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Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger.  If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength.  But if we treat customers with indifference or tolerate bloat, our businesses will wither.  On a daily basis, the effects of our actions are imperceptible;  cumulatively, though, their consequences are enormous.
When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.”  And doing that is essential if we are to have the kind of business we want a decade or two from now.  We always, of course, hope to earn more money in the short-term.  But when short-term and long-term conflict, widening the moat must take precedence.  If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted.  Take a look at the dilemmas of managers in the auto and airline industries today as they struggle with the huge problems handed them by their predecessors.  Charlie [Munger] is fond of quoting Ben Franklin’s “An ounce of prevention is worth a pound of cure.”  But sometimes no amount of cure will overcome the mistakes of the past.
    —     Warren Buffett
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On This Day In:
2021 Core Strength
Thinking Of You
2020 Rising Danger
210 Day Health / Weight Update (Apr 2020)
2019 Never Let ‘Em See You Sweat
2018 Just Two?
2017 Living Without Love
Good News!
2016 At This Moment
2015 Still Dreaming
2014 Good Wins
2013 Before
2012 Look To This Day
2011 One View Of Man

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If past history was all there was to the game, the richest people would be librarians.
    —    Warren Buffett
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On This Day In:
2021 Inshallah
Leave No Doubt
2020 A Choice
2019 Fill It Up
2018 Can We Talk About Me?
2017 About Change
Gordian
2016 Are Your Prayers Functioning?
2015 Expressing Love
2014 Cyclical Attitudes
2013 Footprints
2012 Broken Resolutions
Bin It

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Whatever the future holds, I make you one promise:  I’ll keep at least 99% of my net worth in Berkshire for as long as I am around.  How long will that be?  My model is the loyal Democrat in Fort Wayne who asked to be buried in Chicago so that he could stay active in the party.  To that end, I’ve already selected a “power spot” at the office for my urn.
    —    Warren Buffett
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On This Day In:
2020 The Main Thing: Vote!
No Other Reason
2019 A Big “IF”
2018 Committed To Thinking
2017 More Pictures From My (Family) Retirement Party
A Fondness For Sins
2016 Are You Waiting?
2015 The Future Myth
2014 Hands
2013 Because You Have Lived
2012 47%
2011 Conservative Values: Low And Lax
2010 A Non-Zero Sum Game
What If “c” Isn’t A Constant?
2009 Pictures from UCLA trip…

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Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.  The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return.  Unfortunately, the first type of business is very hard to find:  Most high-return businesses need relatively little capital.  Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.
Though the mathematical calculations required to evaluate equities are not difficult, an analyst – even one who is experienced and intelligent – can easily go wrong in estimating future “coupons.”  At Berkshire, we attempt to deal with this problem in two ways.  First, we try to stick to businesses we believe we understand.  That means they must be relatively simple and stable in character.  If a business is complex or subject to constant change, we’re not smart enough to predict future cash flows.  Incidentally, that shortcoming doesn’t bother us.  What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.  An investor needs to do very few things right as long as he or she avoids big mistakes.
Second, and equally important, we insist on a margin of safety in our purchase price.  If we calculate the value of a common stock to be only slightly higher than its price, we’re not interested in buying.  We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.
    —     Warren Buffett
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On This Day In:
2020 In The Path
Hangin’ Out
But I Won’t Do That
Unless You Are #45
2019 Seeking Nobility
2018 My Family Calls It Hoarding
Day 30: Done & Dusted
2017 Rogers’ Rules (Hexadecimal)
2016 But, It’s Such A Simple Mistake
2015 Crawl Towards The Light
2014 Sweet Songs
2013 The Wife Of An Ordinary Man
2012 Three Words
2011 Know Anyone Like This?
2010 Apoplexy??
When Breaking Up Is Hard To Do…
Sibling Awareness

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Risk comes from not knowing what you’re doing.
    —    Warren Buffett
Price is what you pay.  Value is what you get.
    —    Warren Buffett
Rule No.1:  Never lose money.  Rule No.2:  Never forget rule No.1.
    —    Warren Buffett
In the business world, the rearview mirror is always clearer than the windshield.
    —    Warren Buffett
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On This Day In:
2018 Change Happens
Day 13: Ginger / Mint Relief
2017 Still Removing Bricks
2016 Namaste
2015 Still Learning
2014 Dark Processes
2013 To The Last Link
2012 Slept In Again
2011 Home Again, Naturally
2009 Thoughts after a long day of OT…

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If you are thinking a year ahead, sow a seed.  If you are thinking 10 years ahead, plant a tree.  If you are thinking 100 years ahead, educate the people.
     —    Kuan Tzu
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On This Day In:
2017 I’d Like To Try
2016 Or Blog (And Bound)
2015 Welcome The Virtuous
2014 Closing The Gap?
2013 On Parenting
2012 What Knowledge Is
2011 The Indefinite Accumulation Of Property

