Warren Buffett on Video

Update 2007-03-31:

Unfortunately you now have to pay for the videos with Buffett and Charlie Rose, even thought they are well worth the price. Nevertheless the last video below of the speech to students is still available, which actually is just as good:

Warren Buffett MBA Talk

---------

An absolute must watch!

Google Video: Charlie Rose - Warren Buffett: The Man - Part One in a Three Part Series

Charlie Rose - Warren Buffett: The Business - Part Two in a Three Part Series
Charlie Rose - Warren Buffett: The Gift - Part Three in a Three Part Series

Last not least: Warren Buffett MBA Talk (Buffett starts at 00:03:16)

BILANZ iPod Shuffle

Pay CHF 140 for an anual BILANZ magazin subscription and get an iPod Shuffle for the Swiss retail price of CHF 119 for free (till the end of the year).

Actually BILANZ has sometimes excellent background stories.

Here is the link: http://www.bilanz.ch/ipod/

This Is China! Weblog

This Is China! Weblog
Business, IT outsourcing, culture... lot's of interesting and personal episodes from a foreigner doing consulting work in China.

Apple's Music Business

Apple makes 42% of its revenue in the music business.

Revenue source                      4th Quarter 2006
Macs                                $ 2'213 million 
Peripherals and Other Hardware      $   297 million 
Software, Service and Other Sales   $   316 million 
Computers total                     $ 2'826 million    58%
iPods                               $ 1'559 million 
iTunes                              $   452 million
Music total                         $ 2'011 million    42%
Total                               $ 4'837 million   100%

Google's Shopping Tour

From Wikipedia: List of acquisitions by Google (here is the same list for Microsoft)

For reference, here is a list with a description for all Google Acquisitions.

The following list is copied from Google Blogoscoped: The Acquisition Price Guide

Company	Acquired by	Price
Skype	Ebay	$2.6 billion
YouTube	Google	$1.65 billion
5% investment in AOL	Google	$1 billion
MySpace	News Corp	$580 million
dMarc Broadcasting	Google	$102 million
Grouper	Sony	$65 million
Flickr	Yahoo	$30-35 million (rumored)
del.icio.us	Yahoo	$30-35 million (rumored)
Bloglines	IAC (Ask)	$25 million (rumored)
Weblogs Inc.	AOL	$25 million (rumored)
Blogger	Google	$20 million (rumored)
Oddpost	Yahoo	$20 million (rumored)
Jumpcut	Yahoo	$15 million (rumored)
LiveJournal	SixApart	$20 million (rumored)
Rojo	SixApart	$10 million (rumored)
Picasa	Google	Under $5 million (rumored)
MeasureMap	Google	Under $5 million (rumored)
2.6% ownership of Baidu	Google	$5 million
weblogs.com	Verisign	$2 million
Writely	Google	Around $2 million (rumored)
Dodgeball	Google	Around $1 million (rumored)
Upcoming.org	Yahoo	Around $1 million (rumored)
WebJay	Yahoo	Around $1 million (rumored)
Urchin	Google	$???
Keyhole	Google	$???
Deja News	Google	$???

BTW, Google sold their 2.6 % share in Chinese search engine Baidu for USD 60 million (source).

Chinese Banks

Source: Bloomberg Markets, 2006 September p. 11.

Total assets and foreign investors:

• Industrial & Commercial Bank of China, USD 814 billion, Goldman Sachs, Allianz, American Express: 10%


• Agricultural Bank of China, USD 611 billion


• Bank of China, USD 593 billion, Royal Bank of Schottland Group consortium: 8.5%


• China Construction Bank, USD 574 billion, Bank of America: 8.5%

Compare to other banks world wide: Bank Market Caps

Millionaires 2004

in USD, source Bloomberg Markets, July 2006 p. 44:

Country   Millionaires   % of      Population
USA          2,498,000   0.85     293 million
Japan        1,334,300   1.06     127 million
China          300,000   0.02   1,300 million

Bank Market Caps

Source, Stocks Magazine, 2006 No 18, in billion USD:

