I read this article today, and I'd like to repost it here, even though this a poker blog. I think there are bits of knowledge that can be extrapolated to the poker table, because investing is somewhat similar to playing poker. Anyway, credit to
The Motley Fool's Matt Koppenheffer for putting this article together:
Last weekend,
Berkshire Hathaway (
NYSE: BRK-A ) (
NYSE: BRK-B ) released Warren Buffett's annual letter to the company's shareholders. As always, Buffett delivered with a combination of
ever-quotable folksy wisdom and an easy-to-digest view of the year that Berkshire Hathaway had.
The ritual of the annual letter is far from new. In fact, this most
recent letter was the 35th edition that Berkshire has posted online for
investors to peruse. Most of those letters' contents are dated in terms
of when Buffett put pen to paper, but to show just how enduring his
wisdom is, I thought I'd take a look back at some of Buffett's best
quips over the past three-and-a-half decades.
1977: "Most companies define 'record' earnings as a
new high in earnings per share. Since businesses customarily add from
year to year to their equity base, we find nothing particularly
noteworthy in a management performance combining, say, a 10% increase in
equity capital and a 5% increase in earnings per share. After all, even
a totally dormant savings account will produce steadily rising interest
earnings each year because of compounding. ... we believe a more
appropriate measure of managerial economic performance to be return on
equity capital."
1978: "We make no attempt to predict how security
markets will behave; successfully forecasting short term stock price
movements is something we think neither we nor anyone else can do."
1979: "Both our operating and investment experience
cause us to conclude that "turnarounds" seldom turn, and that the same
energies and talent are much better employed in a good business
purchased at a fair price than in a poor business purchased at a bargain
price."
1980: "[O]nly gains in purchasing power represent
real earnings on investment. If you (a) forgo ten hamburgers to purchase
an investment; (b) receive dividends which, after tax, buy two
hamburgers; and (c) receive, upon sale of your holdings, after-tax
proceeds that will buy eight hamburgers, then (d) you have had no real
income from your investment, no matter how much it appreciated in
dollars."
1981: "While market values track business values
quite well over long periods, in any given year the relationship can
gyrate capriciously."
1982: "The market, like the Lord, helps those who
help themselves. But, unlike the Lord, the market does not forgive those
who know not what they do. For the investor, a too-high purchase price
for the stock of an excellent company can undo the effects of a
subsequent decade of favorable business developments."
1983: "We will be candid in our reporting to you,
emphasizing the pluses and minuses important in appraising business
value. Our guideline is to tell you the business facts that we would
want to know if our positions were reversed. ... We also believe candor
benefits us as managers: the CEO who misleads others in public may
eventually mislead himself in private."
1984: "[M]ajor repurchases at prices well below
per-share intrinsic business value immediately increase, in a highly
significant way, that value. ... Corporate acquisition programs almost
never do as well and, in a discouragingly large number of cases, fail to
get anything close to $1 of value for each $1 expended."
1985: "[A] good managerial record ... is far more a
function of what business boat you get into than it is of how
effectively you row ... Should you find yourself in a chronically
leaking boat, energy devoted to changing vessels is likely to be more
productive than energy devoted to patching leaks."
1986: "We intend to continue our practice of working
only with people whom we like and admire. ... On the other hand,
working with people who cause your stomach to churn seems much like
marrying for money -- probably a bad idea under any circumstances, but
absolute madness if you are already rich."
1987: "The value of market esoterica to the consumer
of investment advice is a different story. In my opinion, investment
success will not be produced by arcane formulae, computer programs or
signals flashed by the price behavior of stocks and markets. Rather an
investor will succeed by coupling good business judgment with an ability
to insulate his thoughts and behavior from the super-contagious
emotions that swirl about the marketplace."
1988: "To evaluate arbitrage situations you must
answer four questions: (1) How likely is it that the promised event will
indeed occur? (2) How long will your money be tied up? (3) What chance
is there that something still better will transpire -- a competing
takeover bid, for example? and (4) What will happen if the event does
not take place because of antitrust action, financing glitches, etc.?"
1989: "Because of the way the tax law works, the Rip
Van Winkle style of investing that we favor -- if successful -- has an
important mathematical edge over a more frenzied approach."
1990: "Because leverage of 20:1 magnifies the
effects of managerial strengths and weaknesses, we have no interest in
purchasing shares of a poorly managed bank at a 'cheap' price. Instead,
our only interest is in buying into well-managed banks at fair prices."
(He wrote this in reference to Berkshire's purchase of
Wells Fargo (
NYSE: WFC ) , a bank he
continues to laud today).
1991: " An economic franchise arises from a product
or service that: (1) is needed or desired; (2) is thought by its
customers to have no close substitute and; (3) is not subject to price
regulation."
