Warren Buffett's Annual Letter to Berkshire Hathaway Shareholders [pdf]
berkshirehathaway.com
berkshirehathaway.com
He then goes on to show how that's been true, and that a standard index fund outperforms almost every hedge funds even before extra fees to the hedge funds are taken into account.
It's not the first time this has been pointed out, and it suggests that for non-multimillionaires, an index fund is always the most rational choice.
You get close to the return you'd get by investing in real estate, with the added benefit of index funds being much more easily liquifiable.
It's a simplification, but if a hedge fund manager finds a fantastic investment for $100mn, but they have $100bn to invest, they have to be able to repeat that feat over and over and over and over.
Hedge funds are at best going to net break even as an industry after fees, quite probably negative. So to look at "Funds of funds" and say they're a good idea is pretty mind boggling.
"Managing money is easy. Managing investors is hard."
Apparently it is hard to come up with a collection of 5 of them that would beat the S&P 500 over 10 years. At least Buffett had a hard time finding counterparties for a bet.
Much like other very difficult but not impossible things in life, it is very difficult but not impossible to beat the market for long periods of time. It's fair to say that most people, millionaires included, should go with index funds. But that doesn't mean it's hard to come up with funds that beat the market. They just aren't really available to people without a very high net worth.
Unfortunately the conversation about hedge funds has been dominated by binary thinking, especially since Buffett's wager was publicized. The pendulum has swung so far to the other side that there's not a whole lot of fair discussion about the utility of hedge funds.
It's easy to pick the winners in hindsight. Buffett put $1mm on a bet that it's hard to do it beforehand. If Protege partners couldn't do it with $1mm on the line, what makes you so convinced that you can?
It's a little reductive to use "past performance is not an indication of future gains" as an argument. If you extrapolate that with the premises that I am using (namely, that it is possible to intentionally and consistently beat the market), there is no reason to have faith in the continued investment in anything, private or public, because you cannot use any past measure of success as guidance. But I don't care about the success in of itself, I care about the cause of that success, and intrinsically I believe there is a cause.
Facebook has done well since its IPO. But since we're throwing out its past performance entirely, we shouldn't consider it a sound investment. Venture capitalists shouldn't have faith in Uber or Snapchat, because its past performance as a private company means nothing going forward. Real estate is not a sound investment because eventually there will be another market correction. And so on and so forth.
Except there are sound arguments for investing in each of those examples (please don't nitpick them specifically...) because people naturally view their respective success as a function of purposeful action. I view certain hedge funds as possessing the same capability for success.
Ultimately, entropy consumes every existing phenomenon we can observe. What we define as "consistent success" is only coherent over slices of time for anything, not just the ability to forecast the market. The only reason why we continue to invest in anything is because we believe that someone at the helm of past success can continue to pull it off in the future. Every streak must necessarily come to an end, whether it's competing as an elite athlete or being the dominant technology company or forecasting market movements.
So yes, I'd absolutely take that bet. I don't believe in EMH; I believe that past success for firms like those has been caused by skill and strategy, which is repeatable until fundamental things change (industries evolve, markets evolve, successful managers retire, etc). I definitely believe that firms like Renaissance Technologies will continue to print money in the future because they have a profitable methodology for doing so, unless something changes. Because I do not believe the success is due to chance, this wager becomes more a question of whether or not I believe the skilled management of these firms will change in the near future or whether the market itself will fundamentally make their strategies untenable. For most of them, I'm confident in another ten years of superlative performance.
All successful investing begins with observing, modeling and capitalizing on market inefficiencies. You can do this with real estate, business ownership, securities, etc. It is clear to me that there are hedge fund managers who are playing an entirely different game than the unprofitable ones the media fixates on. They are similar only in name, but it's like the difference between counting cards and gambling. These are managers who can identify, through their own insight or the aggregate insight of their firms, inefficiencies esoteric enough that they are extremely difficult to find, but useful enough that they can be profitably traded on.
EDIT: I forgot you asked me a specific question...the reason why I feel confident taking on this bet when Protege Partners, LLC is losing is because I'm choosing a small, specific subset of the hedge fund industry that I believe in for the reasons explained above. In contrast, Buffett and Protege's bet is over a basket of funds, a "portfolio of funds of hedge funds." I am not arguing with you that most of the hedge fund industry is crap, just as I wouldn't argue that most people who start tech companies fail. I'm betting on the outliers.
If anyone can just log onto Long Bets and do this I'm happy to take the bet with you immediately.
No, the point is that any of these outliers that beat the market will, given time, revert back to the mean. Given this, you are simply wasting money on fees for actively-traded funds.
> Facebook has done well since its IPO. But since we're throwing out its past performance entirely, we shouldn't consider it a sound investment.
The market has already factored this information into the price of Facebook. Facebook, the company, may continue to perform well. But if everyone believes this, the stock will be trading at a premium compared to what its current situation looks like.
Facebook, or any other company, could have ten years of record-breaking quarters and the stock not move a dime if the market already assumed there was a significant likelihood that this would happen. It could even decrease if these record-breaking quarters fell short of what the market was expecting.
> I don't believe in EMH; I believe that past success for firms like those has been caused by skill and strategy…
Then invest in these funds and make a killing.
