LearningMachine

How Twitter built its work-from-anywhere culture over time by offering work-from-home to compete for talent instead of competing just on compensation: https://www.washingtonpost.com/technology/2020/10/01/twitter-work-from-home/?arc404=true Wonder how many companies will follow this wave permanently?

If I were to consider the dimensions of (a) human time and (b) human effort, both (i) taking the stairs and (ii) driving around & parking in a dense city like Manhattan would see an improvement with elevators and autonomous cars, albeit different levels in cities vs suburbs. With autonomous cars, improvement in human time might be bigger on a percentage basis in dense cities than in suburbs. I also agree that improvement in human effort wouldn't be as big with autonomous cars as it was with elevators. By reducing (a) and (b), I think autonomous vehicles can make both (1) exurbs and (2) denser cities more livable. Some folks prefer #1, e.g. families wanting space for kids and pets. Some folks prefer #2, e.g. singles wanting human connection with many other humans. Here is a write-up that takes a balanced approach to the topic without getting religious about one extreme vs. the other: https://medium.com/jordan-writes-about-cities/will-autonomous-vehicles-lead-to-greater-sprawl-or-greater-density-yes-4e32b0fb3d35

When elevators came to buildings, desirability of high rises went up. Because of human need for in-person connection with other human beings and human need for in-person specialized services, I wonder if resolving issues resulting from density will unlock more desire for density. When fully autonomous cars come to cities, I wonder if it would be similar to elevators coming to buildings?

Thanks SharperDingaan for sharing. To help us learn more, would it be possible to share more, e.g. your general source of "standard practice", and what frequency your source indicates for "on-site" in the burb and bigger "onsites" in the central location? In the tech world pre-Covid, some leadership teams did "offsites" once a quarter to a year and the location was determined based on making sure everyone could get there easily. Sometimes the location could be another building within the same company or a conference room at a hotel nearby. So, I was thinking Sundar was drawing an analogy to "offsites" when he mentioned "onsites". Because these onsites will now probably be done by all employees not just leadership teams, and they are meant to replace regular face-to-face daily meetings, maybe the frequency could be more than a quarter to a year, e.g. maybe once a month, or more in some unique cases that would benefit from higher frequency. I was thinking the location would be based on what works the best for the employees in the region since over time, a team could be formed from employees across the entire region not just one suburb. Over time, the location that would work for all employees in each team would tend to be a centrally accessible location. Some companies might also want to cater to both (1) young talent that wants to come into office more frequently, and (2) senior talent with families that would rather work from home. I think this is why Facebook, Apple, Amazon and Google are acquiring/leasing sites in Manhattan for the young talent to come in more frequently, and to potentially do "onsites" there as well for senior talent. All that said, looks like we both agree that the square footage needed would be so much lower than what it is today. This will end up causing both (1) company permanent sites to shrink in size, and (2) senior employees with families to spread out more into exurbs or smaller towns nearby as they need to make the trip to "onsites" only once in a while instead of daily.

Looks like a very balanced approach. For us as investors, I'm thinking two implications from his two statements in his interview with the Time Magazine at https://www.youtube.com/watch?v=hpn1rebBfqY: More employees could spread out into exurbs: Sundar wants to give employees flexibility so that they don't have to commute 2 hours, e.g. on Fridays, as those commutes prevent employees from being able to make plans with friends and families. This would mean more employees could move farther out, increasing the supply of housing they could consider for living, in turn, decreasing the price of housing within 45-min of campus. Company sites could shrink in size: Sundar wants to have concept of "onsites", when employees get together to meet in person. If employees are going to meet only for "onsites", this could reduce the square footage needed for company, decreasing demand for office space, decreasing office supply. As other companies do the same, looks like this means the impact will be effective supply available will be higher for both office space and housing options. In other words, vacancy will be higher. Incremental supply can cause big swings in price as 20% vacancy did in Detroit. What are the implications for mass transit systems? If WFH permanently cut commuting days by 50%, how do, for example, the LIRR (NYC), Metro-North (NYC), NJ Transit (north and central NJ) and SEPTA (Philly) survive? If you don't have those commuter rails, how do people get into the city on the 50% of days they want to come in? Also, what about climate change? It is common to see companies pushing toward (at least purported) carbon neutrality. How can you do that if your HQ is inaccessible except by car, which would be the case for essentially all suburban or exurban locations? More broadly, many cities are the hub in a local hub-and-spoke (road and rail) transport network that may be not be so easy to unwind. Maybe there are short-term to medium-term hiccups for transit, but I wonder if long term, businesses located on the outskirts will be able to afford to move their shrunk footprints into Manhattan for its central transit-accessible location, giving themselves access to wider pool of employees to pick from, or choose to do their "onsites" in a central location accessible through transit for most employees in the region.

