Category: personal_noteS

[Reading Buffett] 1980

Buffett explained the three accounting methods of equity ownership.

He also discussed the impact of inflation again. Indeed, to be insulated, “business earnings consistently must increase in proportion to the increase in the price level without any need for the business to add to capital.”

Buffett like the GEICO buy. And he makes a point on “turnaround” – actually GEICO didn’t need a turnaround. GEICO was great and only needed to take a break it seemed.

The victims of high inflation were bond holders, which including insurers.  Buffett discussed

And one astonishing fact, when Berkshire issued bonds, it was 12.75% for $60mn!!

[Reading Buffett] 1979

Buffett started to worry and talk about inflation.

Even compounded 20% return could mean nothing in purchasing power if inflation is 14%, as the other 6% is for tax.

After-tax purchasing power is a more useful measurement.

High inflation also means investing in long-term bonds was making losses.

Buffet was complaining about the gov and dollar – ” We have severe doubts as to whether a very long-term fixed-interest bond, denominated in dollars, remains an appropriate business contract in a world where the value of dollars seems
almost certain to shrink by the day.”

The sarcasm!

On the operation side, Berkshire needed to divest the bank as required by law.

And for textile – Buffett didn’t have confidence this time – ” ‘turnarounds’ seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price”.

It seems that China’s housing market is trying to find bottom

In Oct, monthly property sales was ~800bn rmb, down 1% yoy.

In terms of sqm sold, that was ~76.5mn sqm, down 2% yoy.

If looking at residential property only, those two comparisons were at +1% and -1% yoy.

Year to date comparison would still look bad – residential property sales is down 22% (Jan – Oct) in rmb, and down 16% (Jan – Oct) in sqm.

End of Sep policy support and stock market rally helped the property market.

However, more recently, it seems that the frenzy has faded.

Despite that Oct yoy comparison looks flattish, don’t forget that when comparing with 2021 (Jan-Oct), property sales has dropped 50% in rmb terms!

Human beings are depreciating assets

One thing we can avoid is that we age.

Just like assets have depreciation life cycle – e.g. computers are 5 years, we human beings are depreciating as time goes by.

If a person can only do a thing at age of 50 similar to what he or she can do at age of 30,  the “depreciation” would be of significance.

However, one thing is different – we can improve on ourselves.

Buffett’s knowledge and investment skills is probably improving over the years. Thus the “carrying value” is probably increasing for a very long period of time for Buffett, even though depreciation also grows.

Other occupations like lawyers and doctors seem to be benefiting from “aging”.

Sometimes, there are external shocks that we can’t prepare on our own, especially if we continue on a repetitive daily life.

We need to actively access our carrying value from time to time, and be an honest “auditor” for ourselves. Then, we need to come up with plans as a “manager” for ourselves.

[Reading Buffett] 1977

Plan to read through Buffett’s annual letters.

Taking notes

Buffett commented on businesses / industry.

He was in textile. Looking backward, it’s a hard industry that should avoid. Buffett defended that they got excellent management team and were a large employer while employees were accommodating (flexible pay?).

He wrote a lot on insurance, which seems growing extremely well.

He invested in banking (Illinois National Bank). Buffett spoke highly of the person / manager and the track record.

Buffett also wrote on investment philosophy.

He likes ROE. His rationale is that growth in EPS could be partially due to growth in equity.

He also talks about long-term holding vs. short-term gains. But he may as well sound a bit like bragging as he also got short-term gains.

He likes very good managers, so he focuses on “managerial economic performance”, which is better reflected in ROE.

His experience was that buying shares is cheaper than taking private of a business. And he could keep the existing managers on board. In fact, “we can obtain a better management result through non-control than control”, which I think is crucial to Buffett’s long-term success.

A digression – insurance businesses’ success relies on good managers, which also makes sense.

 

Is China placing bets on both sides of the US president race?

Just a random thought..

