cmlber

If you're interested in the topic, I thought Autonomy was a very good book and I came away more bullish than I already was on self-driving fleets being the not so distant future. Coincidentally, the author (former head of GM advanced tech R&D & Waymo consultant) did a modeling exercise to determine how many cars you would need to serve Ann Arbor, Michigan and provide near instant access at all times including rush hours and the number was 18,000, vs. a current total of 120,000 vehicles. As far as I know, in 10 million miles driven Waymo has never killed anyone. 95% of fatalities are human error, so you need to outweigh the costs per incident (agreed, will probably be higher due to jury perception of a robot killer) with the much lower frequency of fatalities. Your prior statements on Uber drivers earning minimum wage (which I'm using to show how significant the labor savings could be) already includes an assumption of those costs. I believe all those studies on Ubers "wages" take the gross wages less the monthly cost of lease/insurance/gas/maintenance and divide by hours to get a # around or below minimum wage. Agreed.

I also have a large position in FCAU, but I think you're way underestimating autonomous fleets. So what if some drivers are earning less than minimum wage, that's still a lot more expensive than nothing... minimum wage in NYC is $13.5/hr, assume an autonomous car drives a 12 hour shift 365 days/year and it saves you $59,130/year in labor. Do you really think the tech in autonomous cars will cost that much money? Uber's cost per mile is 70-90% labor. You're also not factoring in the possibility of cars made specifically for the robo-taxi purpose. Why do they need to have 5 seats when most of them cary 1-2 people? Smaller, 2 person vehicles could cut even the up-front cost of the vehicle. And insurance will be cheaper for self-driving cars. And fleet operators will probably have lower maintenance costs per mile.

A higher IRR on your total capital results in more dollars, which can be used to buy food, which you can eat ;) "It won't effect absolute returns" is not correct. It is correct if you assume the dividend sits idle in a bank account and isn't reinvested elsewhere at higher returns. Basically, if you think your equity costs you 15% (i.e., you can put it elsewhere earning that return) and you can refinance the business to free up equity costing 15% and swap it for debt paying 5%, that's a trade you should do.

it's bad for the environment for all of us, and a stupid decision from a scientific point of view. I'm not sure this is so clearly stupid from a scientific point of view. If you believe that at some point in the next 5-10 years EVs will dominate the industry without regulatory intervention (which I do), does it really make sense to force the auto industry (i.e., consumers via pass through of costs) to spend $10s (maybe $100s) of billions of dollars rushing so the 80MM cars produced from 2020-2025 are marginally more efficient? Without trying to get too deep into politics/ethics, meat consumption causes just as much, if not more, pollution as all cars. It's MUCH cheaper to regulate meat consumption than fuel consumption. I don't see anyone advocating for that... or calling the lack of regulation "clearly stupid from a scientific point of view."

I've heard this stated before, but have you really spent time trying to think how you would ban cryptocurrencies? It would require no changes to the internet. How about a law that says transacting in bitcoin is illegal and any merchant caught accepting, or attempting to accept (i.e. a pay with bitcoin option), bitcoin as compensation will be subject to imprisonment for up to 50 years? And any corporate merchant caught accepting, or attempting to accept (i.e. a pay with bitcoin option), bitcoin as compensation will be subject to penalties equal to the last five years GAAP net income? How easy would it be to enforce this law? There are something like 50 retailers that account for 95% of US retail. You just task one guy with going on their websites every day and trying to pay with bitcoin, if he can, they broke the law. You would just police the merchant, not the customer. You could also make it illegal to provide an exchange of bitcoin for USD. Isn't that an activity that can be easily tracked? Those are extremes, but it wouldn't be difficult to create incentives to avoid the use of bitcoin. Governments can put people in prison, and people generally don't like prison... Yes, governments are the enemies of mankind and often do nasty things. The US government once banned gold. It won't stop Bitcoin, just like the US government's gold ban didn't make gold worthless, but it will certainly slow down its growth and adoption in the US. Not every government is going to ban bitcoin. The "gold ban" was not a "ban," it was a ban on holding more than $2,000 of gold in todays value. Also, that is so much more difficult to enforce. How can you know if someone is "holding" gold? Or if someone is using gold for that matter? It is VERY easy to know if a merchant is accepting bitcoin as payment.

