The Digest #139

Published on October 14, 2022

Quote of the Week

“In the short term, [inflation] is good for borrowers and not for lenders. Once a lender begins anticipating it, that equation changes, because he’s going to say, ‘I expect inflation, so I’m going to charge you more than I would otherwise charge you.’ And you get higher interest rates, and the interest rates keep up with the inflation. And in fact, human nature, they see inflation rising for a while, they begin anticipating still higher inflation. So they say, ‘I’m not only going to make up for today’s inflation, but I’m going to anticipate tomorrow’s inflation.’”

— Paul Volcker


Attention Residue: The Silent Productivity Killer by Sahil Bloom, October 12, 2022. Every time our minds switch from one task to another, we incur a cost. Sahil Bloom refers to this cost as “attention residue” and he has ideas for how we can achieve a greater degree of focus. I have written about cultivating the state of flow, which is really about the same topic. It is exceedingly difficult to focus on anything given the number of distractions we face. The good news is that it is possible to escape constant distractions if we structure our lives carefully. (The Curiosity Chronicle)

Michael Burry on Berkshire Hathaway, April 3, 1998. Michael Burry is well known in the financial community with his activities during the 2000s covered extensively in The Big Short by Michael Lewis which I reviewed back in 2010. In 2015, the book was made into a movie with Michael Burry portrayed by Christian Bale. Long before achieving widespread fame, Burry participated in message boards and wrote up his opinions on various companies. In this memo, he discusses Berkshire Hathaway which was priced at a high valuation in early 1998. (h/t Joe Koster’s Value Investing World newsletter.)

Does Facebook today resemble Microsoft in 2011?, October 11, 2022. As someone who wrote about Microsoft way back in 2010, I’ve made the comparison between Microsoft and Facebook (aka Meta) myself. However, I have not followed Meta in enough depth to know if the comparison really makes sense. I found this article interesting since it considers the question from the perspective of a writer who knows Meta quite well. One of Ben Graham’s suggestions for enterprising investors was to look at relatively unpopular large companies. Meta seems to fit that category very well and I might look at the company myself in more detail. (Yet Another Value Blog)

Meta Meets Microsoft by Ben Thompson, October 12, 2022. Some Meta shareholders are concerned about whether the company’s bet on the “metaverse” will pay off. I have no firsthand exposure to virtual reality, so I found this article quite interesting. Apparently, while the presentations about the metaverse are often underwhelming, the actual experience of virtual reality is much more compelling. Headsets are expensive today, but technology has a way of becoming more affordable over time. (Stratechery)

Elon Musk: ‘Aren’t you entertained?’ by Roula Khalaf, October 7, 2022. Elon Musk tells his interviewer that much of what he does on Twitter is “playing the fool” which he finds “vaguely therapeutic”. This is a very strange interview, but that should not be particularly surprising. “Does he ever think he’s above the law? That’s utter nonsense, he tells me: ‘I’m subject to literally a million laws and regulations and I obey almost 99.99 per cent of them. It’s only when I think the law is contrary to the interest of the people that I have an issue.’ I wonder if he means the interest of Elon Musk.” (Financial Times)

Regulators’ Lament by Roger Lowenstein, October 10, 2022. In this article, Roger Lowenstein comments on the failures of the Federal Reserve when it comes to its regulatory mandate. This week, former Federal Reserve Chairman Ben Bernanke won The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. “Bernanke, appointed Fed chairman by George W. Bush in 2006, was egregiously slow to reckon with the risk of bad mortgage loans as it was developing. As a member of the Fed’s board of governors from 2002-2005, and as the President’s economic adviser from 2005 until his appointment as Fed chief in February 2006, Bernanke was in a position to warn the country, and to urge his fellow regulators to tighten the dangerously wide spigot of risky mortgages. He failed to do so.” (Intrinsic Value)

Murphy’s Law by Ramp Capital, October 10, 2022. I recently wrote a Twitter thread about the impact of high mortgage rates on housing affordability. In this article, Ramp Capital provides a blow-by-blow account of his own experience dealing with higher mortgage rates in the most frustrating way imaginable. He has been forced to watch mortgage rates more than double while under contract for the construction of a new home. In addition to the stress of rising mortgage rates, inflation has taken a toll on his budget as “escalation clauses” went into effect due to rising costs experienced by the builder. The entire story reads like a nightmare. (The Ramp Report)