01. Citigroup                 USA      240.8
02. Bank of America           USA      237.6
03. HSBC                      GB       206.8
04. JP Morgan Chase           USA      158.8
05. MUFG                      Japan    153.5
06. UBS                       CH       120.7
07. Wells Fargo               USA      118.3
08. Bank of China             China    106.3
09. Royal Bank of Scottland   GB       106.1
10. Mizuho Financial          Japan    100.2
11. Santander                 Spain     97.3
12. Wachovia                  USA       88.5
13. Unicredit                 Italy     84.7
14. Sumitomo Mitsui           Japan     83.5
15. Barclays                  GB        79.8
--------------------------------------------
??. ING                       NL        97.5
??. Credit Suisse             CH        65.6
??. Deutsche Bank             Germany   60.7
??. ABN AMRO                  NL        54.9

Getting soon into that list:
- a new merged mega bank in Italy bigger than Unicredit and
- the Industrial and Commercial Bank of China, supposedly bigger than the Bank of China.

Here is a list of uptodate market cap rankings of US listed banks at Google Finance: Money Center Banks

Here is a German article comparing the market cap development of Credit Suisse with UBS over the last couple of years.

Tages-Anzeiger: Credit Suisse im Schatten der UBS

It says that on 2000-03-22 both banks had roughly the same market cap of CHF 90 billion. Actually I can remember the time when CS was actually higher valued than UBS at the height of the dot com bubble. More than six years later, Credit Suisse is again valued at CHF 90 billion. But most funny, in the interim it was down to CHF 24.5 billion. So you can also make (or loose) a lot of money with a blue chip company.

Another funny comment (but unrelated to mc) from that article about the CS boss:

Zunächst hat Kielholz in den letzten drei Jahren all das umgesetzt, was er erklärtermassen nicht zu tun beabsichtigte, wie in verschiedensten Interviews nach dem Rücktritt Mühlemanns nachzulesen ist. Vom Versicherungsgeschäft wolle man sich nicht trennen - die Winterthur wurde an die französische Axa verkauft. An der Konzernstruktur werde man festhalten - man hat sie durch die One-Bank-Strategie ersetzt. Die zunächst gewählte Doppelführung an der Konzernspitze mit Oswald Grübel und John Mack sei keine Übergangslösung - sie überdauerte gerade anderthalb Jahre.

Yahoo! Doom

Two blog entries from InsideGoogle about recent Yahoo results and employees leaving yahoo finance, which is actually their cash cow.

Here an interesting side by side comparison of Google and Yahoo quarterly results:

Google’s earnings, in millions, for every single quarter since the third quarter of 2003:

2003: $394 | $512

2004: $652 | $700 | $806 | $1,032

2005: $1,257 | $1,384 | $1,578 | $1,919

2006: $2,253 | $2,456

Yahoo, in those same quarters:

2003: $356 | $663

2004: $758 | $832 | $906 | $1,077

2005: $1,173 | $1,253 | $1,330 | $1,501

2006: $1,567 | $1,575

See the rest in: Yahoo Warns Of A Bad Quarter

And, very insteresting read: Yahoo Finance Employee Exodus?

While people say they are not impressed with Google's offering yet, it doesn't look like Yahoo! Finance does have a lot of (positive) traction right now.

Finding Great People

Joel on Software:

Imagine that the goal of your software company is not to solve some specific problem, but to be able to convert money to code through programmers. That's a little bit strange, but bear with me. A software company has to think of recruiting the right people as its number one problem. If you are successful, this can solve any other problem. Hire smart people, and they will produce good stuff that you can sell and make money off. Then everything else follows.

Read the rest in: Converting Capital Into Software That Works

The real trouble with using a lot of mediocre programmers instead of a couple of good ones is that no matter how long they work, they never produce something as good as what the great programmers can produce.

Five Antonio Salieris won't produce Mozart's Requiem. Ever. Not if they work for 100 years.
...

The mediocre talent just never hits the high notes that the top talent hits all the time. The number of divas who can hit the f6 in Mozart's Queen of the Night is vanishingly small, and you just can't perform The Queen of the Night without that famous f6.
...

