Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-15-2009, 09:27 AM   #21
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by haha View Post
Did you know that in this quote he was referring to indexing and to extreme diversification in general?
I believe he said this right as the tech bubble was starting to pop at the BH annual meeting in 2000, as he and Buffett were discussing the irrational exuberance in the tech market.

In other words, even if a rising tide lifts all boats, Munger still believes that some boats still need to be avoided because they may sink like a rock when the tide goes back out (and you can see who was swimming naked). And my reading is that because Buffett and Munger were not authorities in "evaluating" tech stocks (they could review the financials but they have trouble identifying "staying power" or a "moat" in their industry), they avoided the sector entirely because they'd probably end up with some of the turds with the raisins. If they bought tech without understanding long-term competitive advantages (moats), they'd end up with some turds.

Quote:
The reason we use the phrase, "wretched excess," is because it produces wretched consequences. It's irrational. If you mix raisins with turds, they're still turds.
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-15-2009, 11:22 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by ziggy29 View Post
I believe he said this right as the tech bubble was starting to pop at the BH annual meeting in 2000, as he and Buffett were discussing the irrational exuberance in the tech market.

In other words, even if a rising tide lifts all boats, Munger still believes that some boats still need to be avoided because they may sink like a rock when the tide goes back out (and you can see who was swimming naked). And my reading is that because Buffett and Munger were not authorities in "evaluating" tech stocks (they could review the financials but they have trouble identifying "staying power" or a "moat" in their industry), they avoided the sector entirely because they'd probably end up with some of the turds with the raisins. If they bought tech without understanding long-term competitive advantages (moats), they'd end up with some turds.
Well, we were both wrong as to the meaning of the quote, but you had the scene correctly. As you said, it was at the 2000 annual meeting. As far as I know, there are no official transcripts, only ones provided by attendees. Here is what I found:

Question: With speculation in the high tech area, what are your views on a crash?
WEB: Any time there have been real bursts of speculation in the market it does get
corrected eventually. (He gave the Ben Graham voting machine quote). No wealth
created just an enormous transfer of wealth. Money has been destroyed by the frictional
cost of trading.
We had a mania in farmland in Nebraska, land prices spiked and when farm
prices went down a lot of people and banks were devastated. A huge number of
participants creates it’s own truth for a long period of time.
CM: Wretched excess, retched consequences. Mixing ponzi schemes with good
possibilities of internet. When you mix raisins with turds, they are still turds.

So it appears that Charlie was calling “good possibilities of the internet” raisins, and Ponzi like speculation turds.
Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-15-2009, 11:31 AM   #23
Thinks s/he gets paid by the post
Free To Canoe's Avatar
 
Join Date: May 2008
Location: Cooksburg,PA
Posts: 1,738
Quote:
Originally Posted by ERD50 View Post
It's like I mentioned before on a gas tax. If we really want to set a goal for oil consumption, have a gas tax based on a formula that self corrects. Americans using too much oil - raise the tax. Looks like we are ahead of goal - ease the tax down a bit. It could happen automatically, no voting from Congress required.
-ERD50
Good idea!
I bet the oil industry would not like that.

Free
__________________
Free To Canoe is offline   Reply With Quote
Old 02-15-2009, 02:17 PM   #24
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by ziggy29 View Post
And my reading is that because Buffett and Munger were not authorities in "evaluating" tech stocks (they could review the financials but they have trouble identifying "staying power" or a "moat" in their industry), they avoided the sector entirely because they'd probably end up with some of the turds with the raisins. If they bought tech without understanding long-term competitive advantages (moats), they'd end up with some turds.
Schroeder's biography opens with Buffett's speech to a group of wealthy investors in 1999, a crowd that had become swelled with nouveau riche digerati. In that speech, knowing full well what kind of audience he was addressing, Buffett compared the Internet's "new economy" to the same tech boost given by the aviation, automobile, and rail industries of the last 150 years. He showed a 70-page document listing just the names of all the automobile companies of the 1920s, and mentioned that all the airline's profits since Orville & Wilbur still don't equal the money sunk into airline capital investments. He talked about the fortunes made & lost by railroad investors, let alone the fraud & waste.

Then he went on to show what would have to happen for that year's "new economy" profits to continue to grow at even a conservative estimate of the rate expected by that year's investors. By the end of the hour it was pretty clear that (1) the trend was not sustainable and (2) things really weren't different this time after all.

