolo.  I guess that makes me a hater.  I still wish good luck to her, but there are other athletes more worthy of attention.  In the meantime, here's my ode to Lolo, sung to the tune of 'Copacabana':

Her name is Lolo
She was a track star
But that was several years ago
When she used have the 'go'
Now she does bobsled
She's getting older
Not sure to cheer her or to boo
Let's all move on to someone new

Still Danger In Numbers

In honor of today, I give you something from last year.

One Man's Garbage

Lots of possible blog topics this week.  I could write about the idiot Boston Marathon bombers, or the idiot U.S. Senators that can't even bring themselves to vote on, much less pass, any form of new gun control legislation.

Instead, I choose to write about an annual rite of passage that occurred in my suburb this week, known as Spring Cleanup week.

Spring Cleanup is the one week every year that residents can put just about any kind or size of garbage on their curbside to be picked up.  Most residents do just that, throwing out appliances, electronics, lumber, etc.

Over the years, Spring Cleanup week has become a city-wide free garage sale.  Once residents start putting their stuff on the curb, soon there will be a lot of unidentified vehicle traffic circling the neighborhood.  Rough-looking strangers will emerge from their muffler-less pickups, swarming to curbsides in an attempt to be the first to drive away with treasures that can only be found in one man's garbage.

For the most part, these are benevolent strangers, who vary from for-profit scrap metal recyclers to your basic lower-class garage sale flippers.  And they will take virtually anything of value, even if it's old and/or damaged.

There is one problem, however, with their etiquette related to leaving things as they found them.  If I put a pile of junk near my curb, I don't want people rummaging through it and spreading my neat pile into a messy pile.

It may be junk, but let's keep it neat, people.

How To Win A Coin Toss

If you were told your odds of investing success were no better than a coin toss, how would you react?

Standard & Poor's recently published an annual year-end scorecard, called the Standard & Poor’s Indices Versus Active (SPIVA) report.  SPIVA compares the performance of active mutual funds versus their respective benchmark indices.  Not surprisingly, the results continue to favor the indices.

For the 5-year period ending December 31, 2012, 79% of actively managed U.S. equity funds failed to beat their benchmark index.  The percentage that failed for international equity and fixed income funds were 66% and 69%, respectively.  Put another way, the odds of picking an active fund that outperformed its benchmark were less than successfully calling a coin toss!

Unfortunately, these results do not fully paint the picture of active management's underperformance.  SPIVA’s return measurements do not take into account significant fees that most active mutual funds charge.  Additional costs include management expenses, commissions, and marketing fees, all of which further reduce returns.

This is another of a multitude of studies that reach the same conclusion:  Investors expose themselves to additional market risk from active managers' attempts to outperform a given benchmark – risk that is not compensated by higher returns.  Further, the higher costs associated with active mutual fund investing make the probability of outperforming the market extremely unlikely.

I have always advocated a different approach to investing, one that acknowledges what SPIVA confirms.  Specifically, allocating and owning a portfolio of passively managed, tax efficient, and low cost funds allow investors to capture the most that capital markets provide year after year.

Investors’ assets should not be left to chance.  By using a passive investing strategy, you can markedly and consistently improve the odds of investing success beyond the toss of a coin.

Best Song Lyrics (Part XII)

In today's world of 'popular' music, it seems the artist is either an individual or a group.  Back in the day, however, a lot of popular music was composed and/or performed by duos.  (Think Everly Brothers, Righteous Brothers, or more recently, Hall and Oates.)

Not many of the individuals who comprise these duos seem to end up with successful solo careers.  I suppose if they were good enough to be on their own, they'd have started out that way.  There is at least one notable exception: Paul Simon of Simon and Garfunkel.

It's well-documented that Simon was the songwriter of this duo, while Garfunkel was known for his vocal ability.  After they broke up in the early 1970s, Simon went on to a great solo recording career, with a some very popular songs mixed in with lots of other interesting vocal/instrumental ones.

But the Simon and Garfunkel era carries some of the best lyrical folk music ever made.  There's no denying the meaning of a song like Bridge Over Troubled Water but I will always prefer Sounds of Silence.  With five verses, and no chorus, it's songwriting at its finest:

Hello darkness, my old friend
I've come to talk with you again
Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains
Within the sound of silence

In restless dreams I walked alone
Narrow streets of cobblestone
'Neath the halo of a street lamp
I turned my collar to the cold and damp
When my eyes were stabbed by the flash of a neon light
That split the night
And touched the sound of silence

And in the naked light I saw
Ten thousand people, maybe more
People talking without speaking
People hearing without listening
People writing songs that voices never share
And no one dared
Disturb the sound of silence

"Fools", said I, "You do not know
Silence like a cancer grows
Hear my words that I might teach you
Take my arms that I might reach you"
But my words, like silent raindrops fell
And echoed
In the wells of silence

And the people bowed and prayed
To the neon god they made
And the sign flashed out its warning
In the words that it was forming
And the sign said, "The words of the prophets are written on the subway walls
And tenement halls"
And whispered in the sounds of silence