The Digest #113

Published on April 19, 2022

“As in walking you take care not to tread upon a nail, or turn your foot, so likewise take care not to hurt the ruling faculty of your mind. And if we were to guard against this in every action, we should enter upon action more safely.”

– Epictetus

Board Member Pay

Proxy statements have been flooding inboxes in recent weeks as we approach annual meeting season. For some reason, few investors seem to spend much time reading proxy statements which are at least on par with annual reports in terms of importance.

We should never forget that the purpose of a board is for shareholders to oversee executive management. Ideally, board members should be very substantial shareholders who are primarily motivated to serve in order to protect their own financial interests as well as to undertake a public service by protecting small shareholders who would otherwise lack a voice. In practice, corporate boards are usually full of individuals with little or no real ownership stake in the company.

If a board member serves primarily to benefit from the pay package rather than to look out for his or her ownership interest, the member is more of an employee than an owner. In my opinion, no member should be serving unless the normalized income attributable to his or her shareholding is greater than board member compensation. 

For example, let’s say that a company has posted average earnings per share of $5 over the past five years and is currently trading at $100 per share. If a board member owns 50,000 shares worth $5 million, his or her “look through earnings” would be $250,000. I would argue that this director should receive no more than $250,000 in pay for serving on the board. 

A director who owns 10,000 shares worth $1 million would have “look through earnings” of $50,000. Such a director should receive no more than $50,000 of compensation for serving on the board.

Of course, this is an oversimplified example. Companies with very volatile earnings or early stage companies posting losses could not use this approach. Nevertheless, I think that it is valuable to always ask whether a board member is more of an owner or more of an employee in their relationship with the company.


Does it Make Sense for Berkshire Hathaway to Acquire Markel?, April 15, 2022. In late February, right before his annual letter to shareholders was published, Warren Buffett initiated talks with Alleghany that culminated in his $11.6 billion offer to acquire the company. Alleghany is considered a “mini-Berkshire”, one of a handful of companies that seek to emulate Berkshire’s business model. Markel is another “mini-Berkshire” and in this article I consider whether it might be a suitable company for Berkshire to acquire.  (Rational Reflections)

Assessing the Past Decade at Berkshire Hathaway, February 26, 2012. I recently created a Berkshire Hathaway resource page to highlight articles that I’ve written over the years. In the process of reviewing content, I came across this article written ten years ago. It is interesting because I write about a fictional Berkshire shareholder who purchased shares ten years earlier, on December 31, 2001, at a high valuation as measured by price-to-book ratio. Consequently, this fictional shareholder experienced disappointing ten year performance. I tried to project forward another ten years to see what the situation for this shareholder might look like in 2022. (The Rational Walk)

Back to the Future of Twitter by Ben Thompson, April 18, 2022. This is a very creative take on the future of Twitter. The author proposes a restructuring of the company into two components: TwitterServiceCo would provide the core Twitter service and TwitterAppCo would provide Twitter apps and handle the advertising business. TwitterServiceCo would also open up its platform to other companies interested in building different user experiences. These app providers could have different content moderation policies competing against each other. (Stratechery)

Traditional Metrics Don’t Capture Twitter’s Value by Elliot Turner, April 15, 2022. I am familiar with the author from his appearances as co-host of the This Week in Intelligent Investing podcast, which I highly recommend. Excerpt: “Fundamental accounting tools fail to value the societal impact of Twitter and its role as the artery of information and news for the world. Its importance per unit of market cap is uniquely high, leaving critical questions for society and the company alike about what role platforms should play in safety and freedom of speech. Musk is tapping into this disconnect.” (Barron’s)

Why the Past Ten Years of American Life Have Been Uniquely Stupid by Jonathan Haidt, April 11, 2022. Social media has greatly distorted American society over the past decade. “The story of Babel is the best metaphor I have found for what happened to America in the 2010s, and for the fractured country we now inhabit. Something went terribly wrong, very suddenly. We are disoriented, unable to speak the same language or recognize the same truth. We are cut off from one another and from the past.” (The Atlantic)

