Nomad

I don't get why the Robinhood apologists pretend that zero commissions are some revolutionary new thing. They're not. Back in 2006 there were already discount brokerages offering zero commissions on stock trades. Zecco offered a limited number of free trades pre-GFC, and so did several other brokers. Furthermore, Robinhood's PR team acting like fractional share trading is some brilliant new innovation is also highly disingenuous. I've been able to trade fractional shares at other brokerages for a long time now. Using the fractional trading point to attack Buffett as a rent-seeking elite is even more absurd, given that Buffett specifically created Berkshire B shares in the mid-1990s to prevent individual investors from getting duped by fee-collecting promoters who were setting up trusts to make BRK fractional interests available to the masses. The difference between other discount brokerages and Robinhood is qualitative. Other discount brokers offer zero commission trades and fractional trades but don't make use of the gamification elements (flashing lights, Tinder-like swiping when you make a trade, etc.) to the extent that Robinhood does. I've never seen confetti pop up on someone's screen when they make a trade at Fidelity. Saying that people will learn by losing money on Robinhood and "graduating" to more sophisticated investing is a bad argument. It's the equivalent of claiming that a certain amount of people who enter the Vegas casinos will learn from their mistakes and one day study linear algebra and advanced probability theory. It may be true for a vanishingly small part of the population, but it's not the reality for the average person, especially one who is 1-2 years out of high school and who doesn't know any better. Add in the payment for order flow and the history of questionable moves, like making its users' aggregate trade data publicly available in an API, and it's clear that Robinhood's interests are diametrically opposed to those of the retail investor. That's why Munger and Buffett attack it. Not because it's "innovative" (it's nothing of the sort), but because it's a shady company run by shady people.

Wow, Munger really did let the cat out of the bag on that one! Greg seems like a great leader, very candid, humble, and capable. Nevertheless, I'm hoping for many more years of WEB and CM at the helm.

Buffett and Munger have done more to help the individual investor than anyone except for Jack Bogle. I can't believe that someone in the Robinhood PR department thought it was a good idea to release this statement. What an embarrassment of a response.

WEB: Berkshire subsidiaries are seeing "substantial inflation" in input costs

WEB on the failure of Berkshire/AMZN/JPM joint venture to reduce healthcare costs: "We were fighting a tapeworm, and the tapeworm won."

Greg Abel on Kraft Heinz: Strong manager and team is now in place and we are pleased with them and how they are reducing debt levels WEB: CEOs often go out and repeat things to the public that then become a catechism, and no one at the company can then go out and contradict them. This creates company path dependence and leads to "enormous errors." Hard to tell the story without giving examples but WEB doesn't want to criticize people by name. Munger: "What you prattle out all the time, you're pounding back in, even if it's wrong."

Ajit Jain on writing insurance for Elon Musk and SpaceX's mission to Mars: "No thank you, I'll pass." WEB: "I would say it depends on the premium, and I'd have a different rate if Elon was onboard vs. if he was not onboard [the rocket]"

WEB on cryptocurrencies: "I'm going to dodge that question...I'm all right on that one." Munger: "Those who know me well are just waving the red flag at the bull. Of course I hate the Bitcoin success. I don't welcome a currency that's so useful to kidnappers and extortionists...the whole damn development is disgusting and contrary to the interests of civilization. And I'll leave the criticism to others."

WEB on Precision Castparts: I paid too much in relation to average earnings; for example, GE doesn't need as many engines as we thought. WEB: "I'll continue making mistakes." Munger: "The rest of us will help."

Ajit put up $1.6b in reserves for pandemic losses; number is likely to grow significantly Sees another $70b in industry losses from Covid-19

Ajit Jain: "In the insurance business, we often think of pandemic risk as one of the risk factors...pandemic risk was totally underpriced by all of us in the industry...We haven't done a good enough job of correlating the risk and aggregating the risk." Mentioned event cancellation risk stemming from pandemics (such as Olympics cancellation) not being appropriately priced.

Munger on possible corporate tax increases: "We've adapted to the tax rate whatever it is." WEB: Taxes mean that the government holds "class AA" shares in Berkshire; they used to take 52% of corporate profits when I first started. Question is what would you pay to own a class AA interest in Berkshire? This class AA share is worth more if the tax rate is higher. Taxes are not passed on to the customer in many Berkshire businesses, and higher rates therefore do hurt BRK shareholders.