Looks like a very balanced approach. For us as investors, I'm thinking two implications from his two statements in his interview with the Time Magazine at https://www.youtube.com/watch?v=hpn1rebBfqY: More employees could spread out into exurbs: Sundar wants to give employees flexibility so that they don't have to commute 2 hours, e.g. on Fridays, as those commutes prevent employees from being able to make plans with friends and families. This would mean more employees could move farther out, increasing the supply of housing they could consider for living, in turn, decreasing the price of housing within 45-min of campus. Company sites could shrink in size: Sundar wants to have concept of "onsites", when employees get together to meet in person. If employees are going to meet only for "onsites", this could reduce the square footage needed for company, decreasing demand for office space, decreasing office supply. As other companies do the same, looks like this means the impact will be effective supply available will be higher for both office space and housing options. In other words, vacancy will be higher. Incremental supply can cause big swings in price as 20% vacancy did in Detroit.

Thanks investmd. Yes, sure, I'd be interested if we can get enough of a quorum. I'm thinking folks might be more interested after public equities have gone down and back up to stable levels. Currently, folks might be focusing on public equities getting priced correctly soon :-).

BPCAP, would it be possible to share your reasoning behind this so that we can learn from your perspective?

Thanks Jurgis and Spekulatius for your wisdom. I was looking for someone to talk me out of it. You're right on about execution being key here. You're also right there are several players looking at prescription delivery from different angles, and a lot of money is chasing same-day prescription delivery companies, some of which might execute better than NowRx. Because it also impacts Walgreens/CVS, I'll raise it there.

Thanks Jurgis. I was thinking moat is in switching costs for their customers. Their # of customers is growing exponentially. Regarding novelty, I was thinking it is not a prerequisite for a good investment. I understand idea is easy to come up with. I've seen small local pharmacies offer same day delivery, but it has been like what the taxi-business was like - business with low customer satisfaction and time wasted in coordination. Currently, there isn't a nationwide company offering the services that are a combination of Walgreens/CVS combined with Uber/Lyft, and there is a need in the market for that.

I'd like some help of our collective wisdom to figure out the probability of profitability and valuation for NowRx. Here are some links for more info: https://www.seedinvest.com/nowrx/series.b.2 https://sec.report/Document/1702206/000114420419045501/tv529845_253g2.htm Pros: Decent Customer satisfaction: They are claiming decent NPS. I haven't had first hand experience with their service but can relate to pain of picking up medication in person during Covid situation. Low Real estate overhead: They are claiming lower real-estate overhead, but I'm wondering if Walgreens and CVS are able to achieve effectively no real-estate overhead costs for pharmacy part of their store through sales of higher-margin merchandise to heavy foot traffic. Cons: Higher Operating Expenditures: Their Operating Expenditures look high given their claims of low OpEx. I'm wondering if part of it is because of the costs of drivers to ship, which Walgreens called out in a recent quarterly call as one of the reasons they prefer customers to come to their store. Will they ever become decently profitable without diluting again and again? Lower Gross Margins: Their gross margins were lower than other pharmacies in one of the docs I came across. They claimed it is because they sell more branded medication. I also wonder if their little negotiation power won't be able to compete with higher-share retailers like Walgreens and CVS in negotiating lower prices on both branded and generic medications. Continuing Losses: The company has been making losses each year and projected to continue to make losses for now. Doesn't surprise me given high operating expenditures and lower margins above. Strong Competition: Can Amazon just kill NowRx along with killing Walgreens and CVS by introducing Same-day 2-hour Prime shipment from their PillPack acquisition? Amazon has already started getting licenses in each state. Now, they just need to have a pharmacist in each MSA just like NowRx. Capsule is also getting higher funding already, and planning to grow nationwide. High Executive compensation from raises: Is it to too early for exec team to be taking high compensation from raises?

My guess would be that BRK would not be interested, partly because you can't borrow at close to 0% interest rate for the long term in Indian Rupees. Rule of law, i.e. contract enforce-ability, truth in accounting statements and corruption, would be another issue.

Agreed, pupil, we shouldn't read too much into this one data point, and that too from mid-March 2020. Good to know though that was the price for "blank canvas" at that moment.

Wondering if anyone knows how the quality of square footage of VNO, PRGE and ESRT compares to Morgan Stanley Headquarters at 522 Fifth Avenue trading at $609 PSF?

