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Warren Buffett 1997 Email Exchange on Microsoft [pdf] (sabercapitalmgt.com)
143 points by breck 17 days ago | hide | past | favorite | 138 comments

What's more interesting to me was that the first third or so of the email was just banter/chit-chat about sports and family updates. Good reminder that business is always about relationships, and while cold hard factual analysis (which is the latter part of the email) is important, the social and relationship building elements are key.

This is so true, even relationships within your organization. These are the networks and skills the current WFH era is going to lack. Similar to how kids are missing out not on learning facts while out of school, but really missing out on learning how to build social bonds and networks because ultimately that's what helps you succeed in life. Twenty years from now the sociological studies on this era are going to be fascinating.

While I completely agree with you, it's also a good indication that the executives running these businesses are in some sense immature. They should not care about ego and other personal things. They should care about effectiveness. If they rely on a personal rapport before acting, it seems to be that they are incapable of acting objectively.

It's about being liked. A 40 year veteran technology sales exec repeats to me all the time, "People do business with people they like." Trust is a big part of liking someone, and trust is key to doing business, especially for Warren. There is no way he'd do business with someone he distrusted. That trust is earned, and this chit-chat is part of building trust. In persuasion, it's called 'pacing': showing that you have something in common, even unrelated to the business at hand, before trying to convince someone to take an action.

It's a bit strange that, Buffett, who made billions on technical analysis of businesses, makes decisions based on who can manipulate him with Dale Carnegey (who changed his named to Carnegie to make people like him) tricks. Perhaps it's a meta thing, where Buffet only works with manipulators because he knows they need to manipulate others to succeed.

Are you claiming that, in a business setting, all people who are nice to work and talk with are manipulators? Do you think Warren Buffet is incapable of discerning the difference between an authentically pleasant, kind person and a manipulator? Does he strike you as the kind of person to be easily duped?

Whether we're talking about Buffet or in general, this is a pretty dim view of work and of the world. Most of us spend the majority of our time at work. For many (for most, I hope), building relationships at work isn't the bizarre lifehack game I so often see it characterized as here. Instead, those human connections are intrinsically fulfilling and they help give meaning to the work and to our lives, which can sometimes feel arbitrary and meaningless.

I'll probably get flak for this, but here is my experience.

I was fired from my first internship in college. An internship. And the reason apparently had to do with these really subtle ways I interacted with the high level employees that nobody told me about. For example, it appeared to be that getting up and leaving at lunch break while a C-level is talking about his vacation to Cancun without saying "I'm leaving, it was nice to see you, thanks for the chat about Cancun" was a firable offense. So offensive, apparently, that immediately after my manager pulled me into a room and absolutely grilled me for it in the most direct, robotic language he could. The point was clear. Don't just get up and leave if a C-level is making small talk, even if it's on break. I should mention that this was a company that prided itself on its "startup mentality".

At the time this scared the shit out of me. My college age self started to believe: is this just how the real world works? You think all is fine until it isn't, because nobody told you their specific rules for what is acceptable to do or what they really think of you?

By the time they told me it was my last day I completely failed to be surprised. This was what they actually wanted to tell me to my face for so long. But the only place and time they were going to tell it to me was five minutes out of their busy schedule out of the sight of all the people programming and shooting the shit about Cancun and having a good laugh together. Building relationships with each other. Tangible, valuable relationships. "Real" relationships.

Today, with some added experience I more or less understand: Yes, that org was dysfunctional if that's what it came down to, all those unwritten social rules I had no way of understanding if nobody was going to tell me I would be fired for breaking them. I contrast this with my current job where this kind of thing would not be tolerated in the slightest, and instead their policy is tolerance of absolutely everyone and their thoughts and feelings, so long as they aren't disruptive.

But how was that manager talking to me before that lunch break?

With great rapport. I had found him very likeable up to that point. He guided me through the steps to set up my devenv and introduced me to the members of the team who he gave nicknames and shot the breeze with them and me and laughed and talked to me about his opinions on marriage and having children and appeared to be having a nice time with me, until he apparently started believing I was dead weight because of whatever unspeakable thing I did and the subsequent lack of any programming-related direction or input from him, leaving me stranded doing essentially nothing on clock time and a better case for firing, I guess.

Yet from his positive tone and the way he was talking about social things and such, I would hardly guess that if I crossed a line at some point that that would be the end of our relationship, and my relationship with the company, period.

So my understanding is that business relationships are different from completely social relationships with no strings attached. If you're perceived to be not fulfilling the duties that your manager expects, then no matter how much rapport or friendly conversations you have with them there will come a point where the gloves will come off and they have to speak in a completely functional manner, because that's what the business wants in order to optimize, and ultimately that's the most important thing when it comes to business relationships: getting things done and saving face, as opposed to being social and speaking from the heart, without pulling punches.

