Friday, October 7, 2022
Volume 3, Issue 49
Quote of the Week
“Remember that it is not he who gives abuse or blows, who affronts, but the view we take of these things as insulting. When, therefore, anyone provokes you, be assured that it is your own opinion which provokes you. Try, therefore, in the first place, not to be bewildered by appearances. For if you once gain time and respite, you will more easily command yourself.”
— Epictetus, The Enchiridion
The Twitter Saga
After a period of stasis, the saga of Elon Musk’s offer to acquire Twitter heated up again this week. In a letter dated October 3, Mr. Musk’s legal team indicated that the deal was on again based on the terms of the April 25 merger agreement. However, with Elon Musk, nothing is ever quite as straightforward as it might seem. Rather than rehashing this week’s drama, I would refer the reader to Matt Levine who has been covering the situation tirelessly (and often humorously) since the beginning.
The lawsuit in the Delaware Court of Chancery has been put on hold until October 28 in anticipation of the deal closing by that date. If it has not closed, the judge has directed the parties to contact her to obtain a November trial date.
There are few legal outs for Mr. Musk, although the banks that committed to the debt portion of the deal are facing big losses and may seek an out. Still, the consensus seems to be that the deal is likely to go through. As a result, Twitter shares rallied sharply on Monday to $52, although the shares dropped over the rest of the week and closed at $49.18 on Friday. The terms of the deal call for a buyout price of $54.20.
It is worth pausing for a moment to consider what the market is telling us about Elon Musk’s credibility. An investor could have purchased Twitter shares at the close on Friday with the prospect of earning a 10.2% return within a few weeks if the deal goes through. This is an extremely high return for a very short holding period.
In July, I wrote A Tale of Three Acquisitions contrasting how Warren Buffett and Elon Musk approach acquisitions. In that article, I used Berkshire’s pending acquisition of Alleghany as an example. The acquisition is still pending but expected to close soon. Alleghany closed at $843.10 on Friday. The deal price is $848.02 which implies that an investor could earn a paltry 0.58% by buying Alleghany and holding for a short time.
Plenty of people, myself included, admire Elon Musk for his entrepreneurial talents, but it seems like few actually trust him when it comes to following through on his word. It doesn’t matter what people say about trusting him. What matters is the evidence as expressed in market prices and that message is crystal clear.
Elon Musk has many talents and plenty of big, audacious goals that he hopes to achieve over the rest of his life. All of those goals require large amounts of capital. He very well could be able to secure the necessary capital, but it will come at steeper price because of his reputation for not being trustworthy in his business dealings. The higher the cost of capital, the harder it will be to achieve his big dreams.
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This is a partial list of recent articles available exclusively for paid subscribers:
Union Pacific Corporation, September 26, 2022
America’s Car-Mart: Business Update, September 15, 2022
Burlington Northern Santa Fe, August 25, 2022
CarMax: A Disrupter Faces Disruption, August 16, 2022
Berkshire’s Ownership of Occidental Exceeds 20%, August 11, 2022
Berkshire Hathaway’s Q2 2022 Results, August 8, 2022
Buffett’s Bet on Occidental Petroleum, July 21, 2022
Tractor Supply Company, July 13, 2022
Investors Title Company, June 30, 2022
America’s Car-Mart, June 8, 2022
DaVita: An Essential Provider of Dialysis Services, May 20, 2022
Thinking About the Next Warren Buffett by Frederik Gieschen, October 4, 2022. The “next Warren Buffett” will not achieve success by following the same playbook that Mr. Buffett used starting in the early 1950s. Just as Mr. Buffett did not try to emulate the Robber Barons of the late nineteenth century, an aspiring billionaire in the early twenty-first century needs an updated playbook. This does not mean we cannot draw lessons from Mr. Buffett’s career, but it does require original thinking. That is the main point I took from this well written article. (Neckar’s Minds and Markets)
The Late, Great Sandy Gottesman by Kingswell, October 3, 2022. This is a nice tribute to David S. Gottesman, a longtime Berkshire Hathaway director and friend of Warren Buffett who passed away on September 28 at the age of 96. Mr. Gottesman kept a low profile, and many Berkshire Hathaway shareholders are probably not aware of his role over the years. (Kingswell)
- Sandy Gottesman Interview, May 18, 2016. Mr. Gottesman was interviewed by Peter Kunhardt for a documentary on Warren Buffett a few years ago. (YouTube)
The Illusion of Corporate Governance “Best Practices” by Lawrence A. Cunningham, October 5, 2022. Groupthink appears to be an epidemic in the boardroom. “The best boards focus on solutions and structures tailored to their companies, ignoring cookie-cutter “gold standards.” Contrary to what good parents have long taught their children, it’s now acceptable in corporate governance to say “everyone else is doing it, you should too.” Advocates of so-called good governance urge companies to take specific actions because they “lag behind their peers” on some favored practice.” (Directors and Boards)