Munger: "Bernie Sanders has won...the Millennial generation is going to have a hell of a harder time getting rich than our generation...Bernie has won. He did it by accident, but he won."

Paraphrasing WEB: He's unhappy about not being able to put cash to work but sees no real good targets in current environment

Munger on SPACs and gambling mindset prevailing in the markets: "It's not just stupid, it's shameful."

Interesting comments on tech stocks - WEB just said that he doesn't see current FANG valuations as crazy. He was asked a question about tech valuations and rejected the premise that tech is overvalued. Munger also weighed in and said that Big Tech should not be broken up because it's an asset to our civilization.

Do you see the CCP allowing the RMB to float anytime soon? I think that a free-floating RMB is a necessary precondition to any reserve currency status. Even DCEP is backed by RMB so it doesn't necessarily get around the exchange rate issue. It would seem to me like allowing the RMB to freely float is a politically fraught decision for the CCP as it risks rendering China's huge manufacturing and export sector uncompetitive and pushing that industry to SE Asia / Africa. Granted, CCP can try to increase domestic consumption but industrial production is still a large part of Chinese GDP. You've raised some very interesting points on inertia however, and I think history demonstrates that no reserve currency lasts forever.

It's a very logical question and not one for which I necessarily have a rational, utility-maximizing response. For personal reasons and beliefs that I won't get into here, if I decide to contribute, focusing on what I can "get back" out of donating (even if I were to use the funds saved to donate more to others) defeats the whole spirit of giving and is something I avoid. Again, I don't claim it's rational, but I am not homo economicus and never will be.

I totally agree with this approach. While I hate to be cynical, I find that most "non-profits" are either grifts designed to enrich insiders (viz. the Susan G. Komen executive who was paying herself $700k per year), fronts funded by industry (e.g., "recycling" charities supported by plastics manufacturers), or giant tax evasion schemes (see Ingvar Kamprad's Dutch foundations for IKEA). The people who are running these things certainly aren't "non-profit." Buffett/Feeney are two of the good guys, but take a look at Charity Navigator or the BBB charity ratings sometime and you'll be utterly shocked by most things you see. The governance, accounting, and executive compensation at many charities is so bad that it wouldn't pass muster at a microcap cigar butt trading OTC. My approach is to mostly give directly, to always give anonymously, and to never take a tax deduction for my contributions. I don't claim that my approach is the right one, but it's in line with what I believe and that's all that matters to me.

Truly excellent job, thank you for taking the time to do this. Li Lu never tips his hand much these days, which is understandable, but you saved me well over an hour of waiting around to figure that out.

Saw this, and it's really too bad - I went to their website today and their "new" UI looks terrible too. If hardware designers changed the layouts for cars, microwaves, aircraft etc. as much as software designers did for apps and websites, there would be understandable outrage. But somehow it's OK for software designers to totally muck up the user experience, move controls, etc. and still have the cojones to call it an "improvement." Reuters used to be my go-to website for breaking business news but the new interface + paywall makes it unusable for me now.

The question that interests me even more is: Who are the sellers? And what are they doing after they sell? Moving to apartments, condos, assisted living? Staying in a different primary residence after selling off their second houses, etc.? Where are they putting the proceeds - more real estate? Or "STONKS" that seem to be fashionable these days?

Have they somehow forgotten that the Roaring Twenties ended in the Great Depression?