Apple made a decision based on style, in fact, iPod is full of decisions that are based on style. And style is not something that 100 programmers at Microsoft or 200 industrial designers at the inaptly-named Creative are going to be able to achieve, because they don't have Jonathan Ive, and there aren't a heck of a lot of Jonathan Ives floating around.

I'm sorry, I can't stop talking about the iPod. That beautiful thumbwheel with its little clicky sounds ... Apple spent extra money putting a speaker in the iPod itself so that the thumbwheel clicky sounds would come from the thumbwheel. They could have saved pennies ... pennies! by playing the clicky sounds through the headphones. But the thumbwheel makes you feel like you're in control. People like to feel in control. It makes people happy to feel in control. The fact that the thumbwheel responds smoothly, fluently, and audibly to your commands makes you happy.
...

It's not just a matter of "10 times more productive." It's that the "average productive" developer never hits the high notes that make great software.

Sadly, this doesn't really apply in non-product software development. Internal, in-house software is rarely important enough to justify hiring rock stars. Nobody hires Dolly Parton to sing at weddings. That's why the most satisfying careers, if you're a software developer, are at actual software companies, not doing IT for some bank.

Read the rest in: Hitting the High Notes

Let me, for a moment, talk about the famous Aeron chair, made by Herman Miller. They cost about $900. This is about $800 more than a cheap office chair from OfficeDepot or Staples.

They are much more comfortable than cheap chairs. If you get the right size and adjust it properly, most people can sit in them all day long without feeling uncomfortable. The back and seat are made out of a kind of mesh that lets air flow so you don’t get sweaty. The ergonomics, especially of the newer models with lumbar support, are excellent.

They last longer than cheap chairs. We’ve been in business for six years and every Aeron is literally in mint condition: I challenge anyone to see the difference between the chairs we bought in 2000 and the chairs we bought three months ago. They easily last for ten years.

Read the rest in: A Field Guide to Developers

Selling DVDs

From BusinessWeek: Wal-Mart and Apple Battle for Turf

As the largest seller of DVDs, Wal-Mart accounts for roughly 40% of the $17 billion in DVDs that will be sold this year, a financial lifeline to big-spending studios. But now Wal-Mart's video business faces a potential threat by Steve Jobs and Apple Computer ...

Moonview

Gerald Levin was CEO at Time Warner before and after the "worst merger in history" with AOL. Of course, he isn't any more. Amazingly he is trying to use his reputation for his new health business Moonview (annual fee of $175'000):

“He understands what it’s like to be in the headlights of the press, when your privacy is taken away and you don’t have the dignity to take a tumble in private,” Laurie says about her husband. “His experiences are his certification.”

The quote is from this Bloomberg article (page 4).

Here is another take on his new business:

read it (below) and weep; it becomes successively more and more unreal as you reach the bottom; rome is burning, and these people are fucking around -ignorance and aristocracy in action -one of those articles in which the pseudoscience is so deep that its principals are quoted as opposed to typical 'third person' reporting (he/she said ... etc).

perryb

Charlie Munger

2006-08-13

For reference: a collection of Charlie Munger Articles

Charlie Munger on common sense, education, models, and investing: Charlie Munger: Art of Stock Picking

And the o­ne thing that all those winning betters in the whole history of people who've beaten the pari-mutuel system have is quite simple.They bet very seldom.

It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it, who look and sift the world for a mispriced bet, that they can occasionally find o­ne.

Buffett in Hindsight and Foresight (w/ J. Scheid), Finacial Analysts Journal, July/August 2002.
Interesting chart on page three about how much Berkshire Hathaway was undervalued for each year compared to the S&P 500 index.

Three Lectures by Warren Buffett - from 1991

But what I did have was an intense interest and I was
willing, when I saw something I wanted to do, to do it. And if I couldn’t see something to do, to not do anything. By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.
...
I find this very useful when I write my annual report. I learn while I think when I write out. Some of the things I think I think, I find don't make any sense when I start trying to write them down and explain them to people. You ought to be able to explain why you're taking the job you are taking, why you're making the investment you're making, or whatever it may be. And if it can't stand applying pencil to paper, you'd better think it through some more.
...
I've never borrowed a significant amount of money in my life. Never. Never will. I've got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X. You ought to have a good time all the time as you go along. If you say "I'm taking this job - I don't really like this job but in three years it will lead to this," forget it. Find one you like right now.