Geneticist who unmasked lives of ancient humans wins medicine Nobel by Ewen Callaway and Heidi Ledford, October 3, 2022. This is an interesting article about Svante Pääbo who made important discoveries about human evolution using ancient DNA. In addition to sequencing the Neanderthal genome, Pääbo also discovered the existence of an entirely new ancestor of modern humans called Denisovans. The interbreeding of Denisovans, Neanderthals, and early Homo sapiens means that many modern humans can now trace their lineage back to these ancient genomes. (Nature)
The Long Haul by Mark Caro, September 13, 2022. One of the most alarming aspects of COVID is the possibility of experiencing symptoms for several months, a condition that has become known as “long COVID”. The worst symptoms involve long-lasting neurological problems. This article is about the work a leading neurologist has been doing to learn more about this condition. “The Swiss-born Koralnik, who is Northwestern’s chief of neuroinfectious disease and global neurology, is at the forefront of the quest to better understand long COVID’s effects on the brain.” (Chicago Magazine) h/t The Profile
7 Lessons from Steve Jobs’ Commencement Speech by Sahil Bloom, October 5, 2022. Note: Steve Jobs died on October 5, 2011. “I watch this speech at least 2x per year. With each viewing, I have new learnings and takeaways. While Steve was far from perfect (all too human, just like the rest of us), the wisdom in his words has impacted me profoundly over the years. Even if you aren’t a fan of the man, I would encourage you to take in his words.” (The Curiosity Chronicle)
- Video of 2005 Stanford Commencement Address (YouTube)
- Transcript of 2005 Stanford Commencement Address (Stanford University)
What the Money is For by Nick Maggiulli, October 4, 2022. I am a big believer in saving money, but it is undeniable that there are occasions in life that justify spending money, especially when it comes to funding memorable experiences with one’s family: “… By the time this is published, I will be traveling in Italy with my sister. It’s the first time that someone in our lineage has been back to Italy since the 1940s. And, after losing both my grandfather and my uncle in recent years, I know how special this trip is for the both of us. More importantly, I’m pleased to say that I’m paying for as much of it as my sister will allow. And I couldn’t be happier.” (Of Dollars and Data)
Tax Secrets of Health Savings Accounts by Laura Saunders, September 30, 2022. For over a decade, I have maintained a health savings account that I use as an investment vehicle rather than as a means of paying medical bills. While I was aware of most of the tax benefits discussed in this article, I was not aware that it is possible to save medical receipts for any number of years and use those receipts to justify tax free withdrawals at some point in the future. I pay for all out-of-pocket medical costs with other funds but will now save those receipts so I can take tax free withdrawals from my HSA at a time of my choosing, probably many decades in the future. (WSJ)
Pieces of the Action: The Autobiography of Vannevar Bush, October 6, 2022. 1 hour, 23 minutes. I’ve occasionally encountered Vannevar Bush in my reading (most recently in Loonshots, which I reviewed in 2019) but I have not studied his life in depth. Bush was one of the most important figures in the field of scientific research during the middle of the twentieth century, including the Second World War. His autobiography sounds fascinating, and I plan to read it. (Founders)
Intuit: An Operating System for Small Businesses, October 5, 2022. “Started by a former Procter & Gamble employee in 1983, Intuit has grown into the premier platform for consumers and small businesses to manage their finances and pay taxes. Along the way, it has bought off significant competition from the likes of Microsoft and others and delivered handsome returns for its shareholders. In recent years, it has spent over $10 billion adding Credit Karma and Mailchimp to its platform of services.” (Business Breakdowns)
ButcherBox: Mike Salguero, October 3, 2022. 1 hour, 22 minutes. “Back in 2015, when Mike Salguero set out to buy some grass-fed beef for himself and his wife, he had to meet a farmer in a parking lot, who handed him the beef in a trash bag. Naturally, Mike figured there had to be a better way. At the time, he was running a company that was slowly cratering, and he didn’t know the first thing about sourcing or packaging meat. But he had a hunch that if he could figure it out, he could build a successful home subscription business, shipping humanely-raised meat across the country.” (How I Built This)
Buffett’s transformative deal to acquire See’s Candies. This thread presents interesting data on See’s Candies during the 1960s. The amount of untapped pricing power is evident based on the growth of sales in the years following the acquisition.
Few people know what they want to do with the rest of their lives at age 20. “Winners just have a bias for action that has allowed them to capitalize on opportunities and compound effectively over time. If you prioritize spending time with great people and have a bias for action, you’ll always be fine.”
David Perell shares 28 life lessons on his 28th birthday. The third lesson is probably my favorite: “If you want to explore a new skill, don’t just consume information. Do the thing too. If you want to learn about music, don’t just listen to a lot of music. Play it too. Every activity has indescribable aspects you can only discover in the course of action.”
Photo of the Week
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