The Berkshire Beat #60: Munger on Ideology
All of the latest Berkshire Hathaway news and my must-reads of the week!
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The latest news and notes out of Omaha…
One of the biggest questions swirling around Berkshire Hathaway these days is the identity of that “mystery” stock omitted from the company’s last two 13F filings. Dr. David Kass, a noted observer of all things Berkshire, weighed in last month with an intriguing guess: JPMorgan Chase.
“[Warren] Buffett has always admired Jamie Dimon and has praised him frequently,” he told CNBC via email. “Todd Combs has been on JPM’s board of directors since 2016 at age 44, and remains the youngest of its 12 directors today at 52. JPM 0.00%↑ is generally acknowledged to be the best managed and most profitable bank.”
Someone at Berkshire purchased more Liberty Media Sirius XM tracking stock over the first three days of this week. 1.49 million shares of LSXMA 0.00%↑ and 2.18 million shares of LSXMK 0.00%↑ for a total price tag of $107.5 million.
As mentioned last week, a big part of GEICO’s resurgence stems from the insurer’s conscious decision to trade growth for profitability. Advertising expenses were slashed to the bone — and, as a result, GEICO ceded significant market share to its competitors. A recent report from the National Association of Insurance Commissioners (NAIC) revealed that GEICO’s market share in private passenger auto insurance eroded from 13.8% to 12.4% over the past year, allowing rivals State Farm and Progressive to widen their leads even further.
Even so, I see GEICO’s move as a necessary evil to stop the bleeding after six straight quarters in the red during 2021 and 2022. But, now, the insurer faces a new challenge: pivoting back into growth mode without sacrificing profits.
You probably saw that viral video of the Einstein College of Medicine students going wild after learning that, due to a charitable gift, no one will ever have to pay tuition there again. And, knowing this crowd, you probably already know that this incredible gift was made possible thanks to Berkshire stock. Dr. Ruth Gottesman, the widow of former Berkshire director (and Buffett friend) Sandy Gottesman, inherited a portfolio loaded with Berkshire shares from her husband and, in turn, donated $1 billion worth to her former school.
“I’ve never seen anybody behave better with a billion dollars,” Buffett told the Wall Street Journal about Gottesman’s generosity. “She could change all these people’s lives by giving up something that wasn’t actually important to her and would be hugely important to thousands of people over time.”
Bill Scott, one of the first employees at Buffett Partnership Ltd., passed away last week at the age of 93. He joined BPL in 1959 and moved over to Berkshire alongside Buffett in 1970. Scott and his wife, Ruth, joined The Giving Pledge in 2015 and made frequent contributions to worthy causes in and around Omaha.
In his Giving Pledge letter, Scott quipped: “Ruth, a farm girl, likes to compare a ‘pile of money’ to a ‘pile of manure’. Neither one does much good unless you spread it around.”
It’s been a tough week for Apple. The European Union fined the company $2 billion for antitrust violations pertaining to its App Store policies, though Apple immediately pledged to appeal the ruling. Plus, a new research report claimed that iPhone sales in China fell 24% during the first six weeks of this year — adding to Apple’s headaches in that all-important market.
A Slow Read of Poor Charlie’s Almanack
Talk 3: A Lesson on Elementary Worldly Wisdom as It Relates to Investment Management and Business, Revisited (Stanford Law School)
On April 19, 1996, Charlie Munger once again stood in front of a classroom full of enterprising young students — doing his very best to impress on them the importance of worldly wisdom. Since his remarks that day hewed closely along the same lines as his earlier discussion at USC Business School in 1994, the editor of the Almanack abridged some of the more redundant sections to save space.
This being an election year and all, one part of Charlie’s commentary stood out to me as especially valuable and timely. Namely, that ideology makes you stupid.
“Ideology does some strange things and distorts cognition terribly,” he told the Stanford students. “If you get a lot of heavy ideology young, and then you start expressing it, you are really locking your brain into a very unfortunate pattern. And you are going to distort your general cognition.”
“A heavy ideology that makes you absolutely sure that the minimum wage should be raised or that it shouldn’t — and it’s kind of a holy construct where you know you’re right — makes you a bit nuts.”
“It’s all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it,” he continued. “Either position is okay. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker.”
Charlie’s career switch: He also detailed one of the motivating factors behind his decision to leave the legal profession. “To a considerable extent, you’re going to be dealing with grossly defective people [when practicing law]. They create an enormous amount of remunerative law business.”
In other words, the kinds of people that Charlie hoped to surround himself with, paragons of virtue who would pull him in the right direction throughout a long life, were not the sort to need frequent legal advice and representation.
Warren Buffett also plugged Poor Charlie’s Almanack at the end of his latest annual letter to Berkshire Hathaway shareholders: “Charlie’s wisdom will improve your life as it has mine.”
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The Must List
Other awesome things that I read, watched, and listened to this week…
🎧 Chris Davis on The Knowledge Project Podcast (Shane Parrish)
“Berkshire is run with the idea, from the very beginning, that the people that were invested in Berkshire had 100% of their net worth in Berkshire. That really does shape the culture there. It’s not that [Berkshire] is afraid of risk, but the sort of risks it takes are risks that are manageable on the income statement. The idea of Berkshire really, really being built to last — that is profoundly true.”
The Dumber Side of Smart People (Morgan Housel)
“The biggest risk to an evolving system is that you become bogged down by experts from a world that no longer exists. The more evolution you have, the more you should expect that expertise has a shelf life. And those most susceptible to that risk are the people you’d least suspect: The smartest and most intelligent, who at one point flashed their brilliance but struggled to admit that it can’t be repeated.”
The Vanderbilts, the Rockefellers, and Generational Wealth (Dividend Growth Investor)
“If my great-grandparents had invested in equities 100 years ago, everyone in my family would be a multi-millionaire today. We would all be set for life. But, sadly, they didn’t. So, I have to be that great-grandparent now…”
The market share decline for GEICO (and the gains for State Farm and Progressive) represents a major concern that I hope Ajit will address in detail at the annual meeting. It seems clear to me that, at least in comparison with Progressive, GEICO has performed poorly. Underinvestment in technology is the most likely cause for the need to shed market share. Management doesn’t have a good enough view of risk relative to Progressive. I’m surprised this wasn’t highlighted in Warren Buffett’s letter. It’s a bigger concern than the situation at BNSF IMO.
It is known that Buffett holds JPM in his personal account, so in light of the recent article that accused him of misbehaving it would surprise me if this was actually the missing stock. What do you think Kevin?