Back to Charlie Munger: The Psychology of Human Misjudgment

In other words, what you think may change what you do, but perhaps even more important, what you do will change what you think.
...
My favorite analogy I can't vouch for the accuracy of. I have this worthless friend I like to play bridge with, and he's a total intellectual amateur that lives o­n inherited money, but he told me o­nce something I really enjoyed hearing. He said, "Charlie," he say, "If you throw a frog into very hot water, the frog will jump out, but if you put the frog in room temperature water and just slowly heat the water up,
the frog will die there."
...
Well Feuerstein, [who] was a member of the Harvard Law Review, made an elementary psychological mistake. You want to persuade somebody, you really tell them why. And what did we learn in lesson o­ne? Incentives really matter? Vivid evidence really works? He should've told Gutfreund, "You're likely to ruin your life and disgrace your family and lose your money." And is Mozer worth this? I know both men. That would've worked. So Feuerstein flunked elementary psychology, this very sophisticated, brilliant lawyer. But don't you do that. It's not very hard to do, you know, just to remember that "Why?" is very important.

Last not least here is a link to the famous Shareholder Letters by Warren Buffett.

2006-12-02

Another rather long but recent article by Charlie Munger about his view on academic economics: Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs

I don't think it is necessary to spend your life selling what you would never buy. Even thought it's legal, I don't think it's a good idea. But you shouldn't accept all my notions because you'll risk becoming unemployable.

Structured Products anyone?!

In this connection, one of the interesting things that I want to mention is that Max Planck, the great Nobel laureate who found Planck's Constant, tried once to do economics. He gave it up. Now why did Max Planck, one of the smartest people who ever lived, give up economics? The answer is, he said, "It's too hard. The best solution you can get is messy and uncertain." It didn't satisfy Planck's craving for order, and so he gave it up. And if Max Planck early on realized he was never going to get perfect order, I will confidently predict that all of the rest of you are going to have exactly the same result.

The Billion Dollar Consumer Credit

Larry Ellison's spending worries his accountant

1) Life Style -- annual $20m

2) Interest Accrual -- annual $75m

3) Villa in Japan -- $25m

4) New Yacht -- $194m -- over 3 yrs

5) America's Cup -- $80m -- over 3 yrs

6) UAD -- 12m over 3 yrs.

It's not clear what UAD refers to. Since this rough budget, Ellison has reportedly spent $200 million building a Japanese-style estate in Woodside, which includes a reproduction of a 17th-century Kyoto teahouse. He has also bought multiple properties in Malibu -- $180 million worth, by one report.

Larry Ellison's financial adviser, Philip Simon, dated May 3, 2002:

I'm worried, Larry. ... I know you view me as a pessimist. Maybe you're right, though I would disagree. Nonetheless, I think it's imperative that we start to budget and plan. New purchases should be kept to a minimum. We need to establish and execute on a diversification game plan, to eliminate (yes, eliminate) all debt and build up a significant, conservatively structured, liquid investment portfolio. If this means sacrificing 30% of your current holdings in Oracle, so be it. With stock options and Oracle's share repurchases, your ownership percentage has been increasing somewhat over the last year or two.

I do not want you to end up like Carl Karcher, Wang, Bernie Ebbers, and the countless others. Yes, Oracle's a different company; no debt, real cash earnings, clean accounting. But, when the pendulum swings the other way, it can overshoot. PE multiples are driven by market (or should I say, mob) psychology. There's no science or logic in the short or medium term.

I know you don't like to discuss this. I know this e-mail may/will depress you. However, I believe it's my job to address issues you'd prefer not to confront. You told me years ago that it's OK to raise the 'diversification issue' with you quarterly. Well, I'm doing so. View this as a call to arms.

Can you believe that Larry Ellison's private and company financials differ tremendiously? Hmm, quite interesting, as Oracle's second most important product is a financial accounting package.

Enterprise Value

Good explanation of Enterprise Value (EV) and what is the difference to Market Capitalization.