Funnily enough, few of the people who claim to disbelieve in the efficient-market hypothesis are billionaires.
> …I feel confident taking on this bet when Protege Partners Protege Partners, LLC is losing is because I'm choosing a small, specific subset of the hedge fund industry that I believe in for the reasons explained above. In contrast, Buffett and Protege's bet is over a basket of funds, a "portfolio of funds of hedge funds."
That "portfolio of funds of hedge funds" was chosen by Protege Partners exactly the way that you are doing. They picked a portfolio of hedge funds they believed were most likely to succeed over the long haul, and they are losing. Badly.
At least as far as the bet goes. I suspect they've made more than the million dollars lost in the bet by marketing themselves as being confident enough in their picks to make such a bet against Buffett.
Per your parallel comment - can you define "measurable"? For example, can I just choose RenTec's Medallion and call it a day? How quickly does data about the fund's annual performance have to be available, and from which source preferably?
At this juncture it might just be easier for you to email me :)
And you might not be able to invest directly in rentec, but their holdings are public [1]. So if they really had a good secret, it could be replicated.
[1] https://www.holdingschannel.com/all/stocks-held-by-renaissan...
So by looking at their SEC disclosure forms you can see which investments would have made you money in the past, the only thing you now need is a time machine.
They harvest tax loopholes [0].
[0] http://www.zerohedge.com/news/2014-07-21/how-rentec-made-mor...
Your statement's not "credible." ZH didn't just cite Bloomberg. The ZH post also includes excerpts from the 93 page report (not included in the Bloomberg article) released by the US senate subcommittee, which was highly relevant.
Is anything in the ZH post false? Please add it to the discussion.
Next time, please comment on the substance of ideas and arguments instead of ad hominem attacks. It was one of the first searches that came back for the topic I was looking for. It added more context than a brief Bloomberg article.
If that's really all they did, it's basically a Ponzi scheme, because they would sometimes lose money.
Secondly, every trade has a counterparty. So somebody necessarily has to be at the loser's end of every trade. For every investment fund that makes oversize profits another fund loses money. It all evens out. That doesn't mean it's entirely zero sum, though, because money still flows from bad businesses towards good businesses as a result. The incentives for professional money managers are also totally misaligned: funds performance is reported quarterly leading to a short term bias; fund managers get a bonus if they invest irresponsibly but get lucky; customers are unsophisticated so it's one big lemon market.
I agree that index funds make a lot of sense for non-millionaires (and single digit millionaires), but that's simply because it takes a lot of effort to beat the market even by a few percent so you need a lot of assets for it to be worthwhile.
Buffet's point is that it's negative-sum. A gambler might win today, but lose tomorrow, and his counterparty will get the opposite, but the house wins on every transaction. While the players churn, the market makers and rent seekers will drain the system of money, in aggregate.
There wouldn't be a stock market if everybody just invests in a fortune 500 index fund. The benefit to society of a functioning stock market is way more than $10B/yr.
From page 23:
A lot of very smart people set out to do better than average in securities markets. Call them active investors.
Their opposites, passive investors, will by definition do about average. In aggregate their
positions will more or less approximate those of an index fund. Therefore, the balance of
the universe—the active investors—must do about average as well. However, these
investors will incur far greater costs. So, on balance, their aggregate results after these costs
will be worse than those of the passive investors.> Buffett Annual Report is a long form sales letter to persuade people to buy more Berkshire shares.
Nonsense. Buffett doesn't care one whit about people buying more Berkshire Hathaway shares. If anything, he wouldn't mind people selling shares and driving the price down to below 1.2 x book value, so he can buy them back at a discount.
Index funds are needed so investment funds don't overcharge their customers, and investment funds are needed to keep the market honest.
It makes sense for individuals (or institutions) to invest in index funds, but only up to a point. When too much money is stuck in passive index funds the active investors will easily outperform the market and the smart money will leave the index funds again.
The person I was responding to was drawing an analogy to a casino where the money just moves around and the institutions just skim every time money changes hands. That's negative sum. In contrast, society benefits when the stock market gives access to capital to well run companies and takes money away from poorly run companies. So the casino analogy doesn't work. Buffett understands that the stock market as a whole isn't zero sum (or negative sum), and that's true even if all investment firms in aggregate underperform the indexes.
Thus, investments decisions made within such companies are those that promote their growth (or not).
In this manner, without insider knowledge into the internal decisions those companies make, and thus the ability to judge the viability of their investments, investing in something other than a stock index is much riskier. But the stock market itself can still grow.
The distinction is that investing in "the market" is an arms length investment that occurs well after the good or bad investments that affect the profitability of individual companies have occurred.
Maybe over the long term the returns on active investing will simply go to prop traders.
Worldwide equities are 65 trillion or so. Can you have a functioning stock market if 1T of that is actively managed by prop traders and the remaining 64T is in passive index funds? I'm not so sure.
If you have read his past reports you will know that he wants his shareholders (he calls them partners) not to sell their shares. He published some numbers in the past as well where 90% of shareholders don't sell and he is very happy about that.