Here is my failing: this causes me to stray away from rapport, especially with higher ups, because my thought process cynically declares "it doesn't matter what emotions or expressions they use with you. If it comes down to it, they'd fire you in the end in spite of it all." I end up thinking because I am strictly in a business relationship with my coworkers, that trying to make social progress is futile, because I'm there to do work, and what I am mainly being judged for in going to work is how much effort I put in to solving the problems the org has and my abilities to actually accomplish the things they want, not how many witty stories I tell or small talk about hobbies I have. I am not saying it doesn't have its place, on break or even any time there is a meeting. It's just that I believe the only reason such social rapport is possible is because I'm still employed, and that is because I'm good at my job, not my social skills.

I don't really mean people who are assholes can get away with it, because they impact productivity. I just never felt the need for something that was putting on airs and obscuring the real reason I'm at work.

There's a definite normalization of coded socialization throughout the business world and most any occupation. It emerges from the same quality that makes founders see their business as a "child" - they are going to protect it, and usher you towards similarly protecting it, because that is the thing parents do above all else. That isn't wrong - lots of folks fall in love with ideas.

If a person should come in that room, though, and make the case that they are the child, you start to get this sort of dysfunction. And when you wield a lot of authority, it's easy to fall into a child's mindset and never get called on it, and there is nothing innocent about what happens in those scenarios. You can pathologize it with various terms of the psyche, call them predatory or whatnot, but the underpinning of it is that these people are good at turning people into doting chaperones, and they will seek out such wherever they go and twist the rules as needed so that their own mistakes are "oopsies" while those of others are "unforgivable".

The only counterbalance I know of is to be so committed to an idea of your own that you immediately drive away anyone looking to engage you in this way. Then you will be bad at "socializing", but good at finding others similarly committed to ideas.

I had a good friend who was talking to his boss once. His boss said, "we can be friends, you know." And my friend replied. "You can fire me. Can I fire you?"

I don't think this means that personal relationships at work are futile, just that there is another component to them. The business and structure of the business come first. Coming out of college, this is a bit confusing because when you're young nearly everything is personal, there is no professional life. Kids have to learn these boundaries, and, I'm sorry your lesson was harsher than it should have been.

This is a bit unrelated to the point you were making, but not unrelated to the story: the truth is that a lot of executives become executives solely (or at least primarily) for the prestige and respect the positions attract. Although I might not think there's anything impressive about being an executive in a company, many people do. And enough people do, that it effectively becomes the truth. It's something to look out for in future jobs:

- Do the executives use their captive audience to inflate their egos?

- Are employees afraid of the executives?

If so, you're not in a business, but in a social hierarchy. And one where people enjoy that they have power over others.

This was part of the point I was originally intending to make: why would the executive care that you left during his story? You'd think all he would care about is that you were an effective employee. But in your case he did not become an executive to improve the business. Likely he became one to attain status. This is what I mean: his status shouldn't have anything to do with the effectiveness of the business. But of course, the effectiveness of the business is not truly his primary concern. (if it were, he wouldn't hold a bunch of employees hostage talking about his stupid fishing trip.)

Being a strong business manager and being liked are not mutually exclusive.

Technical analysis means something else in investing than what Buffett does. And working to minimize psychological influences on his decisions is a big part of what Warren does.

Your post speaks a lot about your perspective of the world. But humans fundamentally aren't rational.

As well what I've found is that the ones that view themselves as striving towards being devoid of emotion and purely rational end up being some of the less rational ones because they are also the most unaware of their irrational/emotional blind spots.

Usually the ones that accept their irrationality are more successful becsuse they try to understand and account for it - not mistakenly think they can eliminate it.

We are all human - we have inherent flaws, biases, and irrational behavior. Success comes from acknowledging, understanding and managing them - not thinking we can eliminate them.

Oh my god, this is so true in my experience.

So everyone at the top is a robot? The reality is that we are human and it is important to communicate effectively...part of this is building relationship with others. I've met billionaires and 100's of millions in financial services and they are all great with people. This isn't because they are great guys....some are narcissists...its because it works!

The are robots, just a different kind. They are social robots, running mechanical social scripts like Furby. They are absolutely not open and honest.

This is clearly an unpopular opinion, but yes. If you need socialization to do business, then you're building a social network, or a social club. I don't think that generals in the army make small talk before giving orders. Yes, of course, there is going to be some personal chatter, but the ability to give orders does not depend on it. They can get down to brass tacks, and can work well with people they dislike personally.

I understand that businesses are NOT the military. But, I'm perplexed that business leaders are seeking out peoople they have a good rapport with rather than people that are effective. These will not always be opposites, of course, but I would think that effectiveness would always matter more than rapport.

Perhaps the problem is that in business there is no higher calling. It's all just about making money, and so there is generally not something worth setting aside your ego for.

You're drawing a false dichotomy.

You can both be effective and build rapport with people. It's both/and, not either/or.

In fact, building a rapport is actually an important part of being effective. Esprit de corps is a real thing (and a military concept, to boot), and you do not get it by treating people like robots.

However, you can't hack being kind and attentive. It only provides stat boosts if pursued as its own intrinsic good. Humans are really good at detecting false fronts - only world-class manipulators can consistently fool people into believing they're cared for.

Given all that, an effective analyst like Buffett will understand that he should look for people who are effective and personable. They're out there, and they're better economic bets than the ones who hobble themselves by pretending emotions, kindness, and taking an interest in others for their own sake are irrelevant (I hobbled myself this way for years).