 

It was a bit obvious that it Musk, a big support for Trump, has a fairly big exposure to China via Tesla. Earlier this year, Elon Musk was meeting with the top leaders from China, and even his mother is doing commercial ads (brand ambassador) in China

On the other side, you are seeing more recently that China and India is reached some sort of peace agreement on the border. It’s really surprising to me, considering how sensitive China is on border issues. If you notice that Kamala Harris partially shares an Indian heritage, then it’s sort of like a support for Kamala Harris as well.

Again just random thoughts.

[Edit: Oh Usha Vance (JD Vance’s wife) also shares Indian heritage. 

When was Waymo approved?

In 2017, Texas passed a bill to allow driverless cars on the road.

Later that year, Waymo started to bring driverless cars to the road in Texas.

California introduced rules around driverless testing on public roads in Feb 2018.

Waymo won the first driverless permit to test in California in Oct 2018 for ~3 dozen cars.

…

In 2020, Waymo started to open its fully driverless service to the general public in Phoenix.

…

In 2024, Waymo offered the service to anyone in SF.

Lots of small steps.

Each state/city can be different. Requirements can be different & definition of “driverless” can be different.

Area can be limited.

Target passengers can be limited.

etc.

Where was Waymo’s technology at?

In 2018, Waymo’s miles per disengagement was 11,154 miles.

In 2023, Waymo’s miles per disengagement was 17,311 miles.

On average, people may drive 10k+ miles per year in the US.

So on average you will only experience one “Disengagement” in a year in 2018, which is a decent rate.

Where is Tesla FSD at?

The latest 12.5 seems to have 1 critical disengagement per 123 miles?

This needs to iterate & improve over time to be fully driverless.

Japan’s politics

People noticed the market’s volatility on Aug 5 with the yen carry trade, but few discussed the notable changes among the next Japan PM candidates & the pressure on current PM Fumio Kishida.

In early Aug, Kishida seemed failed to secure his party’s support. The meetings on Aug 2 (Friday) between party “leaders” seemed to be a really important time. Other news pointed to the same direction around those days.

The LDP’s internal election dynamics, especially factional operations, determine the outcome. And Taro Aso seems to be a very powerful figure. He is the “King Maker“.

Currently, there are 9 candidates within LDP. We shall know the vote by end of Sep. If no one gets over half of the vote, which is almost certain, then the two with the most votes will enter the runoff. In this runoff, the LDP lawmakers will have a much greater voice so they are determining in the end.

The winner shall be the next Japan PM.

 

New era for Chinese liquor

1/ Post pandemic, the growth rate of various food consumption products did not meet the expected rapid increase. Additionally, government consumption is strictly limited, reducing the scenarios that support alcohol consumption, leading to insufficient effective market demand.

2/ Under the guidance of leading brands like Moutai directly increasing sales volumes and strictly controlling retail price hikes, the price increase room for high-end to sub-high-end products has been compressed, and the main business revenue and profitability of well-known products have declined.

3/ Key enterprises and traditional key production areas continue to expand brewing facility construction, and the production capacity of solid-state raw liquor is gradually being released. Inventories of raw liquor and finished liquor continue to increase.

4/ Well-known brands are accelerating their expansion to broader sales regions and nationwide layouts, penetrating into third- and fourth-tier markets and through omni-channel, both online and offline. The regional brands’ baijiu market has visibly shrunk.

5/ After the revised standards for beverage alcohol classification and baijiu industrial terminology were issued, they affected the raw materials of liquid baijiu. The labeling of food tags has increased the cost of some low-end baijiu.

6/ The adjustment of the national industrial structure catalog lifted restrictions on baijiu production lines. Various regions, especially traditional baijiu-producing areas, have successively approved the establishment of a number of new baijiu enterprises, leading to a slight increase in the total number of baijiu enterprises. However, due to the current macroeconomic environment, the number of large-scale baijiu enterprises has not increased but decreased. We have now entered an era where there is neither a shortage of alcohol nor a shortage of good alcohol.

see the other post for Chinese Baijiu consumption – already quite high volume, hard to grow, likely decline IMO.