Schroeder also has a long account of the fateful day when an overworked & grumpy Bill Gates was required to muster for a family dinner whose guests included an equally unwilling & reclusive Warren Buffett. (It should've been titled "When Warren met Billy".) By the end of the evening, William Gates Sr. actually had to pry the two apart and suggest that they stop monopolizing each other and socialize with the other guests in a manner intelligible to most human beings, not just those showing symptoms of Asperger's.

So it's not as if Buffett was being misled by Steve Case, Blodgett, & Meeker. I think he could analyze Bill Gates' strengths & weaknesses.

I think Buffett & Munger were evaluating tech stocks just fine and understood exactly what was going to happen. I think they'd decided there weren't even any ponies in that pile, let alone raisins...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-15-2009, 05:34 PM   #25
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by Nords View Post
I think Buffett & Munger were evaluating tech stocks just fine and understood exactly what was going to happen. I think they'd decided there weren't even any ponies in that pile, let alone raisins...
I'm not sure. Buffett has more or less said he doesn't really understand technology companies.

In every year's annual report, Buffett identifies Berkshire's acquisition criteria. In it every year, he states he and Charlie are looking for (among other things):

Quote:
Simple businesses (if there’s lots of technology, we won’t understand it)
I've heard Buffett talk in the past how the problem he has with calculating the intrinsic value of tech companies relates to not being able to see which companies will have a very long-term enduring "moat". I don't think Buffett is a total dummy about using technology, but my interpretation has always been that he doesn't "understand" how to measure the intrinsic value of tech companies. IV is roughly the value of the discounted cash flows that can be taken from the business over its lifetime. Some companies are so enduring, in industries he knows how to analyze, that he does a good job of figuring will be dominant and prominent in their industry for so many years a decent IV calculation can be made.

But with tech, sometimes a radical new shift takes place every 10 years or so, and when that happens, the former industry giants become also-rans -- assuming they can stay in business. Granted, a few companies have stayed at or near the top for years, but so many of them that look like the next big thing -- or even some then-current industry giants -- have flamed out when new technologies take hold that they weren't ready to exploit.

So I go back to the raisins and turds. I still believe that the point being made was that Berkshire wasn't confident with their ability to pick the long-term winners and losers in tech and thus had a hard time putting a fix on their current intrinsic value. Add to that insanely high valuations at the time for even the "turds," and you have a recipe for staying away from that sector.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 02-15-2009, 05:40 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by ziggy29 View Post
So I go back to the raisins and turds. I still believe that the point being made was that Berkshire wasn't confident with their ability to pick the long-term winners and losers in tech and thus had a hard time putting a fix on their current intrinsic value. Add to that insanely high valuations at the time for even the "turds," and you have a recipe for staying away from that sector.
And your reason for this is...?
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-15-2009, 05:47 PM   #27
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by haha View Post
And your reason for this is...?
Because Buffett has said that in the past that he's not confident about being able to value tech companies because of the volatility in the businesses, and because sudden shifts in technology can leave today's winners as tomorrow's losers with little warning. I'd have to search around for a cite, but I know he's said such things in the past, as I've followed Berkshire rather closely in the last dozen years.

Hey, I only said it's what I conclude. I may well be wrong.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 02-15-2009, 05:54 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by ziggy29 View Post
Because Buffett has said that in the past that he's not confident about being able to value tech companies because of the volatility in the businesses, and because sudden shifts in technology can leave today's winners as tomorrow's losers with little warning. I'd have to search around for a cite, but I know he's said such things in the past, as I've followed Berkshire rather closely in the last dozen years.
Both Buffett and Munger have said those things over and over. No question about that.

However, I thought that the issue being discussed was the context and meaning of CM's raisins and turds comment, which I think is pretty well settled by the quote from the 2000 annual meeting notes. Unless you have another transcript which contradicts that, or makes it clear that Munger was in fact referring to the difficulty of assessing tech companies.

ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
worth going to see Charlie Munger? figner Other topics 10 03-20-2008 12:30 PM
Charlie Munger on Jeremy Siegal haha Other topics 0 05-11-2006 01:00 AM
Charlie Munger promises lower returns for Berkshire-Hathaway Nords Other topics 5 12-10-2005 11:30 PM
Charlie says Adiós charlie Other topics 62 08-29-2005 06:16 PM
Dallas RE Question for Charlie haha Other topics 14 02-12-2005 10:26 AM

 

 
All times are GMT -6. The time now is 05:23 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.