Most businesses have very high exposure to one section of the market, so wanting to hedge is natural. If your business makes toilet paper you have it easy because no matter what happens demand for your product won't collapse overnight. If you make cars then economic recessions are scary because new car sales will drop like a brick, and you need to hedge.
If you had that kind of exposure to currency risks, you wouldn't go to a hedge fund. You can easily hedge that risk yourself with futures or options. If you wanted to pay somebody for it, you would go to your banker and he would do it for you for a fraction of the 2/20 fees charged by hedge funds.
The bank teller might not know about them, but the bank most assuredly has people that can help you.
Also, contrary to what your posts suggests (any serious amount of money), the amount of money has no bearing on how you would hedge its risk.
> The notion that hedge funds all collect a stereotypical management fee of 2 percent and a performance fee of 20 percent has been dying a slow death in recent years, especially for smaller, newer funds.
https://www.bloomberg.com/view/articles/2015-10-27/hedge-fun...
Buffet's bet went into effect in January of 2008, so before the crash.
Until people figure out the magic of bidets!
https://www.amazon.com/Luxe-Bidet-Neo-120-Non-Electric/dp/B0...
That sounds like a dubious claim to me. Can you name one car maker who hedges their exposure to economic recessions like you describe?
This is not true. There will always be someone who wins less between the two, but it doesnt mean it wasnt a win-win trade. Some things are more valuable to one person than another.
https://www.wealthsimple.com/ (I'm a customer) has recently expanded into the US from Canada and are one of a group of what is being called Roboinvestors which take these index funds and let you easily invest in them.
Wealthsimple adds on 0.5% fee which is still lower then active funds, my portfolio has a weighted MER of 0.64%.
The lowest bank mutual fund in Canada that I've seen in from Tangerine at ~1% MER, are there ones lower?
Without having to handle rebalancing yourself? AFAIK then Wealthsimple and Tangerine are already the lowest you'll find without working with ETFs or index funds directly.
Close to the return on unleveraged real estate investing. Most real estate investing is significantly leveraged, to a larger extent than possible (or recommended) for stock market investing.
Non-leveraged real estate investing would give you hardly 1-2 % p.a.
But the market will adjust to cheap leverage. Easy money, house prices go up, you get less value per dollar. So the benefit of leverage is diminished at least a bit.
Hedge funds beat the market before fees [1]. (Mutual funds do not [2].) It's just that hedge fund managers are great at gobbling up that alpha with fees.
One way to look at this is hedge fund investors subsidise the efficient price-discovery function hedge funds provide the market.
[1] http://www.marketwatch.com/story/90-of-fund-managers-beat-th...
[2] https://mobile.nytimes.com/2015/03/15/your-money/how-many-mu...
Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been throughout our managerial tenure – by America’s economic dynamism. One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers. You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.
I don't often see this sort of pride in America. Normally the flavors I do observe are hyper-nationalistic and filled with bravado, while the tone here is lauding yet reserved. There's a sense of authenticity delivered in the way Warren Buffett - an extremely humble, yet successful man - talks about the way his country has helped him succeed. It's austere.
This isn't part of the regularly scheduled programming for threads about his letters (mostly we like to champion index funds or debate the utility of active investing), but it's what really struck me this time around. Juxtapose his words here with the same category of conversation about America in many other contexts and contrast the integrity involved. In a time when America appears to be experiencing quite a bit of social and political volatility, it is refreshing to hear optimism from a source that does not appear to use it as an instrument of control.
EDIT: Well this has since ignited a debate about America's cultural identity and history of imperialism...not really the spirit of what I was going for but here we are I guess...
As a quick back-of-envelope check: American GDP in 2016 was $18.86 tn.
The son of a bitch wants it at a 4.7 trailing multiple, after a relatively slow-growth year. All that praise - and then a 4.8x multiple. Now I know how he butters up his acquisition targets :)
EDIT: I am getting downvoted, but I am keeping this. You guys don't realize that valuing companies is what he does all day, every day. That's literally his job. When he throws a figure like $90 trillion out for America, that is not casual or haphazard - it took him a few seconds to come up with that, and he did it on some basis. We get real insight into his thinking, especially when it comes following such lavish praise. In my opinion I am making a good contribution in pointing this out. We've just learned something.
"The net worth of households and nonprofits rose to $90.2 trillion during the third quarter of 2016."
Regarding the 90 trillion, I disagree with him. I see a country as a pearl: there's a tiny nugget, a bit of dust or some other small thing that starts the process of creating the pearl inside the shell of they oyster. Then over time more and more mother of pearl is deposited until the pearl is created.
The US mainland hasn't seen a war since 1865. Even the Civil War never touched many parts of the mainland, such as New York or Chicago.
And you've been depositing "nacre" for over 2 centuries at a rate that in the past decade has been around 10 trillion per year. I know that a lot of that wealth doesn't actually come back to the US, a lot of it is immaterial, that there's also a lot of destruction and regeneration even without war, but there's no way I'd evaluate the current wealth of the US at only 90 trillion.
It's got to be at least 10x the current GDP, if not more, in my opinion.
Anyway value is not usually priced in terms of wealth, though - but on the future.
If you don't read this much, then go back and read prior ones, WEB writes this way all the time. I like the guy a lot, but he does.