I've heard this stated before, but have you really spent time trying to think how you would ban cryptocurrencies? It would require no changes to the internet. How about a law that says transacting in bitcoin is illegal and any merchant caught accepting, or attempting to accept (i.e. a pay with bitcoin option), bitcoin as compensation will be subject to imprisonment for up to 50 years? And any corporate merchant caught accepting, or attempting to accept (i.e. a pay with bitcoin option), bitcoin as compensation will be subject to penalties equal to the last five years GAAP net income? How easy would it be to enforce this law? There are something like 50 retailers that account for 95% of US retail. You just task one guy with going on their websites every day and trying to pay with bitcoin, if he can, they broke the law. You would just police the merchant, not the customer. You could also make it illegal to provide an exchange of bitcoin for USD. Isn't that an activity that can be easily tracked? Those are extremes, but it wouldn't be difficult to create incentives to avoid the use of bitcoin. Governments can put people in prison, and people generally don't like prison...

I understand that the #of bitcoins is fixed, but this does not answer my question. Creating these cryptotokens is like creating money, as long as those tokens have a value and there is no economic benefit created (at least for the time being) with these tokens. This makes it inflationary in the real world. So the addition of these new currencies/stores of value on top of all of the currencies/stores of value already existing in the world is inflationary. I agree. I think any value these new currencies capture long term will come at the expense of something else, I would expect a decrease in value of fiat and precious metals. I think gold will be reduced in value somewhat, but gold will still have value because it has a feature Bitcoin doesn't (i.e. you still have it when the electricity goes out or the internet goes down), it is the best non-digital store of value. I would expect other metals like silver and copper to lose all value over the value they have as a commodity for industrial/commercial uses. I think the majority of value loss will come from fiat currencies as they will be used only for transactional purposes and lose all store-of-value uses almost completely and probably lose much of their transactional value to one or more altcoins as well. What is the mechanism by which 1 USD becomes worth less than 1 USD? It can become worth less in real terms through inflation, i.e., you can purchase fewer goods with 1 USD, but 1 USD is always 1 USD. It's not as if you can take 100 USD, and then it becomes 60 USD to "make room" for bitcoins valued at the equivalent of 40 USD. 1 2030 USD will buy less than 1 2018 USD used to and in 2030 the Bitcoin market cap will be equal to 4-12T 2018 USDs. Money doesn't work like that though... it doesn't lose its nominal value (money is by definition nominal). I guess what you're assuming is USD gets used less frequently and therefore the money supply grows by the new amount of bitcoin but velocity declines, because USD is spent with less velocity. That's the only mechanism I can think of by which a new money supply wouldn't be inflationary.

What happens when all of the bitcoin becomes worth $7 trillion like gold? Then why not own bitcoin2, which is completely identical to bitcoin, also is limited to 21MM coins, but is priced at $1 instead of $333,333? $1 has upside to $333,333, $333,333 only has downside. That's your substantially better characteristic. Once the $1 goes to $10 on that logic and makes the news, everyone says "here we go again! this is the next bitcoin!" and loads up on bitcoin2.

I understand that the #of bitcoins is fixed, but this does not answer my question. Creating these cryptotokens is like creating money, as long as those tokens have a value and there is no economic benefit created (at least for the time being) with these tokens. This makes it inflationary in the real world. So the addition of these new currencies/stores of value on top of all of the currencies/stores of value already existing in the world is inflationary. I agree. I think any value these new currencies capture long term will come at the expense of something else, I would expect a decrease in value of fiat and precious metals. I think gold will be reduced in value somewhat, but gold will still have value because it has a feature Bitcoin doesn't (i.e. you still have it when the electricity goes out or the internet goes down), it is the best non-digital store of value. I would expect other metals like silver and copper to lose all value over the value they have as a commodity for industrial/commercial uses. I think the majority of value loss will come from fiat currencies as they will be used only for transactional purposes and lose all store-of-value uses almost completely and probably lose much of their transactional value to one or more altcoins as well. What is the mechanism by which 1 USD becomes worth less than 1 USD? It can become worth less in real terms through inflation, i.e., you can purchase fewer goods with 1 USD, but 1 USD is always 1 USD. It's not as if you can take 100 USD, and then it becomes 60 USD to "make room" for bitcoins valued at the equivalent of 40 USD.

+1. Which is likely to be around 6% in the long-run. When Buffett benchmarked his hurdle to treasuries, there were no index funds and trading costs were much higher. It was difficult for the average investor to replicate the index. And treasury yields were decent, so treasuries, relative to equities, were a more reasonable "passive" investment vehicle.