How Ikea tricks you into buying more stuff by Zachary Crockett, February 26, 2022. “Ikea has mastered the use of a psychological principle called the Gruen effect — when the layout of a store is so bewildering that it makes you forget the original reason you came there, leading to impulse buys. … You get lost in that maze, and then you are surrounded by nothing but ever-changing fantasies of what your life could be like. It’s like you can walk into a magazine advertisement and pick up the dishes, sit on the couch, try out the desk chair. It’s very tactile and participatory.” (The Hustle) h/t Santangel’s Review

The Chips That Rebooted the Mac by Tim Higgins, April 16, 2022. This is a great article about how Apple successfully brought chip-design operations in-house. “The transition to Apple’s own chips threatened to cause headaches for software engineers at the company, which had relied for more than a decade on Intel chips for its Mac computers. Now those programmers had to write software that could work on both the old chips and the new ones—an issue the company had struggled with in 2006, when it moved to Intel chips from an earlier system known as PowerPC. That transition entailed numerous last-minute revisions to the laptop’s main circuit board, according to a person involved in that effort.” (WSJ)

The $36B Nutella empire by Trung Phan. This is an interesting profile of Ferrero Group, the maker of the unhealthy, yet addictive, substance called Nutella. I’ve known many people who believe that Nutella is the equivalent of peanut butter, except made with hazelnuts. Of course, it is really a sugar-laden candy in the form of a spread! The origin story of Nutella dates back to the Napoleonic wars and is the result of a shortage of cocoa that led to a creative new use for hazelnuts. (

A Politicized World Demands Director Neutrality by Lawrence Cunningham, April 2022. “While politically active shareholders are flexing their muscles, corporate directors must remember that they are duty-bound to all shareholders. There is even a case that directors should pay particular attention to individual investors, who have no institutional voice or power at all, but whose life savings often depend on those directors.” (Directors and Boards)

Staying Put by Morgan Housel, April 12, 2022. “Most of the time you see someone do something incredible, with what seems like little effort, and you ask “How did you do that?”, the honest answer is, “I’ve been doing this every day for 10+ years.” Noticing patterns and connecting the subtle dots is something that’s hard to teach in a classroom but becomes obvious when you’ve lived and breathed a field for decades. All of that breaks down when you move to a new field or a new company. The shiny allure of new overrides the quiet power of compounding in a way that’s easy to overlook.” (Collaborative Fund)


Morgan Housel — The Best Story Wins, April 14, 2022. “Morgan Housel comes back for his second episode and Infinite Loops’ 100th episode! Morgan is a financial writer and author of the bestselling book “Psychology of Money” — having sold more than a million copies worldwide!” (Infinite Loops) Related: Book Review of The Psychology of Money

How to Buy Stocks During a Crisis w/Nick Maggiulli, April 14, 2022. “On today’s show, Trey sits down with Nick Maggiulli. Nick is the COO and Data Scientist at Ritholtz Wealth Management. He’s also the author of the popular blog as well as his new book Just Keep Buying, which authors like Morgan Housel deem a “must-read.” Nick is an expert in reframing and debunking old financial rhetoric.” (The Investor’s Podcast)

Afterpay: Buy Now, Pay Later, April 13, 2022. “Afterpay is a business and a noun, but in Australia, it’s also a verb and it’s a way that people pay for things. Afterpay was founded or launched back in 2015 in Australia. And from a standing start of essentially zero volume, managed to grow, to reaching 20 million users over the next six years, and ended up selling the business to a price of about $29 billion to Square, which is now Block. It’s a really remarkable Australian tech story.” (Business Breakdowns)

Warren Buffett Interview

Little new ground was broken in this interview of Warren Buffett published on April 14, but it was still interesting to watch. Longtime observers of Warren Buffett will notice that his responses to questions regarding business philosophy and overall approach to life remains relatively static over time. The world changes, but basic principles can last a very long time. We will hear from Warren Buffett and Charlie Munger at length at the Berkshire Hathaway annual meeting webcast on April 30.

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The Digest #113