1) Political stability and the rule of law: No point in investing much in a farm, factory, or infrastructure (fiber!) if it will be burnt down the next day by bandits or seized by someone more powerful (government, the rich family in town, etc.). The same applies to human capital (education): No point in studying computer science if there is no electricity and your life will be a fight for survival with guns and knives.
2) Free people and free markets (as a general principle, not taken to logical extremes): The system that produces the most aggregate wealth from the same labor and capital inputs.
3) Scale: Of developed nations, the U.S. has by far the largest internal market. ~325 million in the US, second is Japan at ~125 million. The UK market is 60 million, for example; that's why the Beatles sang with American accents (AFAIK - and also because the UK and Europe probably were still recovering from two massive wars). Note that Europeans are roughly as productive per capita as Americans. Scale by itself isn't sufficient; China and India have probably always been larger, for example.
4) Geographic security: Protected from enemies by two oceans, and with neighbors too weak to do anything but be friendly. To get a sense of what those oceans mean, look at how hard it was to attack across the English channel in WWII. If the U.S. was in continental Europe, WWI and WWII would have devastated the U.S., twice, just like the rest of Europe - and who would have provided a Marshall Plan to bail out the US along with the Europeans? Instead, thanks to geography, it's only a slight exaggeration to say that not a foreign shot was fired on US soil - and hasn't been since 1812.
5) Geographic economics: According to one geopolitical analyst I read, the U.S. has the largest navigable river system and the largest contiguous area of farmland in the world, and they are in the same place, the Mississippi River basin. Remember that most of the world economy was agricultural for much of U.S. history; imagine the impact of that geography, an almost guaranteed economic engine. Consider how critical controlling New Orleans and the Louisiana Purchase were and are.
The #2 allocation: Russia/USSR. Saudi Arabia has oil but little else. China does fairly well in resources and coal, but not oil.
But there is also credit to the courage and ingenuity of the early immigrants who took perilous journeys leaving everything behind, risking diseases and an unknown and uncertain future, and made something out of it.
One would like to think those who are proud are proud of this and not the usurpation of a continent or slave trade.
Its the people and way of life that matter. Primary resources can be bought.
In fact land can be a hindrance when it induces Dutch Disease.
There is also an interesting observation by Nick Szabo about the value of a transportation network: ' Combine this with Metcalfe's Law and we reach a dramatic but solid mathematical conclusion: the potential value of a land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen.'
http://unenumerated.blogspot.com/2014/10/transportation-dive...
So yes, the actual land we occupy is worth booku bucks.
This was a gain that was achieved not by starting from scratch but by stealing lands from indigenous people and forcing Africans to work that land. I'm not sure if you can describe the kidnapping, murder, rape and ultimately genocide of multiple people groups as miraculous, unless one subscribes to the idealogy of manifest destiny.
The easiest way to dispel this notion is to show that the vast, vast majority of American wealth (>99%) came about long after slavery had ended. Indeed, if we could return to the economy at the time slavery was in full swing (even disregarding morals), not one rational person would choose to do so. Another way is to compare the US economy to those that didn't discontinue those practices. Or to show that even in current circumstances the US economy continues to grow rapidly, after hundreds of years of doing so.
So, please don't forget the atrocities caused by the United States. But also don't attribute everything that ever happened in the United States to those atrocities. It may be a cheap way to brush aside the success of the United States, but it isn't an honest argument. Clearly there's something else going on that has made the United States the most wealthy country in the world (per capita).
Its misleading to say that 99%+ of american wealth occured long after slavery etc ended, because it still started there.
If the American system only works as a result of slavery then it should be discounted. If not, however, it should be understood and replicated where possible.
And we should all study history regardless.
This is the original quote. The issue is with "starting from scratch." You're not starting from scratch if you obtained the land through genocide, assisted by free labor. You are starting with quite a lot. America did not start in 1776. European powers had been investing in the new world for hundreds of years at that point. The whole issue is calling the economy of America at 1776 "starting from scratch." It's ahistorical.
The point Buffett and Munger were making is that the current American system works very well and creates enormous amounts of wealth. Doss the fact that there was slavery for centuries all over the world somehow refute that? I can't see how it does.
If you mean "what if time went on without Europeans in the US", that's a big what if. The indigenous peoples would have carried on in the Bronze Age, and would have been wiped out later by a different collection of foreigners.
The reality is that the US benefited from the culture and know how of Europe without the baggage of supporting useless aristocracy.
Remember that atrocities like that happened in many places that did not grow into giant economies. Stealing land and enslaving people may have given a head start, but clearly something else delivered the big gains.
If you look at the history and the economic charts, the big boost was started by the industrial revolution.
Exactly. Now, lets look at some of the causes of the first Industrial Revolution
First, large tracts of lands in Britain, largely held in the commons, were stolen from the peasantry and given to private individuals and landlords, as part of the Enclosure movement. This forced the peasants to look for work in cities en masse, providing cheap labor for the capitalists.
Second, Britain's African Slave trade constituted a big part of the early accumulation of capital that made the revolution possible.