I feel like your view is more of a reflection of you and your perspective (i.e. efficiency is #1 priority) rather than the world we live in. I feel like even in the military, relationships would be hugely important. If I was a soldier but hated my commanding officier...my performance would be very different to a situations where I had a great leader.

Great relationships and trust results in higher efficiency.

> executives running these businesses are in some sense immature

Ironically the truth is the opposite - there's a good reason for saying "all business is personal".

SAAS businesses are about optimising. Billion dollar deals are about relationships (and not always positive ones).

>Ironically the truth is the opposite - there's a good reason for saying "all business is personal".

I'm amused that often the same people screeching that Trump is incompetent will also deride him for going "on and on" about relationships.

He's the President. Government is not the same as business, nor should it be.

And corruption is different to good personal relationships.

Maybe think of business relationships as recurring rounds of Prisoner's Dilemma.

If you approach every transaction as mix-max, you'll get pwned by the long game.

You have confused two concepts: efficiency and effectiveness.

Not caring about ego or personal things would be more efficient. But it is not usually more effective when dealing with human relationships.

Raikes incidentally pointed out that tech business leadership is inherently unstable. Writing of Lotus 1-2-3 and WordPerfect:

> They were the leaders and they could have chosen to cannibalize themselves. But they didn't act fast enough and were scared that investing in the new paradigm would open the door for us-- ironically it was their slow pace that opened the door.

No business voluntarily cannibalizes it's core revenue stream. That snippet explains succinctly how monoline dominance in technology is inherently unstable, and also tends to explain the "Amazon" (ha!) approach from major technology companies of massively diverse investment and M&A to overcome this effect and maintain their core dominance.

Smart businesses do all the time. read "Innovator's Dilemma" If they don't, someone else would. Apple cannibalized the ipod with the iphone. Netflix cannibalized mail-in DVDs with streaming. Facebook did their desktop with mobile.

"improving a product" isn't "cannibalizing". Cannibalizing means destroying your profitable product to bet on something different that might not make money even if it succeeds, the how Linux or the growth of ther web cannibalizing Windows OS sales.

Netflix did not improve their mail order DVD business. Nothing about streaming improved their mail order dvd delivery.

What you have uncovered is that successful cannibalization in a product area in retrospect can seem like product continuation and improvement. But at the time - absolutely not.

To make the example clear think if Blockbuster had released a streaming service back then before Netflix. Obviously would've cannibalized their successful video store rental business. But assuming they won out, it would've just seemed like an evolution in video rental.

I could be wrong, but didn't apple cannibalize its ipod business with the release of iPhone?

Yes Apple does cannabalize its own products, iPod-> iPhone & notebooks -> iPads for instance. From what I remember this was also how Jobs et al. at Apple views it.

Basically if you want to be a innovator you can't worry about eating your own.

Incidentally Tesla has done the same with Model 3 / Y eating up S / X sales.

> with Model 3 / Y eating up S / X sales.

Eeehhhhh. Not really. They did discontinue the low-end S editions, yes - but the number of people who could have afforded to buy an S who opted for a 3 instead aren’t that many people.

Tesla opted to remarket the S/X as flagship cars instead of being their mainstream offering.

It would be cannibalism if Tesla launched an extended wheelbase/station-wagon/estate/shooting-brake version of the Model 3/Y while still getting the S/X around.

Actually - I will concede that the Model Y probably is eating into sales of the X.

iPhones are just fancier iPods that consumers are willing to buy again every other year, instead that once a decade. It seems to me that iPods cannibalized the phone market.

It’s not cannibalisation if you’re eating someone else’s products.

Fun fact, if you invested $10,000 into MSFT on August 22nd 1997 [adjusted closing price $10.98] the next day after Warren's reply, you'd have $183k today. Not as big as a return as many would have thought, still amazing annualized 2X S&P return for 23 years.

  ROI            1,730.00%
  Annualized ROI 13.47%

However, the S&P 500 had a lower variance. So to compare the two investments on a risk adjusted level, you'd have to load up the S&P 500 with leverage, or mix your MSFT investment with something risk free.

For fun, I checked out what the maximum leverage would be that you could run, if you rebalanced your investment every day to reach your exact target leverage (an assuming no transaction costs and no interest on your margin loan) without you going bankrupt.

Under those conditions that's mostly governed by the what's the largest single day loss. The S&P 500 had a really bad day on 2020-03-16. Microsoft's worst single day loss was on 2000-04-24 when the dot com bubble burst.

All data from yahoo finance adjusted closing price.

My simple analysis suggests that you would have made the most money with 1.8x leverage on Microsoft. And with 1.9x leverage on the S&P 500. Both starting at August 22nd 1997 up to 2020-07-24.

That 'optimal' leverage would have multiplied your initial investment by 4.888 for S&P 500 and 35.956 for MSFT over those years.

I would have expected the optimal leverage to differ much more. But the pandemic really did a number on the S&P 500 for a while without hitting Microsoft nearly as hard.

(There are probably some bugs in my code. And in practice you'd probably want to vary your leverage based on observed volatility. You also wouldn't want to rebalance every day.)