I recently picked up this fascinating little book (first published in 1992) about the Japanese bubble economy of the 1980s. One sobering fact that struck me while reading Mr. Wood's history is that it has now taken 31 years for the Nikkei to reclaim its nominal high from 1989. For those who are interested, I have compiled notes from the 2006 edition with approximate page numbers preceding each line. These are not intended to be a complete summary and all mistakes are my own: 6 Between 1985 and 1990 Japanese companies raised some 85 trillion yen ($638 billion) through the stock market alone in what seemed at the time like virtually free financing 7 "The bursting of the Bubble Economy has already laid to rest one myth, namely that Japanese stock prices always rise. It is in the process of demolishing another myth, namely that Japanese land prices cannot fall. The third myth, which will also soon be discredited, is the growth myth. The frantic economic growth of recent years based on a liquidity-triggered boom in private sector business investment is simply not sustainable." 7 By October 1, 1990, the Nikkei lost 48% from its all-time high of December 31, 1989 8 At the high, the Nikkei represented 42% of world market cap and 151% of Japan's GNP (vs. 29% of GNP in 1980) 11 Two trends abruptly ended the financial mania in Tokyo. The first was the doubling of interest rates between early 1989 and late 1990 engineered by a central bank finally determined to burst a dangerously bloated speculative bubble. The second was the phased deregulation of Japan's financial system, largely in response to foreign pressure. 11 Among the reasons cited during the bubble for lofty PE ratios were the peculiarities of Japan's accounting system and the country's cross-shareholding system, as a result of which more than 60% of shares owned are never traded 12 Money became virtually free in Japan, sparking a liquidity boom to beat all others. The banks used a rising stock market to literally create bank capital and boost their lending, and this extra credit was funneled into the two main markets (shares and property), boosting the value of banks' favorite collateral (shares and property) and allowing them to lend still more 13 "In a consensus society where there are few contrarians, yesterday's collective euphoria can too easily degenerate into tomorrow's collective panic." 15 By March 31, 1989, Japan's total private sector non-financial debt was greater than 277% of GNP 18 "The belief in the power of administrators is as seductively convincing as it is wrong, since it is based on the extraordinary premise that Japan is somehow immune from the laws of economics and the cyclical whims of markets. Japan's managed economy may delay the impact of market forces, but it can never repeal them." 23 Deregulation of interest rates began in 1985, but Japanese banks did not pass increased costs on to their borrowers - instead, they filled the widening hole in their operating profits by recording capital gains from the sales of stocks held in their huge portfolios 29 The Governor of the Bank of Japan, Satoshi Sumita, presided over precipitous monetary easing following the Plaza Accord and lasting from 1985 to 1989 35 Japanese banks had trouble liquidating the same assets they bought in the '80s. Wood: "It is hard to sell assets that yield almost nothing for the simple reason that no one wants to buy them." 40 Despite the collapse of the bubble, no Japanese bank had made any significant provisions against bad debts; in collusion with compliant regulators, they hoped to recover their money 43 The post-crisis bewilderment of the BOJ, reflected in a September 1991 paper, shows the "naïveté of the official bureaucratic mind, which assumes that rules will be adhered to in the midst of a credit boom, when history indicates precisely the opposite." The BOJ report found that "financial institutions' credit departments became 'dominated' by those seeking to promote loans; that loans were made against land and shares that were 'over-optimistically valued'; and that in some cases there was no on-site inspection of a property before a loan was made against it." 50 Japanese real estate was so overvalued by 1989 that in theory Japan could buy the entire United States by selling off metropolitan Tokyo, or all of Canada by hawking the grounds of the Imperial Palace 51 Property prices in most parts of Japan did not fall precipitously in 1991, largely because there were so few transactions. Although there was a wide gap between what sellers wanted for their property and what buyers were prepared to pay, the market was essentially frozen. 59 By the end of 1991, Japanese real estate investors were trying to sell overseas trophy properties bought only a few years prior as "long-term investments" in an increasingly desperate bid to cut their losses and raise cash 60 In the late 1980s, Japanese property companies piled into golf course development. The economic rationale of these developments hinged on pre-selling golf club memberships, which have an active secondary market in Japan. This golf club membership market became ludicrously overheated, and at the peak, Japan's 1,700 golf courses had a membership market value of some $200 billion 68 By the end of the Japanese bubble, condo prices within a 12-mile radius of Tokyo spiraled to more than 10x wage earners' annual income 88 Japan faced more currency difficulties than the UK and the US during their rise as economic powers, because the latter countries were able to invest their money in essentially sterling and dollar worlds, respectively. The Japanese had to assume forex risk every time they invested overseas, because there were no substantial investment outlets in offshore yen. 92 Japan's extensive system of cross-shareholdings, where companies would buy each others' shares to promote business relationships, resulted in a large amount of non-traded stock and commensurate overvaluation. At the peak of the market in 1989, only about 8% of Japanese bank shares traded freely, with the rest tied up in supposedly long-term holdings. 