Cheap cotton from the colonization of India as well that produced by the slave labor in North America fueled the textile industry, which was at the heart of the industrial revolution. India's share of the world economy fell from 20% to less than 5%, chiefly because the capital required for industrialization was siphoned off to England
I'm not convinced by your second one. Why didn't states like Portugal industrialise equally quickly? Or within America, why didn't states with more slaves grow faster? Germany has no history of slavery, and the same is true for modern industrialisation transitions like South Korea and China.
The topic has been studied in great detail in economic history. The consensus seems to be that however horrible slavery was, it wasn't fundamental to industrialisation.
If you are making profit to support a lavish lifestyle relative to your local peers and (crucially) there is no free market value of your laborers' labor, then what incentive do you have to apply innovation?
Some (cotton gin), but certainly less than a free (in all senses of the word) labor market where a shortage of workers leads to increased wages and a push towards mechanization.
I agree. It is my understanding that the Romans were in a good position to develop a usable steam engine, but never had enough motivation to do so, because slave labor was cheaper.
Germany has no history of slavery
Also take a look at what happened in the Sud west if you think Colonial Germany didn't have slaves
A very interesting related book that I've read about that period and which I'd recommend to everyone generally interested in economic and social history is E. P. Thompson's "The Making of the English Working Class" (https://en.wikipedia.org/wiki/The_Making_of_the_English_Work...). I'm generally leaning on the right side of politics and economics (I'm a sympathizer of both Bentham and Benjamin Constant, who are not receiving very kind words in this book), but I found it super interesting and I find it intellectual honest to try and and understand opinions (and related facts) coming from multiple sides of the story.
It's always been my understanding that _wool_ had been the early carrier of the industrial revolution? That by the time cotton entered that picture, the revolution was well underway?
Two hundred years of slavery was not a major driver of economic growth?
Edit: Serious question, rephrased: do economic historians really not consider slavery a major driver of growth? If so, that would be highly counterintuitive. We're talking about the free labor of ~10 million people over two centuries, in an economy that was almost entirely agricultural.
Rule of law (contracts, low official corruption), absence of arbitrary confiscation risks (ie the King is not going to suddenly come and grab your stuff), unfettered movement of goods/people/ideas. Generic ideas that allow you to compare across societies.
I actually studied economics, and the explanation of how growth arrived does not normally rely on slaves. It tends to focus more on the advent of early parliamentary government (Glorious Revolution), presence of coal in northern England, and advancement of science and technology.
There's no absolutes in economic history though, and you might well find an argument that the triangular trade aided the industrial revolution. That's more of a vignette that explains why England in particular might have prospered, rather than an explanation of how growth gets started in general.
Quite relevant as a set of innovations in the time when people started having to do business with strangers, particularly ones with different ecological positions. You can imagine having lived in agricultural societies there would be a big question of how exactly you're going to have a business relationship with say a factory owner or delivery company.
JSC, exchanges, (perhaps central banking as well) and various encounters with credit issues worked out a certain way in the UK, and innovations were copied across many other societies.
- Mass production: Venetian arsenal
- Central Bank: Sweden
- The word Bourse: a certain family in Belgium
- Political philosophy: lots of places
- Coal and steel production, factories: Northern France, Belgium
- Religious freedom: rather bloody wars still in living memory
While a large number of, not free but very low cost, laborers will build individual wealth for the small percentage of the population who use them, those same laborers do not participate in the economy. So you end up with very large supply and very little demand, little or no reason to innovate, and a stalled engine of growth.
Slavery, or even low wage workforce is bad even from the point of view of entirely selfish actors. It erodes the market eventually killing the entire economy.
The lesson is, if you want to get rich don't reduce the cost of your labor force, increase the value of your production.
I don't think that there is any doubt that slavery provided a great deal of the early economic growth in the American south. (Weirdly, I was just reading an article that suggested that slavery itself did not catch on in the Virginia colony until like 60 years after it was founded because slaves cost more than indentured servants, but didn't live any longer.)
However, if you combine the fact that the southern economy was based on labor intensive agriculture (indigo, tobacco, and cotton) with the presence of cheap slave labor prevented the southern economy from industrializing, which limited its growth during and after the industrial revolution.
An amusing note from the chapter: between 1620 and 1660 (?), the Virginia government continually re-passed laws requiring everyone to plant at least two acres of corn. Apparently, most didn't want to take the minimal time away from their tobacco crops, in spite of the fact that they were frequently starving.
The correlation between historical slavery and industrialization/modern wealth is negative.
Not really difficult to disentangle.
And theres Canada.
Whereas claiming they can't be disentangled is obviously disinterested.
Slavery was the rule, not the exception in the world at the time. The African kingdoms mostly practiced it, the Arabs were infamous for it, Mexico ended slavery in the 1830s after American industrialization was well underway, Russia didn't truly end serfdom until around 1900 as I recall, and then you have India's caste system, so only China is left without slavery in some form? But were they? And why didn't all of these countries industrialize?
However, you'll note that in the absence of southern cotton during the Civil War, these textile mills did not shut down or become unprofitable, they switched to alternate sources of cotton.
From this [0] I can only conclude that owners were paying for value and the price did go up over time, as did the price of cotton, but it looks like it was a good deal.