Enterprise Value - How much is a Business worth?

So, Enterprise Value is the sum of Market Capitalization + Net Debt + Minorities at market prices – Non Operational Assets.

NYSE Program Trading

2006-06-29
Program Trading Averaged 67.4 Percent of NYSE Volume

Credit Suisse Securities (USA ) LLC. split its activity between its own accounts and those of its customers.

2006-03-06
Program Trading Averaged 57.0 Percent of NYSE Volume

Of the five member firms reporting the most program trading activity on the NYSE, UBS Securities, LLC. executed most of its program trading as principal for its own account.

2003-02-10
Program Trading Averaged 36.2 Percent of NYSE Volume

Of the five member firms reporting the most program trading activity on the NYSE, Morgan Stanley, UBS Warburg and Credit Suisse First Boston executed most of their program trading as principal for their own accounts.

So the only big banks doing proprietary (with their own money, in contrast to on the clients behalf) program trading at the NYSE seem to be UBS and Credit Suisse, and UBS seems to have pulled the switch as well.

Taking into account my experience from playing against bots in first person shooter games I can imagine that in short term trading it is next to impossible to compete with these programs. And that was 6-7 years ago. Just like in chess, the computer has lightning fast reaction times and makes no simple mistakes, so 99.99 % of humans loose against him. Same in Quake, if you could win against the computer, you were very good. You'd have to stay away from direct fight outs and exploit the predictability of the bot behavior and its limited learning ability.

10 Reasons You Should Never Get a Job

This article by Steve Pavlina goes along the line of Rich Dad, Poor Dad, but this one is soo funny:

"Many people treat their jobs as their primary social outlet. They hang out with the same people working in the same field. Such incestuous relations are social dead ends. An exciting day includes deep conversations about the company’s switch from Sparkletts to Arrowhead, the delay of Microsoft’s latest operating system, and the unexpected delivery of more Bic pens. Consider what it would be like to go outside and talk to strangers. Ooooh… scary! Better stay inside where it’s safe.

If one of your co-slaves gets sold to another master, do you lose a friend? If you work in a male-dominated field, does that mean you never get to talk to women above the rank of receptionist? Why not decide for yourself whom to socialize with instead of letting your master decide for you?"

One interesting side note is that the author makes $ 9000 a month generated through advertisement with his site.

Books recommended by Charlie Munger

Investment Master Mind and Warren Buffett side kick Charles T. Munger's recommended reading list.
First list is from Amazon and I guess taken from his book.

This other list is compiled from annual meetings. Don't know how much they overlap, but the second list has lots of additional comments.

Actually it seems both lists are from the same person. Anyway...

Here is a quote from Munger:

>>"The number one idea," he said, "is to view a stock as an ownership of the business [and] to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you're paying for. Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor."
...
Munger quit practicing law in 1965 after 17 years, because "sometimes you're on the wrong side. Often you're dealing with unreasonable people where you can't fix things fast. It's inefficient. I like the discipline of backing my own judgments with my own money. It suits my temperament better. Of course, I also realized that the upper potentialities were better outside of law."<<

Swissquote Second Quarter 2006

Second quarter 2006 results.

Second quarter was not better than first, profit wise, but:
- net new money and number of clients is still growing 5-6 % every quarter and
- if you extrapolate profits over the whole year, their P/E is under 12!
Damn damn cheap!

Also, revenue in 6 months was CHF 37 mio while profit was CHF 18 (net margin almost 50%), if that isn't a fixed cost business, then I don't know what is.

Google Integration

From the Google Code FAQ:
>>Is Google Code going to integrate with other Google products? To some extent it already does. For example, it uses Google Accounts for authentication, and the issue tracker uses Google's search technology. Look for more integration with other Google products as the site matures.<<

Some day google will host not only your data, web pages, emails, videos, source code, but your whole web application/service on their servers. Of course, then look for more integration of your (or third party) apps with more Google products.

Tages-Anzeiger: Swiss Onlinebroker

See the article (in German) here.