Variance is a funny thing. For example, a stock that went up every day by 1%, would have higher variance, and thus more "risky" than a stock that went 0.1% up every odd day and 0.1% down every even day.

Yes. Though when you assume something like an efficient market, variance becomes more meaningful.

Under some suitably broad efficient market assumptions, the expected return for all stocks is basically the same (after adjusting for risk). So variance automatically means going up and down compared to that expected return.

Did you account for splits? According to [0] MSFT has split two for one on three occasions since 1997.

[0] https://www.stocksplithistory.com/microsoft/

I suspect the parent used yahoo finance or the like to get historical stock prices. Historical stock prices are usually re-adjusted when a split happens so you get a clean history.

Yes, he explicitly said 'adjusted' stock price.

But, don't know if he accounted for dividends, which may have added another 1% annually.

For a comparison with Buffet. If you’d invested $10,000 into BRK-B on the same date [$29.90] you would now have $65k.

Either way it shows the power of investing. You put your money into a stock /s and others do the rest of the work.

Or it shows the power of inflation ...

A coke is probably 2-3x more expensive today ...

If you’d bought £10k of 35p 330ml cans in 1997 you would now have £27k of coca-cola (95p).

Looking on ebay, if you varied your soda purchases to avoid flooding the market, you could likely sell them for far more as collectibles.

[yes, I realise that wasn't the point - I just find it fascinating how much people are paying for old soda cans]

That's way above the US inflation figures for food and beverages ($17k), and less even than US medical ($22k)

The pound inflated a little more on average, to £18k, but nowhere near that 95p inflation.

Coca-Cola is an outlier as it was affected by the sugar tax, and I’ve used post tax figures.

Now do housing and healthcare.

I did do healthcare - $10k becomes $22k. Housing $10k becomes $17k (rent is a little higher at $20k but housing in general brings it down)

That rent figure is based on "Raw Consumer Price Index data from U.S. Bureau of Labor Statistics for Rent of primary residence"

Clearly that can vary by city/state

You can even afford luxuries such as a porsche when you're 70 and nobody cares

What if you need money to live on during your year of retirement between 70 and dying at 71?

Berkshire Hathaway doesn’t track Warren Buffett’s actual performance very closely over shorter (less than a decade) periods. It was trading at nearly 2 times book value during that period, probably the worst time to buy it you could find.

What about the same for Amazon? I thought it was interesting that Warren explicitly mentioned the Amazon in his river analogy... Little did he know.

It’s a mind blowing $14,299,769[1] from an initial $10k in AMZN. Absolutely unbelievable.

[1] https://dqydj.com/stock-return-calculator/

Does that include dividends?

Believe so. Used Yahoo Finance[1]. Adjusted close price adjusted for both dividends and splits.

[1] https://finance.yahoo.com/quote/MSFT/history/

For anyone interested the same source[0] reports apple going from 0.67 to 370.46 in the same time frame (55,192% increase ).

Of course not quite a fair comparison as it was closer to the high point of MS and close to the low point Apple.

[0] https://finance.yahoo.com/quote/AAPL/history?period1=8722080...

Apple was going out of business until Microsoft invested ~190 (or was 90) million in Apple to bail it out. IIRC, it was late 90s.

Actually the real investment for Microsoft wasn't the stock purchase but the commitment to keep Office on the Mac for X number of years. Without that, the Mac probably would have tanked before the iMac ended up saving Apple. Retaining Microsoft at that time was key to retaining legitimacy.

There's an awesome talk with Steve Jobs where he goes into it - it's been posted on Hacker News many times.

Yes - that's why I said it's not quite a fair comparison as that was probably more or less the best time in history to make an investment in Apple. Maybe akin to investing in Amazon in 1994 or in Google in 1998.

The drama "Pirates of Silicon Valley" covers MS & Apple from their founding in the 70s till the late 90s (the movie was made in 1999) and I believe it ends in that scene (I've last seen it when it was new so it may end a bit later but that definitely appears in the movie).

Apple was never close to going out of business, irrelevancy sure, but not bankruptcy.

$10,000 to $5.5M in Apple. Yup, that's absolutely insane.

You could have probably gotten some similar/greater gains investing in some of the dotcom "stars" (even "real" companies like Qualcomm/Broadcom/Sun/etc rather than Pets.com) & exiting before the bubble burst!

Easier to say in hindsight of course. I remember my brother convinced my parents to buy stocks (something like a few thousand $s) in a company making broadband internet modems in the mid 90s (this was high-tech future-like stuff at the time when most people were on dial-up internet - ISDN was considered fast) and they ended up going out of business shortly thereafter.

So even if you have good insight & bet on the right trajectory of technology it's not that easy to get it right without the benefit of a time machine or crystal ball.

I've put it into a dividend reinvestment calculator[0] I use and got similar, although interestingly not the same results.

Final value: $165k Annual return: 13.03%

[0] - https://dqydj.com/stock-return-calculator/

Anyone else weirded out by the tone of Warren's email. His casual references to Coca Cola possibly causing cancer (when Coca Cola is probably the single biggest cause of disease in this country via obesity). Also, the way he framed Microsoft as being a toll on a water stream reminded me of Bill Burr's talking about Nestle trying to own the water supply https://www.youtube.com/watch?v=w_pb6r8VNWk.