To be fair, there are few if any countries with the scale of stolen/free land and enslaved labor as in US history.
You'd have to look at the European 'colonies' for both. The US of course was the first colony to become independent -- meaning an end to it's profits being extracted for the home country, and instead re-invested locally.
So I'd say there are basically no other countries with close to the scale of profits built from stolen land and enslaved labor, and then not extracted for a colonial home country overseas.
It also doesn't hurt that the allies gave the US its best technological secrets during the war and the best minds from both sides emigrated to the US during and after the war.
You just described the history of Humanity.
edit: Yo guys I'm not saying we need to give it all back. History is stained in blood.
America achieved massive wealth in spite of a violent history, not because of it.
Life back then was short, nasty and brutish. If the population continued to grow with corresponding progress, we'd be fighting even more over the limited resources available.
On the larger scale of history, yes. I don't think working class people are necessarily doing better than a few decades ago, when they had stronger unions and more power, and before wages stopped rising (which seems likely related to the loss of power).
But an important note, and I don't mean to pick on the parent. In these discussions, the working class is almost always described as "they" and not "we". What do we really know? Input from people with real experience is necessary.
Slaves had to be fed and housed and nominally cared for. After all, they cost money and you didn't want to throw away your investment.
The slavery economy, which is what the South fought to preserve in the American Civil War (let's face it: those who like to hide behind "states rights", it all comes back to "states rights to buy and have slaves"), was a last gasp to try to preserve what was left of feudalism. It was doomed before it began.
Please don't misconstrue this as being "pro slavery". Treating humans as property is an abomination. Even the Romans believed this and enshrined it into their legal codes even though they kept slaves.
This is an idiotic strawman. That's the equivalent of saying that people who think countries in the European Union should be mostly free to implement their own laws are pro slavery.
Smaller localized government control vs one rule for everyone has little to do with slavery. There is no reason that slavery couldn't exist in a strong central federal government system either.
If you look at historical documents, protecting the institution of slavery was clearly the main driver for the Southern states to secede. It relatively recent years, Southern apologists have tried to rewrite this as "No, they were just for States' Rights", because this is currently less offensive than saying they just wanted to own slaves.
And until very recently the former slave owning states were and in some ways remain sleepy backwaters dependent on the largess of the military and welfare to remain viable.
Seeing as how you are saying that the growth of America was dependent on 'stealing' land you must be implying that the success is dependent on the stealing of resources.
Which is trivially proven false by simply looking at South America.
> forcing Africans to work that land
Forcing Africans to work the land stunted American growth. It's not a coincidence that the richest parts of the countries are the ones that industrialized.
http://www.pbs.org/wnet/african-americans-many-rivers-to-cro...
I'm not an American, but if you feel quilty because of the past, I'm more than welcome to get a little financial contribution to my life. I'm from small and poor country, no great history or privilege.
I'm curious, do you include Hong Kong in that classification? How about Estonia? I'm curious what 'power' you consider those countries have, or exert, over others.
Please elaborate, I'm genuinely interested in why you consider them an, exception(?), or example, to your blanket rule that successful countries have power over others.
> While Estonia is successful considering its past , they are nowhere on the level of other developed Western countries.
So Estonia hasn't met your criteria for a 'successful' country (what is your criteria btw?). Is their relative success compared to neighbouring baltic states a result of them exerting force or power over their neighbours or others? Or something else?
> (yet)
Is the only thing stopping them from becoming successful, exerting force or demonstrating power over others, or are they currently suffering from an oppressive regime doing likewise to them (which is holding them back)?
But isn't it obvious that neither of these things created the wealth we have today? To my thinking, our current wealth derives from technological innovation, process engineering, psychological insight, most of which would not have been possible without welcoming people from other lands, and being willing to work with those who are different than we are.
Besides there cost / benefit of the pipeline only really makes sense to those who profit from it directly.
This is not to minimize the genocide of the Native Americans that occurred, or the horrors of slavery. But in an economic report looking at compounded returns over the history of the US, starting from scratch is a fairly reasonable assessment.
Not to say they didn't deserve it, but the entire American south basically had to reboot. Some states figured it out (Virginia, North Carolina, Georgia), and others haven't done as well (Mississippi, Alabama, Tennessee).
I don't follow. Certainly the current farming system in the American mid-west is orders of magnitude more productive. But even if we're focussed on pre-industrial history, are you sure that the ancient South American agri-economies weren't better? And for productive land use, what about Japan and south-east Asia, where every square inch ran like clockwork.
Tennessee and much of Appalachia has been historically on the side against slavery and corporate interests until somewhere around 60 years ago. I don't know how it happened besides hand-waving "Southern Strategy."
Funny how that's not accounted for much these days, but America's historic success as a direct result of African slavery and Native Indian genocide, is.
Right, which is also the same thing many native americans tried to do to the immigrant settlers in the West as well.
One of the hard lessons our society has learned is that putting so much energy into holding a group of people back hurts both those people and society as a whole. Of course, lately I'm wondering whether we need to relearn that lesson.
It's incredible. As a foreigner, I feel like I'm witnessing the payoff some absolutely top-notch patriotic propaganda.