93 In 1988, Nomura ran a two-page ad in international print media titled "Copernicus and Ptolemy." The ad derided as Ptolemic flat-earthers those skeptics 'who point to sky high prices and claim that Tokyo is much too expensive and the market is unstable . . . instead of deepening their knowledge and enlightening themselves with the Copernican point of view.' Less than two years later, the mood had changed drastically: A group of Japanese stock pundits were discussing where the market was heading and had to have their faces blurred like drug dealers or government witnesses. No one in groupthink Japan wanted the dishonor of being associated with a declining market. 94 The average daily trading volume on the Tokyo Stock Exchange in 1991 was one-third of the levels seen in 1989 102 Even by the 1980s, Japan barely had a corporate bond market, because the post-1945 government kept the bond market all to itself. Companies' financing needs were funneled through the three long-term credit banks under the guiding hand of the then all-powerful MITI. In 1989, bond issues accounted for a minuscule 2% of all corporate financing. 108 After the Nikkei collapse, Japanese securities firms attempted to hang on to clients by recommending boringly sensible strategies such as government bonds rather than the speculative shares in the late 1980s 111 During Japan's bubble, companies became accustomed to generating short-term profits through stock speculation. Such profits, called zaitech, accounted for 15% of the 1989 earnings of the companies listed on the Tokyo Stock Exchange. 112 Between 1987 and 1989 Japanese companies issued some $115 billion of bonds with warrants attached. In theory, everybody won. Many warrants quadrupled in price as the market soared, and the bonds usually carried coupons as low as 1% to 3%. By the time companies swapped their dollar exposure into yen (whose interest rate was lower than the dollar's), their cost of capital turned negative - they were paid to borrow. The companies' managers were sure that the warrants would come into the money and be exercised, allowing them to pay off the bondholders with the proceeds. This turned out to be a miscalculation. 120 One of the big scandals of the Japanese bubble is that securities firms reimbursed certain politically-connected investors' losses and tried to deduct those payments as businesses expenses on their tax returns 126 One favorite loss-reimbursement ruse was buying back warrants at inflated prices. Another was dealing in government bonds with favored clients at slightly above or below prevailing market prices. 129-30 A marked feature of Japan's bubble economy was how yakuza gangsters became involved in the stock and property markets. The notorious crime lord Susumu Ishii solicited loans from Nikko and Nomura in an attempt to corner the shares of the Tokyu railroad corporation. Ishii bought 29 million shares in 1989 (2% of Tokyu) and the stock rose 164%. There is evidence that Tokyu shares were heavily promoted by Nomura, and in October 1989, dealings in Tokyu accounted for 90% of turnover at several Nomura branches. 132 A former head of research at Cosmo Securities was found dead in a cement mixer in 1988 after making the mistake of agreeing to manage money for an Osaka crime syndicate. Evidently, his performance during the October 1987 crash had not pleased his clients. 180 After the bubble, Japan's money supply growth slowed. Undercapitalized banks saddled with bad property loans were reluctant to lend, and companies were not so keen on borrowing as their cost of capital rose. Investors were no longer willing to pay premium prices for equity-linked securities like bonds with warrants. 181 Corporate Japan indulged in investment overkill in the late 1980s, embarking on the bigggest capital spending spree in the country's postwar history. Fueled by super low interest rates, capital spending accounting for 66% of GNP growth between late 1986 and early 1991. During this time, Japan's net new investment was a massive $3.5 trillion. 182 "When money seems free it is likely to be spent a good deal more lavishly than when its cost is prohibitive. Examples of wasteful Japanese investment range from fancy new headquarters buildings and brand-new laboratories without qualified staff to fill them to spending on every sort of staff amenity - shiny new corporate dormitories for employees, swimming pools, saunas, and so forth." 187 "[The] view that debt does not matter only makes sense, as does a lot of other economic hocus-pocus, when perfect equilibrium is assumed. In this case, the assumption is that all debts are serviced on time. But when debts go bad creditors get hurt, as money disappears and the money supply contracts."

My macro views are usually trash, so there's your warning. That being said, I hear echoes of Nikkei 1989 in the US market. Stocks, real estate, bonds - most everything is absurdly overpriced. The Japanese were at least smart enough to let the air out of their bubble, and Japan remains a prosperous society despite the post-'89 capital destruction. It doesn't seem like our own policymakers are that smart, to be honest. PS: The Nikkei finally surpassed its nominal high from December 1989 - it only took 31 years.