Idk the most I hear of these oligarch's the more I'm terrified of them.

Coca-cola had been around for about 100 years at the point he made that comment. My read is that he was illustrating how solid Coca-cola revenue prospects were for the long term. He was certainly not saying there was a question about cancer as a possibility. No possibility in his mind, and therefore, his certainty that Coca-cola revenue was a sure bet.

That's not quite what Warren Buffett is saying. He's saying that Coca-Cola's revenue stream will continue unless something pretty much impossible happens; like finding out it causes cancer.

To quote:

"I feel 100% sure (perhaps mistakenly) that I know the odds of this continuing - again 100% as long as cola doesn't cause cancer."

If you think long and hard about the core reason a PET scan works then it's inescapable that Coca Cola causes cancer, depending on your definition of "cause".

In fact, we've know about this, the Warburg hypothesis, for a long time.

> If you think long and hard about the core reason a PET scan works then it's inescapable that Coca Cola causes cancer

Could you expand on this point? My background is in physics, and I think I've got a fair understanding of how PET scans work, but I think I'm missing the connection.


Once you get a positive cancer diagnosis, or sometimes before, you give someone a PET scan to see if it's gone metastatic.

A PET scan will "detect cancer" down to a few mm in resolution. It will only miss cancers smaller than that. It detects all cancers, though there is noise.

What is it detecting? Positrons. From memory you dope glucose with decaying fluoride. You inject this or drink it after fasting.

Fasting clears out (some or most) your blood glucose and some glycogen in your muscles and other places. So you get a rush of this glucose and it goes straight to the tumors. There, it emits higher amounts of positrons due to concentration (and maybe metabolization, I forget).

So why does glucose go straight to tumors? Because tumors exclusively process glucose. The other pathway to ATP, fat (triglycerides to ketones etc) is broken.

That's why a PET scan works. Sugar. The stuff in coca cola. Although today there's a lot of fructose too (fun fact, fructose is a poison just like alcohol).

To go further, human beings didn't used to eat nearly the quantity of sugar or at the frequency we do today. You can become much healthier by fasting and avoiding carbs (which are in some ways one and the same thing).

A similar analysis of dentistry will lead to the same conclusions.

So, it feels like you have cause and effect mixed up.

Cancer cells are essentially just cells that outcompete other cells, which becomes a problem. They do this in a few different ways, accelerating their cell growth, and preventing the normal apoptosis process that would stop these cells from growing.

Accelerated cell growth means a higher concentration of glucose is required. This means there is a very strong concentration of glucose in cancer cells, because cancer cells gather glucose to fuel their growth. This doesn't mean that if you get some healthy cells and expose them to higher than normal concentrations of glucose they will be more likely to become cancerous.

In fact, that sounds like a well defined experiment. I'd be surprised if it hasn't been carried out.

You're sidestepping the broken ketone metabolism that we know about in tumors.

But anyway, your point about causation, that's why I said originally that it depends on your definition of causal here.

We absolutely know that low carb and fasting leads to better outcomes. I'm not saying glucose magically turns cells cancerous, but it is the fuel - the only fuel - they can use. So in a sense our massive use of sugar is causal.

There's even historical accounts of introducing sugar to cancer-free populations and they all get diabetes, cancer and bad teeth. See


For a great example.

Ok, that's a fair point.

If we change my hypothesised experiment to be add high glucose concentration to cells and look for a cancerous tumor that is greater than $size after $time, I think you'd find an effect (you can read about the effects of hyperglycaemia on cancer, and given that a cancer is present, it will grow more quickly in the presence of more glucose).

I guess I wanted to clarify that glucose doesn't cause cancer, but I think I understand your point now, and I think we're in agreement.

How often is the body able to shut down small cancerous growths when they are just starting? And by giving them a feed of glucose, do they grow to fast for the body to naturally handle them?

Or alternatively, without glucose, world they mostly stop spreading?

Tumors eat more food, because that's what tumors are. Fetuses eat more food too, but eating food doesn't cause pregnancy.

That's sort of true depending on the stage and type but not the causal mechanism behind why PET scans work.

Fetuses can upcycle ketones to ATP, tumors can't.

It is exactly the causal mechanism behind PET scans.

With respect, that's the dogma. We don't even teach the respiration and ketone metabolism pieces that Warburg found so interesting. We long ago declared the whole thing genetic when it looks much more likely to be metabolic and mitochondrial.



For an introductory text.

I find the down votes fascinating. I'm literally listing facts of the process which anyone can check. Maybe cancer makes people uneasy or something, or they really like drinking coca cola?

It strikes me as ironic too given the recent of essays on thought police and cancel culture.

We need a new kind of social media perhaps where different subs (like subreddits) can have some rules like only able to vote if you're over 14 years old and this is verified. Or can only downvote if you haven't downvoted lately. Let people experiment with rules like that. Maybe we will find better communication methods by letting people play with those kinds of rules...?