But cue endless comments of lazy nitpicking whatabout-ism that completely miss your point.
Sorry English is not my first language and it is not easy for me to understand such advanced writing.
Is it that you like the sort of pride that quantifies the material wealth of the nation and attributes it to a market based economy and furthermore there are other sorts of pride that do you not like?
This is the exact opposite of the principle of charity.
Why insist on mind reading evil from people who vehemently state other ideals?
By your mindset, you'd mind read Churchill and FDR - the defeaters of Nazis - as Nazis themselves.
Similarly, we could mind read leftist parties as a having the real goal of dissolving and erasing the white race. And your political mirrors do this.
Or you'd see BLM as a black supremacist movement.
Double standards.
Also, what do you mean by my "political mirrors"? I'm a libertarian, I don't particularly identify with the left or the right. I'm also a nationalist in the sense that I love my country and the values it supports. You're being hyperbolic.
I'd go even further: our current presidential administration spends a lot of energy telling us that America sucks because the people in it suck, the government they built sucks, and the ideals they aspire to suck, and that the solution is to deal out cruelty to the right kinds of people.
I don't understand how anyone can listen to that bilge and interpret it as any kind of patriotism at all, but they do. The hyper-nationalism and bravado are a natural result of an underlying emotional condition apparently shared by about a quarter of the populace: an inability to feel pride in anything but the capacity to dominate.
This is why a few sentences by Warren Buffet feel like such a breath of fresh air. It wasn't always like this, Buffet's far more constructive and positive sentiment is perfectly normal.
Wtf are you talking about? This has never happened.
But even with violent majorities there is usually a justification of the behavior that somehow involves something the minority party is doing (or not doing) that justifies the action. Not that this makes it any more morally palatable (or true) from an objective viewpoint but the division may exist to be seized upon.
I'd also argue that Trump isn't the cause of division so much as the result of existing divisions some of which are quite old and have been festering.
My last point is I really grow weary of hearing Trump slams. We get it. You don't like Trump. But some people do. Is there any way we could keep this repetitive bleating on Facebook or something? No offense to poster lastlogin. His comment history seems pretty solid, I'm just sick of the Trump slams every third forum.
It's somewhat concerning that there political situation has reached a point where many statements are assumed to be about Trump.
Can someone please explain what this even means? I've seen this used as a thought terminating cliche for far too long for it to make sense anymore.
You know he's been a public loudmouth for ~30 years, right? Consider the encyclopedic familiarity with his massive corpus of blabbering you claim when you make a flat statement like this.
I could point out a bunch of his statements and attitudes, none of which would be news to you. The issue is: You haven't recognized those statements for what they are. They apply to classes of Other, so you haven't recognized them as being applicable to full-fledged equals, to human citizens.
When the president says something like "you have to treat [women] like shit" or when he claims that women are untrustworthy because they're all gold-digging bimbos, he's dissing half the nation as fundamentally deplorable.
When the president says things like "laziness is a trait in blacks," he's dissing ~40 million Americans - virtually all of whom are natural citizens, and who are consistently over-represented in the armed forces - as fundamentally less valuable as human beings.
The fact that he's also being a sexist/racist asshole at the same time shouldn't let him off the hook for statements like these. The fact that you haven't already recognized these attitudes (and many others like them) as fundamentally anti-patriotic attacks on your fellow citizens - that's on you.
I agree and thanks for sharing.
The biggest challenge now for me with free time is read from those types of sources. Or to just stay off my phone!!!!!
The joy of reading is under attack.
When my parent got near death s/he also framed a very patriotic life full of optimism.
He used this same logic when endorsing Hillary Clinton for President.
"Unfortunately, I followed the GEICO purchase by foolishly using Berkshire stock"
"It was, nevertheless, a terrible mistake on my part"
"Despite that cautious approach, I made one particularly egregious error"
I bet you don't find that sort of thing in many other annual shareholder letters.
*) read one of his biographies to see he's not afraid to play dirty
For sure he and his business partners tried to strongarm the german city / community of Egelsbach to sell it's airport (Germany's largest small airplane airport, near Frankfurt/Main) to him. The aim was to expand the airport, at the expense of the inhabitants. The upside would have been 1-10 jobs, the downside a lot of noise and reduced price of property and life quality.
A lot of intransparent things were going on, fortunately it seems that things came to a halt.
It's business. I would not believe the image of a business man of his class.
[Disclaimer: I live in Egelsbach, Germany, and I have followed the case with great concern.]
Additional source (in German): https://de.wikipedia.org/wiki/Flugplatz_Frankfurt-Egelsbach
[1] http://www.juve.de/nachrichten/deals/2009/05/net-jets-uebern...
Translated: https://translate.google.com/translate?hl=en&sl=de&u=http://...
Another, not WS-based, is that he disowned his granddaughter for talking about the family in a documentary about the ultra-rich.
Musk vs. Buffett: The Billionaire Battle to Own the Sun - https://www.bloomberg.com/features/2016-solar-power-buffett-...
Humble is an understatement. The man is a piece of work, that's for sure.