I think he does this when he hasn't gotten in deep to understand which individual companies will be winners, and makes a relatively macro bet spread across companies he doesn't understand deeply. Sometimes, he has made it out ok with this approach, e.g. railroads before picking BNSF, South Korean stocks, and to some extent with banks before picking BAC. Other times, not diving in deep did not turn out well and he had to admit the mistakes, e.g. Irish banks during GFC, and airlines recently. I still think he bought Japanese stocks partly because he didn't want to take currency risk by buying non-Japanese stocks using proceeds from Yen-denominated bonds which will need to be paid back in Yens. Sure, he probably also figured maybe these stocks are not that expensive relative to the interest rate he is paying for Yens. I don't think he understands the companies he bought deeply at least so far given the peanut-butter-style investment. Sure, maybe he also figured in the industry he purchased, companies maybe don't compete very heavily and all might have some history of coexisting and making somewhat reasonable returns at least compared to the interest rates he is paying. I haven't looked into the companies deeply myself - a cursory glance makes it feel like they are not that simple to value. The stake of 5% in each company is too little to take a year to buy if the only concern was not impacting the market price. I wonder if he slowly yen-cost-averaged during dips because he didn't have conviction on what the true value of these companies might be, and relied on the market to figure out the value for him over a year, and because he is buying a basket, maybe thought he won't lose money in the long run given he is buying a basket and is getting low interest rates on Yens. Now, the advertisement might let him borrow Yen cheaply again to deploy in fully-owned companies he will understand deeper. This is similar to the advice he gives in the U.S. that if interest rates were to stay this low and taxes were to not go up, S&P 500 (a basket of stocks) is a great buy for the next 10 years. Now, with Yen, he is able to keep the interest rates this low by selling longer-term fixed bonds and buying a basket of stocks in Japan in an industry that he thinks might be reasonable to own at a macro level.

I noticed that too. It almost felt like it was trying to call attention to it trading at lower Price-to-Book than the companies with higher market cap currently, i.e., MSFT, AAPL, AMZN, GOOGL. That is almost like telling folks to buy BRK stock instead of MSFT, AAPL, AMZN OR GOOGL, increasing BRK's price, making it harder to do buybacks. Wonder why it was worded that way because I am sure Buffett knew local U.S. investors would also be reading into the Press Release on Berkshire website. Maybe it was always his dream to make BRK the highest valued company in the U.S. before he departs, and making that statement makes him feel he has reached that dream, and he wanted to call that out before anything happens to his health. Hope his health is ok. Maybe he started thinking more about his mortality risk as a result of turning 90.

Thanks ShaiDardashti for sharing the 0% coupon bond filing: https://www.sec.gov/Archives/edgar/data/1067983/000119312520064645/d853116d424b5.htm. Ingenious! By the way, 625.5 Billion Yens translate to $5.911 Billion USD at today's currency rate for me.

Makes sense why Berkshire started issuing yen-denominated bonds at ultra-low coupon rates as low as 0.17% in 2019 for the first time in its history. Starting April 2019, he borrowed 625 Billion Yens at low fixed rates with long maturities and used the cash to buy Yen-denominated securities that probably have a much higher earning yield than the ultra-low interest rate he has to pay. Pure interest rate arbitrage without spending Berkshire cash and without taking on currency risk.

A big telecom company in Vancouver, Canada went along the same path, and guess where it led eventually? Some years ago, everyone was working 100% in offices. Then, they started letting people WFH one day a week. After sometime, that went to WFH two days a week. After sometime, it went to working from office two days a week, and rotation model similar to what JPM is thinking, where each team knew which two days of the week they were in office. Then, they went to "hoteling" at the team level where you could book one day a week for your team. Then, the teams started meeting downtown for lunch one day a week instead of going into office. The company then started realizing teams are socializing outside and not even coming to office. This was all Pre-Covid. Then Covid hit. Having had that realization before Covid already, the company told folks to get their stuff out of the building by end of July because they are going to now sell the building.

Regarding the separation, I think you might be thinking about investment banking business, where (1) one arm is acting as seller's broker, and (2) another arm invests bank's own balance sheet. What I was talk about was a bank that (a) takes deposits and (b) lends out that money as loans/investments. Yes, you hit it right on the nail that banks and insurance companies are not "businesses that are so wonderful that an idiot can run them."

