Other peoples’ money funds mistakes

David MoonBlog

by David Moon Puerto Rico is broke and in default on $58 billion in debt. Its solution is to make payment on the loans in default with a sales tax revenue stream that is already committed as collateral for $15 billion of still performing loans. Lawsuits are flying, as Puerto Rican officials describe the dire consequences that will occur if it isn’t doesn’t breech existing bond covenants. Puerto Rico’s attempt to unilaterally divert collateral from one loan to another is the equivalent of trying to get multiple mortgages on your home and promising each lender a first lien. People go … Read More

Passive news consumption risky

David MoonBlog

by David Moon On April 26, 1478, an audience of 10,000 sat in the Florence Cathedral in Italy celebrating Easter Mass, as conspirators organized by one of the city’s leading families, the Pazzi, attacked two brothers of the Medici family, their arch-rival, successfully assassinating the eldest. The conspirators, including the archbishop of Pisa, were executed, their bodies dragged through the streets of Florence until the flesh was fully ripped from the corpses. The medieval Italian political and papal class made the 20th century mafia look like rank amateurs. Yet surveys regularly find that Americans incorrectly believe that violent crime is … Read More

Notes from Berkshire meeting

David MoonBlog

Although a written document can’t do justice to Paul Anka and Warren Buffett singing a Berkshire-ized version of “My Way,” Adam Blum’s notes from the the Berkshire Hathaway shareholders’ meeting last week are outstanding. Adam Blum’s 2017 Berkshire Hathaway annual meeting notes – May 6 2017

Munger’s comments also worth reading

David MoonBlog, Charlie Munger

Last week, 40,000 people crammed into Omaha’s CenturyLink Center for the Berkshire Hathaway shareholders’ meeting to hear Warren Buffett and partner Charlie Munger field questions on almost every imaginable subject. A more intimate setting to have personal access to Munger is the annual meeting of the Daily Journal Corporation, a small publishing company in Los Angeles. Munger is the board chairman.  2017 was a rare year that no one from MCM attended the meeting, but here is one attendee’s 10-page summary of the meeting and Munger’s comments, followed by two Munger essays on the Great Recession of 2008-09 (published in … Read More

Lessons from Buffett’s stock managers

David MoonBlog

by David Moon Warren Buffett, arguably the most talented investor of the past 50 years, owns investments that generally fall into one of three categories: wholly-owned operating businesses (such as GEICO, Dairy Queen and Clayton Homes); investments in public-traded securities (including American Express, Coca-Cola and John Deere); and direct, minority investments in various businesses. His company, Berkshire Hathaway, also holds $82 billion in cash, more than the U.S. federal government. Buffett and Berkshire Vice Chairman Charlie Munger made all of the company’s investment decisions until 2010, when Buffett hired hedge fund manager Todd Combs to manage a small portion of … Read More

Opportunity costs and trade policies

David MoonBlog

by David Moon A politically charged debate about foreign trade, tariffs and domestic jobs quickly obfuscates the economic, not political, reason a country engages in international trade: to improve that country’s overall economy. The explanation is counter-intuitive, but true nonetheless. Ignoring political considerations (an unrealistic fantasy) a country should import any good that an overseas trading partner can produce at a lower opportunity cost, regardless of which country could produce the item at the lowest absolute cost. The U.S. is currently the world’s leading aviation manufacturer, responsible for 40 percent of the world’s aircrafts; Mexico produces 45 percent of the … Read More

NEA SUPPORTS INCUMBANCY, NOT ART

David MoonBlog

by David Moon Fear that President Trump will eliminate the National Endowment for the Arts (NEA) has inspired a chorus of criticism around the country, including among my immediate family and closest friends. They argue that THE NEA is a tiny federal program that supports the cultural expression of what makes us human. My wife and kids need not worry. The NEA is too politically useful to be abolished. But if it did suddenly vanish, the effect on funding the country’s artistic pursuits would be approximately zero. The NEA’s $148 million budget is a rounding error within the federal government’s … Read More

All retailers go to zero

David MoonBlog

by David Moon Electronics and appliance retailer hhgregg last week announced it would be liquidating its assets, closing all of its stores and laying off its 3,700 employees. Days later Payless ShoeSource submitted its own bankruptcy filing. Investors should not be surprised. My personal, long-held theory is that the stock price of every retailer eventually goes to zero. Retail is a hard business, with few barriers to entry, large working capital requirements and almost no ability to maintain trade secrets. Champs always knows what shoes Dick’s has on its shelves. It is common to blame 20 years of retail bankruptcies … Read More

Middle class subsidizes billionaires

David MoonBlog

by David Moon Amassing a fortune is difficult, but it is easier if you can figure out how to build an empire on free taxpayer money. Ask electric car guru Elon Musk. He owns 22 percent of Tesla, a $49 billion company—one that has received billions in government handouts. Free money is a pretty nifty deal if you can get it. Every business requires capital to organize, open and operate. Most investors who provide capital expect to receive a financial return on their investment. However, if a company can get capital from an “investor” who only seeks a social return, … Read More

The cost of cloaked indexing

David MoonBlog

by David Moon A friend recently asked me to review the investments in his retirement plan. Several years ago, his investment person advised that he do three things: defer the maximum allowable amount each year, invest those deferrals into a recommended portfolio of mutual funds and leave it alone. Two out of three ain’t bad. Saving as much as possible and not jumping in and out of investments resulted in his portfolio being among the largest ½ of one percent of all 401(k) accounts. However, the actual collection of mutual funds he owned only gave the appearance of his money … Read More