I'm not quite sure where you're getting your data, but I think the source is incorrect. Put/Call parity means that, in a liquid, shortable security, puts and calls are typically close to optimally priced relative to each other. (By put/call parity, I mean a call is equivalent to long shares plus a long put, and a put is just short shares plus a long call.) No thoughts on this trade, but put call parity applies to puts and calls at the same strike price. The suggestion here is to sell a put and buy a call at a strike 10% higher.

How is picking the top 10 biggest companies cherry picking? I'm not saying no companies need to employ capital to grow... Ok. Cap Cities was a $10-15Bn company in todays dollars in the 80s. Washington Post was smaller. It's not nearly the same scale. Yes, there have always been some businesses that had minimal investment needs. I never said the only reason interest rates are low is because the economy needs no capital to grow (and I never said the economy needs no capital to grow). I said the reduced need for capital is likely one factor. How big of a factor? Who knows... What do you think requires more capital, a manufacturing business or a services business? (If your answer is manufacturing businesses, you are right). How is the mix shifting between the two? (If your answer is services businesses are stealing share, you are right). If you answered both questions correctly, it should be obvious that the economy has less opportunity to reinvest capital. How much less, idk.

If you don't think equities would be worth more in a world with interest rates permanently at 3% than they would be in a world with interest rates permanently at 6%, you shouldn't be investing. But there is no such thing as a world with interest rates that are permanently at 3% with no fluctuation. Just like equities, interest rates fluctuate. Even when specific yields are targeted by central banks, like the BoJ, bond prices and equity prices still fluctuate. Given a market where interest rates fluctuate, and the risk profiles of debt and equity are NOT interchangeable for a large number of investors, and there has been no historical correlation to support equities being priced off of interest rates, it's even more absurd to use it as an argument to justify some of the highest equity valuations EVER witnessed even while it doesn't hold true across other equity markets. You're correct. But the lack of correlation is meaningless if you agree that permanently lower interest rates make equities worth substantially more. Look at my prior posts, I'm not saying these equity prices are fair. I said to ask if equity markets are in bubble territory without asking if bond markets are in bubble territory is a worthless exercise. Because if bond markets aren't in bubble territory (judged in hindsight 20 years from now), equities will have been by far your best option at preserving and growing purchasing power (i.e., not in bubble territory today).

To argue that there has historically been zero statistical correlation between equity values and interest rates, therefore interest rates aren't a factor in determining intrinsic value, is ridiculous. If you don't think equities would be worth more in a world with interest rates permanently at 3% than they would be in a world with interest rates permanently at 6%, you shouldn't be investing. If you believe markets can predict future interest rates with 100% certainty and are perfectly efficient, the lack of correlation would matter. But both of those points are false.

We'll have to agree to disagree. Facebook has a market cap of $480 billion. Who owns that capital? The public. What can they do with it? FB is worth what it's worth because it'll soon by able to distribute out $20-30 billion/year. What are the shareholders going to do with that capital if it doesn't just pile up on the balance sheet like at AAPL/GOOG. McKesson generates 5x more revenue than FB, but the market cap is 7% of FBs... so what? FB created much more value (i.e. savings), and didn't create any reinvestment opportunities along with it, so now that capital has to compete with prior capital for the same universe of investment opportunities. Yes, if you pick out the businesses that Buffett labels "capital intensive," they are capital intensive. My point was more about AMZN/MSFT/GOOG/FB/etc., not BRK. But outside of the capital intensive parts of BRK, which maybe represent 25% of the $420Bn market cap, does the rest of the business have enough reinvestment opportunities to invest more than a tiny fraction of earnings in new projects (not acquisitions of existing businesses)? The point I'm making isn't that todays companies don't need to raise equity and historically companies did, the point is todays largest companies can barely reinvest any of their profits, whereas historically companies, even the largest ones, had many opportunities to reinvest capital. Do you have any statistics behind this, or is it just anecdotal? The question isn't "Is the # of machines today greater than it was 10 years ago." It's "Is the investment, in real terms, in machines greater today than it was 10 years ago as a % of savings."

