The Digest #2

Published on January 8, 2020

Rational Reflections is a weekly newsletter covering current events, investing, personal finance, book reviews, and other topics of general interest. To read last week’s issue, please click here

In today’s issue:

  • Book Review: “The Ride of a Lifetime” by Robert Iger
  • What’s Wrong, Warren?
  • The Distraction of Travel
  • Most Popular Articles – 2019

The Ride of a Lifetime by Robert Iger

Robert Iger has been running The Walt Disney Company since 2005 and has published an interesting account of his career in “The Ride of a Lifetime” which I reviewed on The Rational Walk earlier this week. Iger is widely regarded as one of the most successful media executives of the past few decades for reasons that become apparent in his narrative. Part two is all about his years running Disney and continues through the announcement of Disney+ in 2019. Iger briefly discusses the book in the CBS interview below.

Robert Iger discusses his book in this CBS Interview

What’s Wrong, Warren?

I have been a shareholder of Berkshire Hathaway for nearly twenty years. From January 1, 2000 to December 31, 2019, Berkshire’s widely traded Class B shares rose from $36.60 to $226.50 (split adjusted) which represents an annualized return of 9.5%. This compares favorably to the S&P 500 which provided an annualized return of 6% over the same period (including dividends). The cumulative effect is significant. One dollar invested in Berkshire at the turn of the century is worth about $6.14 today vs. only $3.21 for a dollar invested in the S&P 500. For taxable investors, the difference is even greater because Berkshire, unlike the S&P 500, has accomplished this record without distributing any taxable dividends.

However, in recent years, Berkshire has not performed as well relative to the S&P 500. For the ten years ending on December 31, 2019, the S&P 500 provided an annualized return of 13.5% (including dividends) vs. 13.2% for Berkshire. Berkshire has lagged even more over the past five years with an annualized return of 8.6% vs. 11.6% for the S&P 500. And although one year results are next to meaningless, the financial media has noted that Berkshire’s underperformance in 2019 was the worst in a decade.

So, some people are asking, “What’s Wrong, Warren?” and wondering whether Berkshire’s long run of outperformance might be over.

It has been a tough time lately for value investors, especially those who are not invested in technology stocks. Although Buffett’s enormous holding of Apple shares performed strongly in 2019, market participants penalized Berkshire’s shares due to the large amount of cash on the balance sheet and the perception that Buffett is not inclined to return this cash to shareholders or deploy it in a major acquisition. 

Although history never repeats exactly, it sometimes does rhyme. The late 1990s was another era of optimism for any company purporting to be about “technology” and Buffett was seen as out of touch and over the hill. After all, he was nearly seventy years old, well past normal retirement age and simply “didn’t get it” when it came to technology.

Andrew Bary, one of the journalists covering Berkshire then and now, published an article entitled What’s Wrong, Warren? on December 27, 1999 that I think is interesting to read with the benefit of hindsight. Buffett was obviously correct to avoid the froth of the late 1990s and Berkshire went on to strongly outperform after the dot com crash.

Buffett is nearly 90 years old now and it remains to be seen whether he will have another opportunity to deploy cash in the next bear market.  Nearly four years ago, I wrote an article, Berkshire Hathaway in 2026, looking back at the prior ten years and forward to what Berkshire might look like in the mid-2020s. I still regard some return of capital to be likely by 2026, and I hope that this will come in the form of repurchases rather than taxable dividends. The prospect of repurchases has increased, particularly now that Buffett is not focusing on book value as a meaningful metric. Berkshire reports 2019 results in late February.

The Distraction of Travel

Last week, one of the accounts I follow on Twitter (@dollarsanddata) posted a link to an article by Lawrence Yeo that I had read some time ago but forgot about. The title of the post is Travel Is No Cure for the Mind, but the topic is broader than travel. It is about the hedonic treadmill, which is sometimes referred to as hedonic adaptation. One of the reasons humanity has progressed over the centuries is because humans are restless and always seeking a better life. This is great, up to a point, of course, because it drives forward human progress in immeasurable ways. However, from a psychological perspective, once we ratchet our lifestyles up a notch or two, we quickly regard the new and better circumstances as a “new normal” and soon become restless again. 

It turns out that travel is one form of hedonic adaptation – we seek out the unfamiliar and novel when dissatisfied with our day-to-day surroundings and, for a period of time, this can create enough excitement to bring about real satisfaction. However, it is not a replacement for living a day-to-day life that brings satisfaction. 

The concept of travel serving as a distraction was known thousands of years ago. Seneca, in a letter to Lucilius, had the following observation about using travel as an escape:

“… whatever your destination you will be followed by your failings. Here is what Socrates said to someone who was making the same complaint: ‘How can you wonder your travels do you no good, when you carry yourself around with you? You are saddled with the very thing that drove you away.’ How can novelty of surroundings abroad and becoming acquainted with foreign scenes or cities be of any help? All that dashing about turns out to be quite futile. And if you want to know why all this running away cannot help you, the answer is simply this: you are running away in your own company. You have to lay aside the load on your spirit. Until you do that, nowhere will satisfy you.”

Letters from a Stoic, Letter 28

The point here, of course, is not that travel brings no utility, but that one should seek out a day-to-day existence that is satisfying first. “As it is, instead of traveling you are rambling and drifting, exchanging one place for another when the thing you are looking for, the good life, is available everywhere.”  

Stoic philosophy is interesting for many reasons, but one feature is that the problems people faced hundreds and thousands of years ago were not that different from what people continue to experience in modern times.

Most Popular Articles – 2019

Many subscribers are new to The Rational Walk so I thought I would post a list of several popular posts of 2019. Not all of these articles were published in 2019. The top article, in fact, was written back in 2017 but has continued to be the most popular article every year since then.

  1. How to Read a 10-K Report Effectively
  2. Warren Buffett Moves the Goalposts!
  3. Cultivating the State of Flow
  4. The Sage of Baltimore
  5. Here’s to the Crazy Ones
  6. The Appeal of 21st Century Stoicism
  7. Book Review: Mastering the Market Cycle
  8. Availability-Misweighing Tendency
  9. Via Negativa: Wisdom Through Subtraction
  10. Holiday Book Recommendations for 2019

Copyright and Disclosures

Nothing in this newsletter constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC. 

Was this email forwarded to you by a friend or colleague? Sign up here to receive Rational Reflections directly every week.

The Digest #2