> I'm literally listing facts

The second post you made in reply to someone asking you to clarify is thought provoking and fact intensive. the first post you made is very unclear and its meaning is not obvious. I think you got downvoted because it was more easily (mis)interpreted as sarcasm or as a troll.

HN does have a little bit of thought policing, but I dont think this was it.

EDIT: specifically, the phrase "If you think long and hard" is rhetorically redundant and shifts the tone from helpful/discussional to condescending and patronizing. IMO, anyway, but also probably in the opinion of others as you got downvoted by others.

Yeah I could phrase things better.

Tbh I've been wondering about what removing downvotes altogether would do. I imagine without a low effort way to attack the post, many people would simply ignore and move on. Some would probably engage in discussion, which could lead to either good (or neutral) discussion or bad discussion full of irrelevant attacks and trolling, but that's easy to take care of.

I imagine that when you are playing at the top of your game, everything seems like a game and that's the way you talk about it. Buffet is solely focussed on winning bets, that's how he got to where he is. People like Buffet fill a slot that is at the very foundation of capitalism. If you are terrified of rich, powerful business people you are in the wrong economic model. So far we are yet to find a better model, IMO.

I'd you think the purpose of economics is to make the most money and not the most utility for human society, you say you are in the wrong economic model.

Tumors are the best growing parts of a body; that doesn't mean cancer is the ideal form of life

Who said it was the best economical model?

Human society is made up of individuals. Capitalism, as opposed to socialism puts the power of utility in the hands of the individual. Thus individuals strive to make the most of the economic landscape and this often means making as much money as they can.

Again, I am not saying it's perfect but it's worked pretty well for western values.

Is Warren upset that he went ouside his sweet spot when he bought major shares in American, Delta, Southwest and United airlines? His analysis showed that investing in airlines last century would have netted him precisely zero dollars. However, this century's tourism boom seems to have persuaded him that now was the time to set aside that analysis. So in he went. THEN the coronavirus pandemic hit. And out he scampered for a $7 billion dollar loss! I wonder what an experience like that does to one's psyche.

Unstable leaders lead to unstable markets. I doubt it did much to his psyche other than act as a reminder to be careful what you invest in during periods of political instability.

I'm curious as how this private communication got released. Was it due to discovery in a court case?

"I sent one e-mail in my life. I sent it to Jeff Raikes at Microsoft and it ended up in court in Minneapolis, so I am one for one."


It was the Microsoft anti-trust case: https://www.wsj.com/articles/SB107947771352857209

That is an interesting quote given that at the very end of the supposedly sole email he sent in his life he talks about how he feels whenever he is sending e-mails.

"As a beginner I always feel that when i send off any e-mail, it is going to vanish into the ether and i would hate to have that happen with everything i know."

I think the dichotomy is because he separates emails he sends to friends or family, and "business emails".

As in "I sent one business minded email where I detailed my investment thinking and strategy to a third party".

Buffett cultivates his image very carefully.

Yes, Buffets long-term shtick has been "grandfatherly simpleton". He intentionally plays that up for maximum effect. What I find interesting is that now Gates is aping Buffet in that regard. Gates now exclusively appears wearing sweaters and speaking in simple truisms. Selling vaccines must require it?

> In effect the company has a royalty on a communication stream that can do nothing but grow.

In hindsight, the desktop OS business reached saturation and it started to look like the automobile industry which is sensitive to the replacement rate of a long lived good. The introduction of SSD drives was probably analogous to the introduction of quality rust proofing in the early 90’s.

> In hindsight, the desktop OS business reached saturation and it started to look like the automobile industry which is sensitive to the replacement rate of a long lived good.

If wish you could get a good car for free. My first, second and third choice OS are all free. Helpfully, we are also at a time where old computer hardware has some very attractive elements too (replaceable bits, helpful ports etc).

But the computer itself isn't free, right?

Maybe in the future cars will asymptote towards the upper limit of mechanical efficiency (for each given class, like the school run, city trips, long distance, etc.), allowing users to keep them on timescales similar to homes, so the only profitable innovation will then be on the software. Then we might see "car-OS wars" and the beginnings of open source driving systems in parallel.

Nobody is stopping you to start those free open source "car-OS" right now. Considering this is actually embedded it's actually easier then writing a general purpose OS like Linux or Windows.

Well, they got the husker-husky game wrong ;) Husker won the game and end up splitting the national tile with Michigan that season.

They were worried about Scott Frost being able to throw, but Nebraska played football the way Nebraska plays football and ran all over them.

> The Huskers smashed any doubts about their ability to be a major player in this season's national-championship chase with a 27-14 victory that left the country's second- and third-ranked team battered, bruised and bewildered. "We knew what they were going to do," Washington linebacker Jason Chorak said. "We just couldn't stop it."


TIL: Buffett bottom posts.

Everyone did, in 1997. It was the default for all mail readers I’ve seen except Outlook (Express).

There were different standards, And I don't believe Microsoft Mail or Outlook Express defaulted to this at the time -- Outlook certainly changed practice and dated from late '97 / early '98 ("Office 97" refers to the nominal release year).

