Comment by oska | Hacker News Reader

Comment by oska | Hacker News Reader

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I think his claim to be a beneficial 'allocator of capital' is bogus. He tends to invest in established exploitative companies. His investments have been made on an almost exclusive basis of growing wealth, which in the end is a very sterile end to aim for.

> I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty.

— Buffett, quoted in Barbarians at the Gate: The Fall of RJR Nabisco

I agree he's led a modest life. I am somewhat dubious about his claims to be a philanthropist. I don't see exploiting the world (Buffett & Gates) necessarily redeemed by later posing as a philanthropist.

None of this is meant as a critique of capitalism. Just a critique of the kind of sterile, exploitative capitalism that Buffett practises, that he then tries to dress up as philanthropy. "It's ok if I give away all my money at the end" - well he can't take it with him can he? And at 89, he still hasn't given most of it away anyway.

Finally, here's a link to a much more detailed criticism of Buffett, if you're interested:

https://www.thenation.com/article/archive/special-investigat...

That article starts with an incorrect premise.

"America isn’t supposed to allow moats, much less reward them. Our economic system, we claim, is founded on free and fair competition."

That's called a straw man. No one has ever said America "doesn't allow moats" and that there is "free and fair competition".

The whole point of business is, within the law, to build a moat that makes it impossible for a late-starting competitor to compete with you. Patents are moats. Immense capital is a moat. Brands are moats. Regulations are moats.

When Disney pulls its movies from Netflix to start its own streaming service, it's using its moat to block a competitor.

I bet almost every dollar you spend in your life goes to companies that legally try to stop you from spending money with their competitors. From your phone to your bank to your car to your airline.

The Fed is currently propping up the price of assets through $3 Trillion of asset buying. This isn't a free economy.

Funny, I thought the point of business was to exchange goods and services in mutually beneficial ways. The rest is rent seeking.

That quote is probably right out of a business school textbook.

Any Apple customer will tell you they "benefit" from spending all their computer and phone money with Apple. Apple trying to build a moat around their ecosystem doesn't preclude mutual benefit.

The vast majority of businesses are what I describe. The large economic profits are mostly rents accumulated by a small fraction of businesses, in a Pareto distribution. I argue we’d do fine with less of the rentiers.

I think most Apple customers will tell you that Apple products are too expensive.

Most 'moats' are not beneficial to the consumer. What's beneficial to the consumer is competition, and companies innovating, not building moats, to stay ahead of their competitors.

> He tends to invest in established exploitative companies.

What about BNSF for instance?

> His investments have been made on an almost exclusive basis of growing wealth, which in the end is a very sterile end to aim for.

What is a more appropriate terminal goal for a hedge fund manager? Would you personally invest your parents' 401Ks, your alma mater's endowment, or your city/state's pensions in a fund whose goal is not "growing wealth"? Are you willing to contribute to each fund to make up the difference (or raise taxes)?

I read the linked article and it was terrible. It kept playing a sleight-of-Hans between him being an example of what monopolies empower (which he is), and he as somehow the cause of monopolization (which it doesn’t support at all, it just makes meaningful glances in that direction). Quite a lot of its arguments boil down to “he’s rich,” as though that were a sin in itself.

No one who went into that article without a pitchfork in hand is likely to emerge with one.

> His investments have been made on an almost exclusive basis of growing wealth, which in the end is a very sterile end to aim for.

This is what investment is, no?

>I think his claim to be a beneficial 'allocator of capital' is bogus. He tends to invest in established exploitative companies. His investments have been made on an almost exclusive basis of growing wealth, which in the end is a very sterile end to aim for.

How do you separate this from a more general critique of capitalism? How should capital allocation work?

The majority of Warren's investments are in the secondary market. These transactions are effectively just transferring ownership and don't actually make cash infusions into the companies at all. He makes some primary market investments and allocates capital between his fully owned subsidiaries. But I think many people naturally wonder the value to society of getting rich by buying and selling things in a secondary market. No products or services are produced and his gains(over the market return) come from a zero sum game between buyers and sellers.

> But I think many people naturally wonder the value to society of getting rich by buying and selling things in a secondary market.

Obviously, buying and selling stuff in a secondary market is enormously beneficial to the people doing the buying and selling (or else they wouldn't be doing it)... For instance, if I start a business, I want to be able to sell it to Warren Buffet. When that doesn't happen, I want to be able to buy a slice of the businesses that he has invested in under the assumption that he does a pretty good job (as I don't have time/ability/money) to do that myself. Beyond personal utility, the value to society comes in the form of more businesses, more products, more services when its easier to buy and sell abstract ownership in businesses.

What counterfactual would get rid of Berkshire but keep YC?

I think your question conflates the primary and secondary markets. If you start a company and sell all or part to Buffet, that would be a primary market, and money goes into the company which can be used to grow. Same for YC. On the other hand, if you buy stock from another private investor, the company sees no money

I am sympathetic to your viewpoint and will give it some more thought. That said, my immediate thought would be that a fluid and healthy secondary market is necessary for a primary market to exist at all. Also, a secondary market allows growth companies to channel revenue into investment instead of paying out dividends. Last and relatedly, the overall secondary market return makes it nonzero and this incentivizes investment in lieu of dividends.

> None of this is meant as a critique of capitalism.

Lol, I was really with you up until this point. There will always be people like buffet as long as there is capitalism.

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