Archive for March, 2011

Winter Breaks

Sunday, March 20th, 2011

We really can’t complain about the winter we had this year.  Compared to the epic snows we received last year, this year was a piece of cake.  One disastrous commute aside, there just wasn’t much to deal with.  I ended up driving my truck in for a week or so following our one big snow – just simply because our long gravel driveway is the last road in Northern Virginia to melt.  That was it.

That didn’t mean the winter didn’t suck, though.  It did, big time.  It seems like the guys who lay down the salt and sand for VDOT must be paid by the ton.  They put down a lot of the stuff.  Which then hung around, smeared on every bit of pavement, for weeks on end.

And since I won’t ride my bikes with salt on the roads because of what that stuff does to all your metal surfaces, the days turned into weeks.  And the weeks turned into months.  Measured in terms of time off two wheels, this winter was one of the worst.

And so, for me at least, the heavy rains the last couple weeks were a welcome sight.  They washed all that white crap away.

And so the stage was set.  When Friday’s forecast came in with a high in the 70’s, I knew what I had to do.

And so it went.  It was chilly in the morning as I rode into Manassas for a state inspection, to the point where I was using electrics.  But then as the day wore on, the sun came out and the chaps came off and the fleece was put away and the summer weight gloves came out.

Finally.

road to renewal

favorite places

The Iwo Jima Memorial & Arlington Cemetery

Sunday, March 13th, 2011

As I mentioned a couple weeks ago, they are special places.  I’m drawn there… I don’t know why.  What I do know is that I head down there, nearly always without preconception, and always find something different, something new.

iwo jima memorial

marines

twenty-two

The Anti-Genius of Warren Buffett

Sunday, March 6th, 2011

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

– Warren Buffett

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What should a typical upper-middle-class person in the U.S. buy to prepare for retirement?

“Equities,” Buffett answers without a moment’s hesitation.

– Fortune Interview, October 19, 2010

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Warren Buffett is my hero. There’s not a finance guy who has ever lived that comes close to him, in my book. If I could pick one person to have lunch with, Warren would be the guy.

But as hair-curling smart – to use Ben Stein’s phrase – as Buffett is, I think it’s important to understand where Warren’s strength lies. His enduring genius has always been his ability to understand the arcane numbers in a balance sheet, those circular references that so often elude others. He has always divined the nuance of underlying value. And his mantra of success has been simply to discover undervaluation, purchase it, and then to hold it long enough that its market valuation catches up with its intrinsic value.

No one has ever done it better.

Alas, we probably ought to be careful about ascribing that genius to everything else having to do with money.

Warren’s strength is not in managing companies, for instance. When he took over Salomon Brothers after John Gutfreund left in 1991, the results were less than stellar.  You’d think – and I’m sure Warren himself expected – that his fabulous expertise with numbers and finance would easily translate into him handily managing an investment bank.  Not so, as it turned out.  What Warren learned was that running the numbers of an asset – even an asset filled with people – was a very different proposition from the arcana of actually managing those people.  I suspect it sharpened his appreciation for guys who actually are good at that.

In a similar vein, I haven’t seen any evidence that Warren is particularly adept at judging the macroeconomic context we live in. Valuing a company is pretty far afield from judging sovereign risk or figuring out the implications of central bank behavior.

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When my two boys were in their late teens I sat them down and gave them a couple-hour lecture – which they still, a dozen-odd years later, roll their eyes at – on basic financial literacy. Among other things, I wanted to convey the magic of compounding.  I wanted them to understand that earnest, regular saving will lead to an inflection point – a time when that pool of wealth of theirs will quickly begin to accelerate, the graph representing its growth moving swiftly vertical like a teeter-totter rising towards the sky.  It’s a lovely, amazing, wonderful thing to behold.

I also wanted to convey the flip side of that – that debt has its own inflection point. That there is a time when servicing a growing debt begins to become onerous.  The point where it, too, goes vertical – but this time an acceleration into financial oblivion. It’s an ugly, ugly thing, one from which few escape.

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The macroeconomic climate is simply this:  We’ve reached that negative, debt-induced inflection point. Nearly all the major, modern economies have moved in lockstep to that juncture, holding hands as they walk towards the cliff.

To those who profess equanimity about the situation, I’ve long asked to hear a plausible scenario for unwinding the economic quandary we are in. Describe to me how this cannot fail to end up very badly.  Just show me the math.

I’ve yet to hear it. Not from anyone.

Not even from Warren.

And that’s why I’m long gold.