But other platforms/ communities differed, with Lotus Notes (big in some corporate accounts) being an especially notable case with its own butt-ugly quote/reply convention.

In the Unix world, Usenet, and among derived / affiliated tools (Eudora Mail, Netscape Mail, others), yes, bottom-posting dominated.

It’s a good one, but not really relevant in today’s new era of investing, is it?

I don't see how it is less relevant.

Warren says he understands how much Microsoft is getting off of royalties for Windows but is unsure about his confidence in a 20 year bet compared to a company like Coke which sells Cola.

Warren turned out to be very wrong in investing in Coke over MSFT. However, his reasoning wasn't awful. The entire e-mail pleading the case to him is about how great of a business selling the OS is. However, if Microsoft had stuck to that the stock would not be doing so well now. Perhaps he and the person pleading MSFT's case were wrong to view Microsoft's business as operating system related instead of tech and computing more generally. I'd say both were about the same levels of wrong but one had a better outcome.

Buffet attributes his success into being able to stay within his circle of competence. He is perfectly aware that he is letting many golden opportunities pass, but he is not concerned about that. Unless it falls into his circle of competence, he is not touching it.

Today when Berkshire has two younger Vice Chairmans and Todd Combs and Ted Weschler are handling investments the portfolio is changing a little.

At that time software's AT&T style winner-take-all and network effect lock-in was still not that obvious. The PC was not yet the golden standard for desktop hardware and words like minicomputers and mainframes were not uncommon terms.

In 1997, what else was there for desktop hardware? Ok, I was an Amiga buff and waiting for Blizzard PPC to come out - but I was under no impression that mine was the golden standard for desktop hardware.

It was certainly dominant at the time, but not for that long, mostly early 90's. The decades before saw - by today's standards - rapid switching of dominant home, business and server hardware and corresponding OSses.

So it was not a safe bet in 1996 that Windows and Microsoft would still exist and be a big market player in 2020.

> So it was not a safe bet in 1996 that Windows and Microsoft would still exist and be a big market player in 2020.

There's an argument they're not. Now obviously windows still dominates the laptop (and desktop) OS market (and I'm not gonna claim Microsoft is doing badly or anything), but it isn't the dominant overall OS due to the rise of mobile and Android.

At wave of computing so far, from mainframes to minicomputers, from minicomputers to PCs and from PCs to mobile, the dominant market leader has been unseated. If viewed in this light, Warren's reticence is prescient.

You can say the same for 2040 then...

For Windows you can, but Microsoft is diversifying risks and running their software on other OS and hardware, and Office is a major windows-independent revenue stream.

So I'd say 2020 -> 2040 Microsoft is a safer bet than 1996 -> 2016 Microsoft.

I think it is riskier. Microsoft in 1997 had virtually no competitors. That is not the case anymore.

What was the alternative in 1997? None? Windows 95 was on every office desktop. It was the only desktop OS most companies bought. I can’t recall another desktop OS widely available. OS from Apple was a niche, mostly in education and desktop publishing, and on decline.

The point is that dominance was only a few years old, and it was not at all obvious it would last - the computer market had completely changed every few years prior to that, so assuming there was a risk it might again was not unreasonable.

Nope, Microsoft dominance was already well established by 1997, about 7 years with Windows and DOS.

This is historical revisionism.

In '96 people were still talking about how Microsoft had failed to understand the importance of the internet, and whether Windows '95 would fix that. The '95 DOJ consent decree also looked set to potentially severely reign them in. Apple still looked like a possible contender.

OS/2 still looked like a possible contender - I remember being at trade shows at the time and seeing how hard OS/2 was pushed, at a time where Microsoft was still a small upstart that had only bypassed Commodore in revenues a few years prior (and speaking of Commodore, even in 95-97, several years after their bankruptcy, people were still looking at whether Escom and then Gateway would manage to resurrect Amiga), and there were lots of people convinced IBM would swat Microsoft away like a fly.

In the corporate space, options like DEC, Sun and SGI were still pushing into the workstation space at high pace and making inroads downwards into more regular workstations - I saw this first-hand in computer labs filled with cost reduced SGI Indy's and a bunch of DEC workstations at work, and lots of SUN workstations at places I contracted in those years.

Non-Windows, non-DOS machines were still everywhere in those years. It was unusual to find an office without a non-MS OS, because if nothing else there'd by a Mac for Quark Express or the like. And the presence of beachheads of non-MS OS's like that meant that whether or not MS could maintain its position was still not obvious.

More importantly: Giants had stumbled many times before. Most notably IBM, but the years before were littered with computer companies that had either died entirely or were shells of their former selves.

Yet few predicted just how much the web would change things over the next 10 years, and then mobile computing over the 10 years after that.

If you'd have said in 1997 that the most valuable companies in the world would include Google, Facebook and Amazon you'd have been laughed out of the room, when you then said that failing toy company apple would top the list

Even outside the world of IT, if you'd have told people in 1997 that a new car company would emerge and become one of the most valuable car companies in the world, given it had been 30 years since the previous car company had gone public, you'd have been equally mad.

In 1997 the most valuable companies in the world included Shell, Exxon, Toyota and Coca-Cola.