Little Rules About Big Things by Morgan Housel, October 11, 2022. Great insights, as usual. “A lot of people don’t realize what bet they’re making. Maybe they thought they were betting on disruptive technology, but it turned out they were betting on low interest rates. Or they thought they were betting on alternative energy, but it turned out they were betting on subsidies and tax credits. Many bets don’t work not because your bet was wrong, but because you didn’t realize the bet you were making in the first place.” (Collaborative Fund)

Memory Is the Shadow of Fact, the Artifact of Feeling by Lawrence Yeo, October 13, 2022. “Whether you’re currently going through a rough patch or having the time of your life, you can take a minute to pause and reflect on the texture of this experience. There’s a power in knowing that one day the details of the event will fade and the emotions associated with it may change. This awareness allows you to choose which moments are to be held closely, and which ones can slowly fade away into the crevasses of the mind.” (More to That)


Reflections on Buffett’s Famous Essay on Inflation, October 9, 2022. 55 minutes. In 1977, Warren Buffett wrote How Inflation Swindles the Equity InvestorThis podcast is an excellent discussion of Mr. Buffett’s famous essay both in terms of providing context for the time in which it was written and how these lessons and observations should be applied in the current inflationary environment. (This Week in Intelligent Investing)

David Senra — Pick The Right Heroes, October 13, 2022. 1 hour, 54 minutes. David Senra is the man behind the Founders podcast which presents lessons from history’s greatest entrepreneurs. I only recently discovered the podcast and have been fascinated not only with the entrepreneurs who have been discussed but by David Senra’s tremendous enthusiasm for the subject. I don’t think that I have ever heard anyone speak about business with as much enthusiasm: “To get me stop, they’re going to have to pry the microphone out of my cold dead hand”. (Infinite Loops)

SEC Chair Gary Gensler Answers Your Questions, October 13, 2022. 55 minutes. Jon Stewart is a comedian, but my impression is that he understands financial topics more thoroughly than many people in the industry. He also is willing to ask questions that are at least mildly confrontational which is a rarity in financial journalism these days. I do not always agree with Jon Stewart’s political views, but it is difficult to not have a great deal of respect for someone who does this much homework in an area outside his profession before conducting an interview. (The Problem with Jon Stewart)

Tweets of the Week

Revolutionary technologies are not always recognized immediately. Inventors of trains initially used them to pull horse carriages. In the 1990s and early 2000s, mobile phone handsets were optimized for voice calls even though they were the precursors of the miniature personal computers we carry in our pockets today. Of the dozens of times people pick up their “phones” today, how often do they place voice calls?

Startup culture has changed dramatically since the 1990s. By the late 1990s, the focus on going public and cashing in was already well entrenched. However, starting a business should be motivated by the prospect of future profits and cash flow.

Tragedy of the Commons?

The Camino de Santiago is a network of ancient pilgrimage routes located mostly in Spain. Those who travel along these paths are an international mix of religious pilgrims, long-distance hikers, adventure seekers, and many people who appear to be trying to temporarily disconnect from the modern world and reboot their lives.

Exactly three years ago, I was in the middle of a two week walking trip along one of these paths. As I traveled through the Navarre region, it was impossible to ignore the miles of picturesque vineyards that I was passing through.

Navarre, Spain, October 14, 2019

Navarre is a major wine producing region. Although I am no connoisseur, the wines I sampled seemed to be very good and most were inexpensive. In small town bars, a glass of wine was typically only a couple of euros, and often even cheaper. Many restaurants included a carafe of wine as part of inexpensive fixed price “pilgrim menus”. A typical three course dinner was usually no more than ten or twelve euros. 

Fountains are ubiquitous in Spain. They are clean and reliable so there is never a need to purchase bottled water. So, I was not surprised to see such a fountain as I passed by the Bodegas Irache winery. But this fountain seemed a bit different …

Bodegas Irache, Navarre, Spain, October 14, 2019

This fountain dispensed wine, free of charge, to all who passed along the way! Actually, encountering this fountain was not exactly a total surprise since it is a famous landmark that people often talk about on the trail.

Of course, anything that is given away for free is open to abuse. A sign near the fountain urged visitors to enjoy the free wine in moderation while at the fountain but to purchase larger quantities to carry along the trail. It seems like this admonition must be effective since the fountain has been in operation for over thirty years.

For now, at least, the tragedy of the commons appears to have been averted.

Bodegas Irache, Navarre, Spain, October 14, 2019

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The Digest #139