Winner is Trade Jet, which I have never heard of before. More interesting, it is lead by former Swissquote CO CEO Alfred Möckli (till 2002-03-01). He owns 25 % of Trade Jet, over 50 % is owned by EUWAX (Börse Stuttgart). They are pretty small, just 900 customers:).
UBS on the other hand wasn't even considered to be tested because they are too expensive.

IBM, Microsoft, Google

             2q05        2q06        market cap
IBM          $ 2.02 B    $ 1.83 B    $ 117.02 B
Microsoft    $ 3.70 B    $ 2.83 B    $ 233.10 B
Google       $ 0.34 B    $ 0.72 B    $ 117.33 B

indexplus

Had an interesting conversation yesterday with Roland Ranz from indexplus. Their product combines index investing with a timing strategy.

SWX Market Data Page

Yesterday got a tip for swiss stock quotes to check the SWX market data page.

Here is an example for Zehnder. Unlike UBS Quotes it is delayed data, but it has an order book, a dividend history under "shared details", and I like especially the registered and issued share capital under "issuer details"! They also have links to the company home and news pages, similar to google finance.

CS: Tagi Kiehlholz Interview

From Tages-Anzeiger CS-Präsident Walter B. Kielholz interview:

Wieso haben Sie Ihre Kunden nicht frühzeitig über die CIA-Überwachung informiert?

So, wie wir informiert wurden, waren die Details dieser Geschichte nicht vollständig transparent. Wir wussten nicht, welche Daten wie überwacht wurden. Dass international Finanzströme als Mittel der Terrorbekämpfung überwacht werden, stand ja in jeder Zeitung zu lesen.

Wurde das Bankgeheimnis tangiert?

Von uns aus gesehen nicht.

Zapf: Fahnder ermitteln gegen Ex-Finanzchef

Zapf is the company behind the Baby Born puppet. Here is the German Manager Magazin article.

>>Winning werde momentan als "einziger Beschuldigter" geführt. Winning war im vergangenen Jahr von seinem Posten zurückgetreten. Später war bekannt geworden, dass die Bilanzen des Puppenherstellers offenbar über mehrere Jahre hinweg gefälscht worden waren. Im Mai hatte sich das Unternehmen auch von Eichhorn getrennt.
Seitdem hält vor allem der Übernahmepoker um das fränkische Unternehmen die Belegschaft in Atem. Ursprünglich wollte der japanische Spielwarenkonzern Bandai den Hersteller der Puppe "Baby Born" übernehmen. Der Zapf-Aufsichtsrat hatte das Angebot Anfang der Woche aber überraschend abgelehnt. Dagegen hatten sich der Vorstand sowie der Aufsichtsratsvorsitzende dafür ausgesprochen.<<

Puma/Italy ist Weltmeister

Puma on Friday at 298.8 EUR. Just won the world cup, let's see on Monday...
Puma's Zeitz in the Bilanz interview below:
>>Sie sponsern zwölf Teams, die Grossen des Fussballs sind aber bei Ihrer Konkurrenz. Schmerzt Sie das?
Das Schöne am Fussball ist, dass er immer für Überraschungen gut ist. Warten wir mal ab, was unsere Italiener machen.<<
UBS Wealth Management Research did also bet on Italy. More for fun, thought.

Mark Bürki, CEO Swissquote

The advantage to have no client advisors and just IT:

>>Wir sind teilweise in einem Fixkosten-Business, der zusätzliche Kunde generiert also nur marginale Zusatzkosten für unseren Betrieb. Das hohe Kundenwachstum hat zu dieser guten Profitabilität geführt.<<

Otherwise not much new information in this German interview from May:

http://moneycab.presscab.com/de/templates/?a=17940&z=27

Advanced Digital .... kadaboom

Minus 56% today: quote

Bilanz interview with Puma CEO

Good interview (in German) with my number one reason to like Puma:

http://www.bilanz.ch/edition/artikel.asp?CID=106&CPID=119&DocumentID=1110&AssetID=3446

Puma revenue for 2005 was 1.78 Mia EUR and he predicts to be able to achieve 3.5 Mia EUR (after 2010 - Puma estimates 2.4 Mia EUR for 2006).
Current market cap is 4.867 Mia EUR.