Predicting 20 years away is hard.

I am not sure what is your argument. Google and Facebook didn’t even exist in 1997 and Amazon was still in basement of Bezos home.

Indeed, that's the point. You can't predict what's going to be the big winner of the next 20 years, but you can predict that some brands are going to be fairly safe and will at least not wipe you out without notice.

Sure you could have gone all-in on Amazon at IPO (ooh an online book cd sales company, with MP3s on the horizon), but you could easilly have gone all-in on Pets.com.

You could have invested in yahoo, after all that was the place that ran the web in the 90s - if you weren't on yahoo you didn't have a business. You could have piled into things like friends reunited, myspace, napster, all of which were just as likely to succeed as facebook, yahoo, or apple music.

Even dying companies like Blockbuster and Kodak took far longer to wipe out shareholder value than some new flash-in-the-pan companies.

By the time something is obvious it'll be a little late in the day.

To add to your point, he didn't even say it wouldn't be a good investment; in fact he said if someone pointed a gun to his head he would choose to invest. His problem was he couldn't assess the exact likelihood of success (which he nevertheless reckoned was "high"), and he only goes for investments he considers 100% winners.

He was wrong on MSFT. But at the time there were maybe 100 companies like MSFT, for example Worldcom, Enron, PET.COM etc. So if you average over those 100 companies that he didn't understand and didn't invest in, maybe he was right not getting into unfamiliar waters. There were a lot of risks that he could not foresee - potential rise of a competing OS, the rise of mobile phones (which even BillG did not foresee), anti-monopoly lawsuits etc etc.

Very few cash-cows last forever which is why it is important to look at how a company is reinvesting in alternative streams of income when forecasting the long term

I'm gonna disagree with you. Very few companies manage to successfully pivot to a line of business that's substantially outside their original area of core competence.

The reality is that different organizations have ingrained cultural DNAs that's usually both optimized for their specific niche and painfully difficult to change. When an industry reaches its inextricable decline, most companies would do better to gracefully return money to shareholders (either in the form of dividends or buybacks).

9 times out of 10, that produces a better outcome for investors than a desperate attempt to reinvent themselves. We tend not to realize this because of survivor bias. But for every Apple, Western Union or AT&T, there's a dozen companies like Polaroid, Sears and DEC littered across history's dustbin.

It could be argued that every time a company comes out with a new product they are adding alternative revenue streams. By this definition it happens all the time.

Funny enough, companies that follow this sensible advice often get a lot of flak. Matt Levine had some examples.

Thing is. Whilst doing stock buybacks and dividends is best for the stockholders, it isn't best for the employees. Nor is it good for other stakeholders in the company.

In our modern state of stockholder supremacy, that doesn't tend to matter much. But I think it should matter more.

Well, one thing to note is that money returned in buybacks doesn't just get thrown in a big pit. It has to be reinvested somewhere else. So, while it may not help the employees of the company paying the dividends, it certainly helps the employees of the company receiving new investment.

I think you did adroitly mention down thread that there are labor market frictions to consider. And I definitely agree with that. Obviously stable employment is definitely one social consideration. And certainly long-lived companies make for more stable labor markets.

But all in all, I still think that overall most people would prefer faster rather than slower turnover among large firms. Younger companies (as in those founded more recently) tend to be more innovative, deliver better customer service, have more satisfied employees, engage in less lobbying, and have fewer environmental and safety issues.

Obviously it's better for you to take money from shareholders if you don't ever give it back. That's not a foundation for a long term stable ecosystem.

What about, if you keep the money from shareholders. And instead of burning the money, or letting the shareholders 'efficiently reallocate capital'. You try and redirect the company to stay relevant.

It might be a less efficient allocation of capital. But it could reduce a lot of friction in the labor economy, and incurs less overhead from building an organization from scratch.

The whole point of investing in a company is that eventually you get more money out than you put in.

And, for example, I don't want coal companies try to stay relevant. They have coal managers and coal workers who know how to run coal mining.

I'd rather they give the money to shareholders, so that the shareholders can invest it in a different venture, or consume it.

Shareholder capitalism is an aspiration. We have never really tried it.

In practice, companies are run for the benefit of management and other insiders.

> Whilst doing stock buybacks and dividends is best for the stockholders, it isn't best for the employees. Nor is it good for other stakeholders in the company.

Stockholders can invest the money returned to them again in more profitable ventures.

Financial capitalism where everything needs to be consolidated, bundled and sold as an investment vehicle seems like a pretty modern invention.

To go to an extreme, look at It's a Wonderful Life. Something like a community bank in the early 20th century was not run aggressively for the sole benefit of shareholders, there was a notion of community involvement. If anything financialization since the 70s has created the fiction that corporations are soulless machines designed to optimize profits at the expense of all others.

I would be careful about citing a fictional example of an American bank.

I'm not even objecting to the fiction. But more that American unit banking was extremely weird. Basically, many states banned banks from having more than one branch. The result was the world's most fragile financial system.

See https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... for a comparison of 19th / early 20th century Canadian and American practices.

New era! Somebody should use that!

Warren's wisdom is timeless

he was right about Coke lasting longer than Windows.

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