1992: "[W]e think the very term 'value investing' is
redundant. What is 'investing' if it is not the act of seeking value at
least sufficient to justify the amount paid? Consciously paying more
for a stock than its calculated value -- in the hope that it can soon be
sold for a still-higher price -- should be labeled speculation (which
is neither illegal, immoral nor -- in our view -- financially
fattening)."
1993: "The worst of these [arguments for selling a
stock] is perhaps, 'You can't go broke taking a profit.' Can you imagine
a CEO using this line to urge his board to sell a star subsidiary?"
1994: "We will continue to ignore political and
economic forecasts, which are an expensive distraction for many
investors and businessmen. ... Indeed, we have usually made our best
purchases when apprehensions about some macro event were at a peak. Fear
is the foe of the faddist, but the friend of the fundamentalist."
1995: "Any company's level of profitability is
determined by three items: (1) what its assets earn; (2) what its
liabilities cost; and (3) its utilization of 'leverage' -- that is, the
degree to which its assets are funded by liabilities rather than by
equity."
1996: "In the end, however, no sensible observer --
not even these companies' most vigorous competitors, assuming they are
assessing the matter honestly -- questions that [
Coca-Cola (
NYSE: KO )
] and Gillette will dominate their fields worldwide for an investment
lifetime." (A decade and a half later, and he's yet to be proven wrong,
though Gillette is now dominating as a
Procter & Gamble (
NYSE: PG ) subsidiary, making Berkshire P&G's fourth-biggest shareholder and Coke's largest.)
1997: "Only those who will be sellers of equities in
the near future should be happy at seeing stocks rise. Prospective
purchasers should much prefer sinking prices."
1998: "[W]e give each [of our company managers] a
simple mission: Just run your business as if: 1) you own 100% of it; 2)
it is the only asset in the world that you and your family have or will
ever have; and 3) you can't sell or merge it for at least a century. As a
corollary, we tell them they should not let any of their decisions be
affected even slightly by accounting considerations. We want our
managers to think about what counts, not how it will be counted."
1999: "Our lack of tech insights, we should add,
does not distress us. After all, there are a great many business areas
in which Charlie and I have no special capital-allocation expertise. For
instance, we bring nothing to the table when it comes to evaluating
patents, manufacturing processes or geological prospects. So we simply
don't get into judgments in those fields."
2000: "But a pin lies in wait for every bubble. And
when the two eventually meet, a new wave of investors learns some very
old lessons: First, many in Wall Street -- a community in which quality
control is not prized -- will sell investors anything they will buy.
Second, speculation is most dangerous when it looks easiest."
2001: "Some people disagree with our focus on
relative figures, arguing that 'you can't eat relative performance.' But
if you expect as Charlie Munger, Berkshire's Vice Chairman, and I do --
that owning the S&P 500 will produce reasonably satisfactory
results over time, it follows that, for long-term investors, gaining
small advantages annually over that index
must prove rewarding."
2002: "Many people argue that derivatives reduce
systemic problems, in that participants who can't bear certain risks are
able to transfer them to stronger hands. These people believe that
derivatives act to stabilize the economy, facilitate trade, and
eliminate bumps for individual participants. And, on a micro level, what
they say is often true. ...
"Charlie and I believe, however, that the macro picture is dangerous
and getting more so. Large amounts of risk, particularly credit risk,
have become concentrated in the hands of relatively few derivatives
dealers, who in addition trade extensively with one other. The troubles
of one could quickly infect the others. On top of that, these dealers
are owed huge amounts by non-dealer counterparties. Some of these
counterparties, as I've mentioned, are linked in ways that could cause
them to contemporaneously run into a problem because of a single event
(such as the implosion of the telecom industry or the precipitous
decline in the value of merchant power projects). Linkage, when it
suddenly surfaces, can trigger serious systemic problems."
2003: "True independence -- meaning the willingness
to challenge a forceful CEO when something is wrong or foolish -- is an
enormously valuable trait in a director. It is also rare. The place to
look for it is among high-grade people whose interests are in line with
those of rank-and-file shareholders --
and are in line in a very big way."
2004: "Over the 35 years [ending in 2004], American
business has delivered terrific results. It should therefore have been
easy for investors to earn juicy returns... Instead many investors have
had experiences ranging from mediocre to disastrous.
"There have been three primary causes: first, high costs, usually
because investors traded excessively or spent far too much on investment
management; second, portfolio decisions based on tips and fads rather
than on thoughtful, quantified evaluation of businesses; and third, a
start-and-stop approach to the market marked by untimely entries (after
an advance has been long under way) and exits (after periods of
stagnation or decline). Investors should remember that excitement and
expenses are their enemies. And if they insist on trying to time their
participation in equities, they should try to be fearful when others are
greedy and greedy only when others are fearful."
