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[Reading Buffett] 2012

Future or revolving liabilities are less “costly” to Berkshire – “the true value of this liability is dramatically less than the accounting liability”. Thus, the book value is more valuable than it seems.

However, this is not the norm for the insurance industry –

There is very little “Berkshire-quality” float existing in the insurance world. In 37 of the 45 years ending in 2011, the industry’s premiums have been inadequate to cover claims plus expenses.

Hurricane Sandy cost GEICO 3 times more than Katrina. Isn’t climate change the biggest long-term threat to insurance companies? And we may influence nature, but it’s a threat we can’t directly control now.

“As long as a newspaper was the only one in its community, its profits were certain to be extraordinary; whether it was managed well or poorly made little difference.”

How amazing is (incremental) profitability at Meta?

For the past 8 quarters (2023 & 2024), incremental gross profit margin is well above 80%, more like 90%.

This is easy to understand, e.g. one more successful ads sale (click etc.) on Instagram won’t cost Meta more.

What’s even more amazing is the incremental operating profit conversion, which on average is like 100% for the past 6 quarters!

What does 100% mean? It means one dollar of additional gross profit earned by Meta was converted into one dollar of operating profit – how amazing is that!

The operating profit margin increased from 20% in 2022 Q4 to 48% in 2024 Q4, growing at 91% CAGR.

Although there were some one-off opex optimization efforts, thus incremental operating margin should definitely fall, it’s still a very very powerful business franchise, demonstrated by this amazing incremental earnings power.

[Reading Buffett] 2010

Intrinsic value – “a third, more subjective, element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future”

In another word, CEO’s intention can make a huge difference.

Leverage – “Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed.”

And due to this cautiousness on leverage & the habit of not-to-maxmize-yield, “during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival”.

What a time – Chinese language edition of Poor Charlie’s Almanack is available to purchase at the annual shareholder meeting.

Need to “face up immediately to bad news”.

Music in AI age should focus on memorable experiences

Back in 2016, I saw this day coming – AI is creating music that is really good.

However, I like natural “things”.

How to have more human elements?

I would argue live concerts are more “human”.

The unique performance, the friends and family who join you, the broader audience, even the historical background, could make a concert a more meaningful experience than any song.

That piece of memory is unique – it’s hard to replicate the exact same “experience”. Even if the singer may perform similarly across concerts, the audience is different. And audience is part of the whole performance.

Some thoughts of Tariffs

I think tariffs is just another form of tax.

It’s shared by buyers and sellers and is a tax on consumption, especially lower-end consumption – as the outsourced/imported products should proportionally be more lower-end.

It’s actually a more onerous “tax” on low to mid income US people, assuming that high-end consumers care more about high-end products which are not produced in China etc.

And it does increase gov income. Instead of higher taxes on wealthier people, this form of “tax” is more shared across average consumers.

Separately, tariff will increase US mfg jobs.

However, who will do these jobs? With the current wave of AI, you could imagine more average “white collar” workers will be replaced by AI and maybe they shall go to manufacturing.

I think we should say all jobs are created equal – however, if you look back, when those manufacturers jobs were transferred out of the US, US was in the dominating position in the world. No one could force the US to get rid of “good jobs” and keep “bad jobs” back then – I could only imagine that those outsourced jobs were considered “worse”.

So now more people in the US will pick up those “bad jobs”. That’s not a very comforting vision for many average people in the US – probably more dangerous, more exposed to health issues, more repetitive (well white collar jobs can be repetitive). However, this should do good for US overall.

[Reading Buffett] 2007

CEO & company – “a terrific CEO is a huge asset for any enterprise”, but “if a business requires a superstar to produce great results, the business itself cannot be deemed great”.

Truly great businesses, earning huge returns on tangible assets, can’t reinvest internally with high ROIC for a long time.

FlightSafety is a “put-up-more-to-earn-more” type of business – good but not extraordinary.

Buffett acknowledged the mistake in investing in the shoe business, using equity.

“Overall, we are delighted by the business performance of our investees. In 2007, American Express, Coca-Cola and Procter & Gamble, three of our four largest holdings, increased per-share earnings by 12%, 14% and 14%. The fourth, Wells Fargo, had a small decline in earnings because of the popping of the real estate bubble.”

Buffett sold PetroChina in 2007.

Buffett also did well in currencies.