Which are these biggest companies in the world than need no capital to grow? Well, the top 10 biggest market caps in the world today are Apple, Google, Microsoft, Amazon, Berkshire Hathaway, Exxon, J&J, Facebook, JPMorgan, and Wells Fargo. Apple ($160Bn net cash), Google ($90Bn net cash), Microsoft ($50Bn net cash), Amazon (no net cash, but finances itself entirely with working capital), Facebook ($30Bn net cash). WFC/JPM need capital to grow, but generate 150% of their capital needs from earnings. J&J, not sure about their capital needs, are consumer branded companies growing volumes meaningfully? BRK, generates all of its capital needs internally. Not far from the list are V/MA, who need no capital. With an economy increasingly dominated by web based and/or service based businesses, there is simply less capital needed to grow than in a manufacturing intensive economy.

Buffett has answered this question, but I've never seen anybody point it out. In his 1999 Fortune interview he says " If government interest rates, now at a level of about 6%, were to fall to 3%, that factor alone would come close to doubling the value of common stocks." At the time, the market multiple I think was 30x+. He was just hypothesizing on the only ways that investors could do well investing in stocks at that time over a 17-20 year timeframe, but he accidentally predicted the future. Interest rates are 3%. This question is just a derivative of "Is the bond market at bubble levels?" And for that, who knows? Real interest rates have been declining for decades across the developed world. It doesn't seem unreasonable to assume that an aging population that has more savings to invest coinciding with a time period where there aren't many investment opportunities could produce much lower real rates. The biggest companies in the world today need no capital to grow.

To add further to your point, while Liberties did not have GAAP earnings, they were *reasonably* valued on a FCF & EV/EBITDA basis. I don't think you can make the same case with Amazon... What TCI spent on m&a and debt interest, amazon is mostly spending organically. That's different optically, but it's all really growth expenses when you get to the bottom of it... If Amazon spent $1 billion to purchase a single billboard in Montana with the Amazon logo on it, it would likely grow revenue. Is this a "growth expense" that should be taken out to normalize earnings? If you gave me billions of dollars a year to piss away I could grow revenues really fast too. How do you determine that Amazon's "growth expenses" are good investments and not billboards in Montana? They may turn out to be great investments, time will tell. But it is very far from the TCI days where they were investing in monopoly cable systems where the unit economics were clear. There is only one thing I'm certain of when it comes to AMZN, that is that this (and the AMZN thread) is going to be an incredible thread to look through in 10 years. There will be some amazing lessons, one way or the other.

No disagreement (or agreement) on the hibernation thesis. My point was simply that if you found a few companies you wanted to put 20-30% of your capital in, how on earth could you say they are destroying value by buying back stock with low cost debt? The two statements are totally inconsistent.

When you combed through the universe of potential investments and landed on the "selected few," what kind of returns were you expecting those businesses to generate if held in perpetuity? Surely more than 5-6% right? So how is it "destroying value," to issue debt yielding 4-6% to buy back securities you expect to earn substantially more? What about that is an annihilation of capital allocation rationality?

99.999% sure this is incorrect. The standard is material, non public information obtained from somebody that had a duty not to disclose. You can't ask the CFO of a company what earnings will be next quarter then trade on it and say I never agreed not to trade on it.

You're making this question a lot more difficult than it needs to be. If the market projects the cash flows of a business will be $0 for 364 days and $107 on the 365th day, and $0 thereafter, the present value of that business at t=0 is $100 using a 7% discount rate. In 1 year you'll have $107 in cash if the markets projection is correct. Your return will be 7% even though the market accurately predicted the cash flows.

"Most analysts feel they must choose between two approaches customarily thought to be in opposition: "value" and "growth." Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive." W.E.B.

“All it does is look at the last trade and calculate trades that would be equivalent of, ‘What if this security increases 50 percent in value in the next three seconds,”’ Meyer says of his program. 99.999% chance this is a ponzi scheme.

Unless 30 year interest rates are 2.3% for the next decade or two... Your alternative to stocks right now (other than cash) is to guarantee destruction of about 1/3 of your principal in real terms over 30 years if you're in the top tax bracket. If that doesn't change then even if margins fell this probably wouldn't be a bubble and if margins stay here stocks are way undervalued. Who knows if that changes, although it seems crazy to think it wouldn't. Can you please elaborate / clarify what you mean? 30 year bond interest rate? What alternatives are you referring to? I can't really understand what you are trying to say. Thanks! I'm referring to 30 year treasury rates. You could get better in riskier bonds obviously, but the point is the same. Yields on anything safe basically guarantee no returns or worse over long periods of time. Relative to that alternative, stocks don't look expensive.