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And the records just keep on getting set this week:
1) First President to ever have the Stock Market fall 1,000+ points in one day during his administration  —  Donald Trump
2) First President to ever have the Stock Market fall 1,000+ points in one day TWICE during his administration  —  Donald Trump
3) First President to ever have the Stock Market fall 1,000+ points in one day TWICE in one week during his administration  —  Donald Trump
4) First President to ever have the Stock Market fall 1,000+ points TWICE during his first term  —  Donald Trump
As I said in a prior post, most market gains are not directly attributable to any specific action by a President, neither are most market losses.  But, when you take “personal” credit for the gains “since getting elected”, I think you should also accept the blame when there is a market loss – “correction” or otherwise – during your administration.  Oh, but not “TeflonDon”…  After all, the economy is still fundamentally sound.  Or, so we’re being told.
And, yes, Mr. President we’re tired of winning!  Please, make it stop!!
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On This Day In:
2017 An Accumulation Of Acts
2016 Here’s Lookin’ At You Kid
2015 How To Be Omnipotent
2014 The Promise Of Future Love
2013 Christian, n.
2012 Praise
Don’t Let Me Be Misunderstood
2011 A Few More Lyrics From The Past
5 For The Price Of 1

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The foundation of wealth is the first decision well made.
    —    John Pierpont (J. P.) Morgan
It is very much easier for a rich man to invest and grow richer than for the poor man to begin investing at all.
    —    Barbara Ward
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On This Day In:
2016 Never Had It, Never Will (Donald Trump)
2015 20/20
2014 All Of My Best Ideas Come While Walking…
2013 Learn To Learn
2012 I Remind You
2011 Respect And Prestige
2010 Living Legends (Willie Nelson) and the Gettysburg Address

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An investment in knowledge always pays the best interest.
   —    Benjamin Franklin
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On This Day In:
2016 Brief Glimpses And Full Glances
2015 Pursuing Perspective
2014 Wearing Down?
2013 Labouring Under A Curse
2012 Listen To Yourself
2011 Career Tips (Part 1)
No Captain Dunsel

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The Big Short”  (2015)  —  movie review
Last night I watched “The Big Short“, which is a movie about how the banking, finance, credit bureaus  and real estate industries defrauded the American public (actually the entire world) and got away with it.  The movie stars Christian Bale, Steve Carell, Brad Pitt and Ryan Gosling and is rated “R” for language and frontal nudity (brief scenes with strippers).  The movie uses cut-aways to random famous people to provide “definitions / explanations” and (I guess) a bit of levity.  This act of having the person on camera “speak” to the audience is known as “breaking the fourth wall”.
For some time now, about forty years ago, the banking industry moved away from traditional “banking” and started trying to make money off of making money.  This began as an attempt to monetize risk into products which could be sold.  This was done via derivatives, which is a fancy way of saying “money for nothing”.  It is not really “nothing”, it’s position, options, leverage, coverage, insurance, or any number of other names for financial security – or rather, the illusion of financial security.  Some people think of it as shared risk.  I think it’s more traditional name is gambling.
Okay.  I’ll get off my soap-box and get back to the movie.  Four groups of financial players discover the housing market is being fraudulently (and criminally) propped up and, in fact, is in a giant bubble.  A “bubble” happens when greed takes over common sense in a market and prices for the items in the market are far higher than the actual value of the item and / or the ability of the buyer in the market to purchase the item.  Theoretically, when you lose the ability to pay for something, you should stop buying it.  However, in a true bubble, because “everyone” expects the price to continue to increase, the buyers continue to buy under the assumption the price will continue to go up and just before you lose the item (foreclosure for realty), you sell the item and take whatever profit you can.  IF you can time your exit correctly and get out with a profit, you win.  However, this is not true investing.  It is merely speculating.  This speculation is what is at the heart of the movie.
That is the “before” side of the movie.  The four groups know there is a bubble and one of them creates a derivative to profit (vastly) if the housing market bubble bursts.  The other three parties  get wind of the derivative and essentially go “all-in” to bet on the crash.  This is all happening in roughly 2005.  The expectation is the crash will happen in early 2007 when a percentage of mortgage loans which are variable rates with short-term fixed rate teasers have the teaser expire.
When 2007 rolls around and the housing market does crash, the derivatives don’t initially pay out because the banks / credit agencies / insurance companies  and government don’t want the national economy to collapse.  Essentially, the U.S. Taxpayer (via the government) foots the bill for the losses of the restructuring financial market.  Inevitably, a few of the large financial players “go away” (get bought up at severe discount) and the global economy is saved.   Here, the key point of the movie is that the little guy in America loses their home, but none of the fraudulent bankers and financiers goes to jail.  The irony is they (the banks and financiers) have prevented legislation which might stop this from happening again in the future, and we are back on the same roller coaster again.
Final recommendation:  highly.  This is a complicated movie about a complex subject.  The average person seeing the movie will probably not understand the financial portions of the movie.  They will (probably) understand the effects of the bubble burst because most of us have been living through the results (recession) over the last ten years (and still going).  This is not a great movie, but it is an honorable attempt to educate the working people of America.
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On This Day In:
2015 Even The Little Ones
2014 Who’s On First?
2013 No Equal Measure
2012 A Single Host
2011 No Exemptions
2010 Memories Of KSA – Inside The Fire