2005: "[For CEOs] huge severance payments, lavish
perks and outsized payments for ho-hum performance often occur because
comp committees have become slaves to comparative data. The drill is
simple: Three or so directors -- not chosen by chance -- are bombarded
for a few hours before a board meeting with pay statistics that
perpetually ratchet upwards. Additionally, the committee is told about
new perks that other managers are receiving. In this manner, outlandish
"goodies" are showered upon CEOs simply because of a corporate version
of the argument we all used when children: 'But, Mom, all the other kids
have one.' "
2006: "Corporate bigwigs often complain about
government spending, criticizing bureaucrats who they say spend
taxpayers' money differently from how they would if it were their own.
But sometimes the financial behavior of executives will also vary based
on whose wallet is getting depleted. Here's an illustrative tale from my
days at Salomon. In the 1980s the company had a barber, Jimmy by name,
who came in weekly to give free haircuts to the top brass. A manicurist
was also on tap. Then, because of a cost-cutting drive, patrons were
told to pay their own way. One top executive (not the CEO) who had
previously visited Jimmy weekly went immediately to a
once-every-three-weeks schedule."
2007: "A truly great business must have an enduring
'moat' that protects excellent returns on invested capital. The dynamics
of capitalism guarantee that competitors will repeatedly assault any
business 'castle' that is earning high returns. Therefore a formidable
barrier such as a company's being the lowcost producer (GEICO, [
Costco]) or possessing a powerful worldwide brand (Coca-Cola, Gillette, [
American Express]) is essential for sustained success."
2008: (Recall that the financial crisis was raging)
"Amid this bad news, however, never forget that our country has faced
far worse travails in the past. In the 20th Century alone, we dealt with
two great wars (one of which we initially appeared to be losing); a
dozen or so panics and recessions; virulent inflation that led to a 21
1⁄2% prime rate in 1980; and the Great Depression of the 1930s, when
unemployment ranged between 15% and 25% for many years. America has had
no shortage of challenges.
"Without fail, however, we've overcome them. In the face of those
obstacles -- and many others -- the real standard of living for
Americans improved nearly seven-fold during the 1900s, while the Dow
Jones Industrials rose from 66 to 11,497."
2009: "We've put a lot of money to work during the
chaos of the last two years. It's been an ideal period for investors: A
climate of fear is their best friend. Those who invest only when
commentators are upbeat end up paying a heavy price for meaningless
reassurance. In the end, what counts in investing is what you pay for a
business -- through the purchase of a small piece of it in the stock
market -- and what that business earns in the succeeding decade or two."
2010: "Money will always flow toward opportunity,
and there is an abundance of that in America. Commentators today often
talk of 'great uncertainty.' But think back, for example, to December 6,
1941, October 18, 1987 and September 10, 2001. No matter how serene
today may be, tomorrow is always uncertain."
2011: "The logic is simple: If you are going to be a
net buyer of stocks in the future, either directly with your own money
or indirectly (through your ownership of a company that is repurchasing
shares), you are hurt when stocks rise. You benefit when stocks swoon.
Emotions, however, too often complicate the matter: Most people,
including those who will be net buyers in the future, take comfort in
seeing stock prices advance."
Voila! And there you have it, 35 years
of Buffett's wisdom. If you haven't quite had your fill of Buffett and
want to hear about the industry that he -- and some other savvy
investors -- have been diving into, you can grab a free copy of The
Motley Fool's special report "
The Stocks Only the Smartest Investors Are Buying."
http://www.fool.com/investing/general/2012/03/01/35-years-of-buffetts-greatest-investing-wisdom.aspx
I folded my cards. I couldn't imagine any scenario where I was ahead, and had huge floating visions of straight flush, once the loose / bad MP started yammering. I knew that I was beat by the EP at the moment; was pretty sure he flopped a set (solid though straightforward player as he is). I had no clue what LP was doing in the hand, but my main concern was EP... Why are EP & LP flatting to a check-raise instead of getting it in? Things were not adding up for me, and I conceded that even though I'm getting great odds, I have to fold here. The turn, natch, was a club and the river a blank, netting me the nut flush. However, on the reveal, EP shows a set of 5's, LP shows a Q high flush (Q♣Qx - no preflop 3bet / 4bet / etc.) and MP shows ... 7♣ 8♣ for the flopped straight flush and the sweet triple up. Needless to say, I was patting myself on the back. Probably the only time I've folded for a read of a straight flush.
Quick follow-on: same player who called my 3bet would sit down 2 nights later with ~$100 and go broke on the third hand of that night to weird action he called my $8 PF raise with A2 vs. my KQ on the button. The flop was 2 x Q - an EP caller led $10, he flatted, I raised to $30, EP folds, he raises to $60 and I shove (he calls). See what I mean? Bad players abound...