The HBO biographical documentary is insightful:
He was making critical comments about himself before he got famous.
from page 8:
>One reason we were attracted to the P/C business was its financial characteristics: P/C insurers receive premiums upfront and pay claims later. In extreme cases, such as claims arising from exposure to asbestos, payments can stretch over many decades. This collect-now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. .... We recently wrote a huge policy that increased float to more than $100 billion
They have $100 billion float. That's incredible.
I.e., I agree with Buffett's general premise, and have since the 1980s.
30,450 pages holy crap
Is he basically saying that the insurance business is structured in such a way to never payout catastrophic amounts? Is this a harmful thing for the insurance claimants?
His thinking on the surface is very solid: insurance business is a cash cow in some regard, and if the market is down, it is actually an opportunity to move that money into equities.
So stop by for a quote. In most cases, GEICO will be able to give you a shareholder discount (usually 8%). This special offer is permitted by 44 of the 51 jurisdictions in which we operate. (One supplemental point: The discount is not additive if you qualify for another discount, such as that available to certain groups.) Bring the details of your existing insurance and check out our price. We can save many of you real money. Spend the savings on other Berkshire products.
I need to get hooked up with my shareholder discount!
buffett profited off the housing bubble and should not be trusted. he owned huge stakes in the ratings agencies that were giving AAA+ ratings to these awful mortgage products, even as publically he was decrying the financial products involved as 'mass destruction' he was making money on it.
he is doing the same with his stock market push. if a million people listen to him and go buy stocks, what do you think happens to his index funds? They go up of course.
absolutely hilarious and sad to watch people worship this guy. if his secret is really to buy index funds, then why do people listen to his speeches and newsletters? you could just go buy index funds and be done with it.
like every other con artist, his genius is to get people to buy in to his story.
Your analysis of the great crash ignores the effects of dividends, which were very high in the thirties and made investors profitable much more quickly than you claim.
The housing bubble burst and BRK is worth far more now.
You don't know what Buffett does, how he got rich, or much about the stock market either.
On a related note, I came across a website several years ago that has a lot of info from the annual meeting Q&As, as well as other interviews, etc. It's quite long, but I found it very enjoyable to read.
He's smart, honest, humble, generous, witty and a great communicator. And he's the best investor in the world.
Normally these letters have some new brilliant insight or dive into a business I know nothing about. This one feels shorter and more peremptory. I see the financials for the major sectors and the same boilerplate explanation of insurance and railroads that's in every letter.
What's up? It's not like nothing happened with Berkshire Hathaway this year.
Their insurance businesses don't always make money. There have been years in the past that they posted big losses.
GEICOs moat is customer satisfaction. Obviously selling direct means their product is a great value, and service means hard to get their customers to switch.
"See around me," indeed.
I collected all Wikipedia articles on American billionaires who died in 2008 - 2017: http://tools.wmflabs.org/dschwenbot/intersection/index.php?l...
That got me 74 results. I wgot the articles and manually removed the women based on related Wikipedia categories (turns out https://en.wikipedia.org/wiki/Aubrey_McClendon was a man, I would have removed him just based on the name).
Then I grepped the files for '"[0-9]\{4\} births"' to get the year of birth (this string marks the corresponding category). Two men didn't have a known birthdate, so I threw out their articles, too. This left me with the years of birth for 65 American billionaires. I got their years of death analogously.
After that I calculated their ages as the difference (yes, this could be off by +-1 year, but my method is not exactly rigorous anyway). The mean of these values is ~82.6. 29 of them are >= 86. The mean of those is ~91.3, or 5.3 years past 86. Considering the huge error bars, this is well in line with the general population average.
When Finnish geneticist Leena Peltonen-Palotie was diagnosed with rare sarcoma in 2008, her colleagues started big project to save her life. Her cancer became the "worlds most studied cancer" for a short period. They sequenced her genes and used large screening robot to test tens of thousands combinations of different drugs against tissue samples taken from her.
They actually fond a cure for the sarcoma she was diagnosed with, but the cancer had already mutated into a form that did not respond to the treatment and she died two years later 2002. I believe this might have been the first ever for this kind of large scale tailored cancer research. Weirdly enough I can't find any mention of this research effort in English speaking magazines.
One could also cite Steve Jobs. Despite heroic measures, his delay doomed him.
(To expand a little bit on this: the Gompertz curve means that even if a 85yo billionaire contracts some cancer and is able to buy a cure no one else can which isn't useless or iatrogenic, he is going to die very soon anyway as the annual mortality risk increases exponentially. This is what is behind those surprising observations like 'curing all cancer would only add a few years to the average life expectancy' - curing cancer just means that you die of dementia, Alzheimers, a heart attack or something else a year or two later.)
> he is going to die very soon anyway
This is true. People close to 90 are one flu and pneumonia away from death.
>"If I eat 2700 calories a day, a quarter of that is Coca-Cola. I drink at least five 12-ounce servings. I do it everyday."
Really funny:
>Asked to explain the high-sugar, high-salt diet that has somehow enabled him to remain seemingly healthy, Buffett replies: "I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old." The octogenarian adds, "It's the safest course I can take."
What do you expect? ;) "Warren Buffett, who through Berkshire Hathaway (BRK.A) (BRK.B) owns about 9.3% of Coca-Cola's (KO) outstanding shares"