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In addition, at least in America, science has been treated sort of cavalierly, not only by the public but also by government.  The idea that science is just some luxury that you’ll get around to if you can afford it is regressive to any future a country might dream for itself.  Innovations in science and technology are the engines of the 21st-century economy; if you care about the wealth and health of your nation tomorrow, then you’d better rethink how you allocate taxes to fund science.  The federal budget needs to recognize this.
    —    Neil DeGrasse-Tyson
Quoted by Rachel Edidin in the March 2014 Wired magazine article titled:  “Neil DeGrasse Tyson on Why Cosmos Will Be Better Than Ever
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On This Day In:
2013 Weren’t You Supposed To Be Reading?
Absent Friends
Where I Stand
2012 Hangin’ With His P’s
Help Save
2011 Six Facets Of Good Leadership

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Contentment consists not in great wealth, but in few wants.
    —    Epictetus
The surest way to remain poor is to be an honest man.
    —    Napoleon Bonaparte
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On This Day In:
2013 Faith, n.
2012 Surprise Me
2011 Confused With Truth

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Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability.  In other words it creates devastating Black Swans.  We have never lived before under the threat of a global collapse.  Financial Institutions have been merging into a smaller number of very large banks.  Almost all banks are interrelated.  So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall.  The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard.  We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another.  True, we now have fewer failures, but when they occur …. I shiver at the thought.  The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup.  But not to worry: their large staff of scientists deem these events “unlikely”.
    —    Nassim Nicholas Taleb
From his book:  “The Black Swan
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The reason free markets work is because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or “incentives” for skill.  The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can.
     —      Nassim Nicholas Taleb
From his book:  “The Black Swan
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In a classic demonstration of the law of unintended consequences, it was the GI Bill that had been the engine driving change.  It’s hard for us as a nation to remember this, but at one point during the 1940s this country had nearly nineteen million young people in uniform, and by war’s end we had almost fourteen million Americans who were suddenly being mustered out of the service.  And they were all rushing into the weak economy of a country in debt.  The workplace that had been dominated by defense manufacturing during the war was, perforce, going to shrink, and there would be no work for the large majority of returning veterans.  Millions would swell the rolls of the unemployed, and the economy, unable to cope, would plummet again into a depression.  Neither the economic nor the political consequences of the situation could be risked, and something had to be done to delay or prevent certain catastrophe.
The Truman administration is often given credit for the GI Bill, but it was actually the idea of Warren H. Atherton, a California Republican and a consultant to President Roosevelt’s secretary of war.  His brilliant concept became the Servicemen’s Readjustment Act of 1944, and it was the last bit of Roosevelt-era New Deal legislation.  The law enabled returning GIs to go to institutes and universities, thus keeping them occupied and off the unemployment rolls.  It wasn’t cheap, but the government could always print more money, and the negative effect of doing so was calculated to be far less deleterious than the alternative.
So what happened? The program had its desired effect.  Averted were the likelihood of millions of unemployed and the dire possibility that a nation that had won the war would be destroyed by the peace.  And there was another, unexpected and joyous result.  The American generation that had fought to save the world from fascism became the best-educated cohort in history, and when the veterans were graduated from school they fueled an economic boom never before experienced by any country in the world.
And the results were magnified further by another crucial provision of the GI Bill, one that granted low-interest, zero-down payment home loans for these veterans.  This enabled Americans to own their own homes, and suddenly millions of ex-servicemen’s families — families like ours —  were being propelled into a genuine middle class that was born during the early days of the automobile and grew to maturity in a great exodus from the traditional urban centers.
    —    Colonel Jack Jacobs
Medal of Honor recipient
From his book:  “If Not Now, When?
[I would argue the slow but steady reduction and elimination of these benefits has also been one of the long term brakes on the greatness of American society and the economy.  Now, servicemen must pay a portion of their salary towards their future education benefits — as if risking one’s life and limbs in the service of one’s country is insufficient “payment”.    —    KMAB]
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