This post continues our series on Berkshire Hathaway’s annual letters. Original letters can be found here.
Global economic expansion, falling unemployment levels, low interest rates, and low volatility have coalesced, creating a Goldilocks environment for asset valuations. This party continued throughout the fourth quarter and perhaps it will continue far into the future, as markets appear to be betting on; trees will grow to the sky, and everyone will get rich. But perhaps not.
As always, I have no idea what the near-term future will bring, which naturally leads me towards skepticism whenever expectations are at or near extremes (things are rarely as bad as they seem, and things are rarely as good as they seem). In the face of uncertainty, the best thing we can do is study up on economic history, trying to get a better sense of how today’s world fits in a larger picture. There isn’t much money to be made in trying to time the market, but there is plenty of money to be made in understanding the world a little better than the crowd.
Pendrell Corporation (OTCMKTS: PCOA) is an illiquid, closely held microcap which is currently trading below its net cash position. This document contains an independent analysis of the company. Information on my investment philosophy can be found here.
Disclaimer: The author is currently long PCOA. All of the views expressed in this document are solely those of the author and do not reflect the view of any other person or company. I am not receiving compensation for it. I have no business relationship with the company whose stock is mentioned in this document. All investments involve the risk of permanent capital loss. I encourage everyone to do their own due diligence and to reach their own conclusions. Under no circumstances should this document be considered an offer to buy or sell any securities mentioned within.
As each year ends, I try to pause and reflect on some of the year’s themes and how poorly I predicted them. The goal of this exercise is to relearn some of the lessons we relearn every year: Mainly that nobody, including myself, has any idea how macroeconomic and sociopolitical events will play out, nor how they will affect the markets. The best we can do is predict that past inertia will continue into the future – e.g. the stock market will return about 7.0%. We know this is an illusion since, within any chaotic, complex system, inertia is ephemeral at best, but it’s a nice illusion.
This post continues our series on Berkshire Hathaway’s performance from 1977 to today. Shareholder letters can be found here.
In 1962, Warren Buffett began purchasing shares of Berkshire Hathaway – a downsizing textile manufacturing company. In 1965, after feeling slighted by management, Buffett acquired control of Berkshire. Shortly after, Berkshire purchased an insurance company and began using its float to fund investments and acquisitions. Using this as a launching pad, Berkshire’s share price rose from $8 in 1962 to $276,800 in 2017 (20% annualized).
This post continues our series on that performance. Our goal is to gain some insight into one of the most successful investment vehicles in history. Warren Buffett’s shareholder letters can be found here.
Links to Berkshire’s past years: 1977
In 1962, Warren Buffett began purchasing shares of Berkshire Hathaway – a textile manufacturing company in the process of downsizing. In 1965, after feeling slighted by management, Buffett acquired control of Berkshire. In 1967, Berkshire purchased an insurance company and began using its float to fund investments. Through acquisitions and investments, Berkshire’s share prices would appreciate from $8 in 1962 to $276,800 in 2017 (20% annualized).
This post begins my series on Berkshire Hathaway. The goal is to gain some insight into one of the most successful companies in modern history. We will be looking at Warren Buffett’s shareholder letters which can be found here.
The resiliency of the economic expansion continued throughout the third quarter. GDP growth remained steady, unemployment remained low, the US dollar weakened, and the Fed remained on track for its second interest rate hike of the year. On the other hand, geopolitical concerns increased, the chance of tax reform decreased, and market valuations rose to a level that leaves little room for error.
As always, I have no idea what the near-term future will bring. This post is merely an attempt to see if we are closer to the top or the bottom of the economic cycle.
Now Inc. (NYSE: DNOW) hit $11.85 today and I began to build a position. This document contains an independent analysis of the company. Information on my investment philosophy can be found here.
In Competition Demystified, Bruce Greenwald and Judd Kahn simplify Michael Porter’s five forces framework (threat of new entrants, threat of substitutes, customer bargaining power, supplier bargaining power, industry rivalry) into a single force from which all others derive: barriers to entry. According to the authors, there are three sources of this competitive advantage:
- Supply Advantages: Lower input costs, proprietary technology, complicated processes, etc.
- Demand Advantages: Captive customers, habitual products, high switching costs, high search costs, network effects.
- Economies of Scale: High fixed costs spread across high market share.