10% vacancy rate? Lets hear more thoughts. Fyi, we are already at 17.1%: https://www.reuters.com/article/us-usa-property/u-s-office-apartment-vacancy-rates-rise-marginally-in-second-quarter-reis-idUSKBN2492QJ

I have been following this thread, and I feel folks have been taking extreme positions: (1) office building is dead, or (2) we are going back to office. I think everyone will agree that what will end up happening will be somewhere on the spectrum between #1 and #2. I wonder if we should express that point on the spectrum by what would be the vacancy rate in office? Moody's is now predicting vacancy of 19.1% in 2021 and 20% in 2022: https://www.bloomberg.com/press-releases/2020-08-17/moody-s-analytics-forecasts-us-office-vacancy-rate-hitting-historic-high-of-19-9-in-2021. What do folks think vacancy rate might be post-Covid in 2021-2022? Based on what I'm hearing, I think it will probably fall between 20% and 30%. I wonder if folks might be underestimating the impact on pricing from 20-30% vacancy in office and retail. Because prices are based on incremental supply/demand, a 15% vacancy can cause 50% drop in prices. In Detroit, 20% vacancy in houses caused holding banks to sell houses for $1 each to avoid paying property taxes and to avoid legal liability. Imagine you own 10 million sqft of office space, which was all rented pre-Covid and could cover your mortgage payments and property taxes. Imagine, post-Covid only 75% is rented. If you couldn’t cover mortgage payments and property taxes with the rent anymore, what will you do with the remaining 2.5 million sqft? Will you sell/rent it for whatever price you could get? What if many such folks have to do that to survive? Would they do it even if price is 75% off? Also, what do folks think the effect of that vacancy rate will be on NYC office PSF? What is lowest salvage PSF that would make it profitable for a developer to convert office to condo or multifamily given rental rates at the time?

...and, then it was cre

I think scorpiancapital's hypothetical question is using a well-run bank's deposits vs. a well-run insurance company's float to make investments. I have been thinking about this as well. Munger and Buffett have talked about this too. They were not happy when they had to sell their bank as a result of the 1969 Bank Holding Company Act. Here is one of the videos: With the insurance companies, you get a little more flexibility in what you can invest in and regulators don't jump at you the moment you are making losses. With banks, as we saw in the GFC, regulators can really make you sell shares at the bottom to dilute your shares by orders of magnitude (Citigroup) or take over the bank (WaMu), when your Common Equity Tier 1 capital ratio is too low. If you want to own equities in the bank using depositors' money, the regulations make you count them at a multiple when computing your Risk Weighted Assets. For example, for publicly traded equity, adjustment factor for RWA is 300%, for non-publicly traded equity, it jumps to 400%, and for other equity it jumps to 600%. This effectively has almost a proportional effect on how much base Common Equity Tier 1 you need to hold. So, effectively your leverage goes down. Then, if the marked-to-market prices of your investments fall, you have to increase your Common Equity Tier 1 to meet the required capital by recapitalizing at that time, i.e. by selling shares at the bottom. That said, I think using depositors' capital to make investments is probably doable, but you need someone meticulous to be running the bank. If I was running the bank, I can think of several ways to juice up the ROA without taking any additional risk. I bet Munger and Buffet are thinking the same when they say they didn't like having to sell the bank, and wouldn't mind owning 25% of a bank now that the rules have changed. However, risks are still there as you need to have processes in place to make sure your employees don't screw up in making loans/investments just like risks are in place that your underwriters don't screw up in insurance, but with banks risks are more SEVERE and can materialize really FAST with regulators ready to jump at you if marking your investments to market and CECL losses on loans take your CET1 capital under what you need to have.

I calculate below about $15B of securities sold in Q2. Some of it was the airlines before the AGM. I wonder if he also sold some of the remaining banks or maybe the overpriced AAPL (even though Q2 statement says AAPL is part of top four holdings)? At the time he sold these stocks in Q2, he probably didn't know that BAC price was going to get attractive in Q3 for him to purchase more. If the sales had been after BAC purchase, it would have been more likely to be banks for him to avoid conflict of interest with other banks. However, sales were a lot before BAC purchase. So, could it be overpriced AAPL or something else, or he disliked some banks so much that he wanted to sell them even when he didn't know he was going to buy more of BAC? WFC holdings are about $8.6 B, JPM is $5.7B, USB is $5.6 B and BK is $3.3 B. -----------Calculation of $15B stock sales ---------------- We know already that between April 23 and July 7, 2020, he bought 19,374.65 BRK class A equivalent shares. Assuming he was able to get it for about $170 per Class B share, that is, for $255,000 per class A share, and assuming further that the purchases were entirely in Q2, he spent about $5 Billion buying back BRK in Q2. Despite that, the cash position went up from $137B to $147B in Q2. 5+10=15 Billion The Dominion purchase was announced on July 5. So, that wasn't in Q2. BAC purchases were started on July 28. So, not in Q2 either.