Category: Big Business

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He hath a way

Berkshire Hathaway just held its annual meeting, in which Warren Buffett fields questions from shareholders. For six hours. He’s 77. I’m just sayin’.

Anyway, the Wall Street Journal had some highlights from the Q&A (I think it’s $-to-read, but that’s probably why Rupert Murdoch bid $5 billion for it, and not the Times or the WaPost). I never really knew anything about Buffett till the dot-com boom, when he was getting lambasted in the press for not buying into internet companies. At the time, he basically responded that none of those companies had a viable business model, and he didn’t understand how any of them could make money. Since he wasn’t one to trade on volatility, he stepped aside, was regarded as a dinosaur, and is now back to being regarded as the sage of investors. Perspective’s a funny thing.

I think his aversion to derivatives mirrors his dot-com experience:

In fielding a question about derivatives, which he once referred to as “financial weapons of mass destruction,” Mr. Buffett told shareholders that he expects derivatives and borrowing, or leverage, would inevitably end in huge losses for many financial participants.

“The introduction of derivatives has totally made any regulation of margin requirements a joke,” said Mr. Buffett, referring to the U.S. government’s rules limiting the amount of borrowed money an investor can apply to each trade. “I believe we may not know where exactly the danger begins and at what point it becomes a super danger. We don’t know when it will end precisely, but . . . at some point some very unpleasant things will happen in markets.”

And, in fact, he brings the derivatives issue back to the mentality that ruled the dot-com era: volatility.

Exacerbating the problem of derivatives and leverage is the short-term trading mentality and high turnover in the stock and bond markets, Mr. Buffett and Mr. Munger added. “There is an electronic herd of people around the world managing an amazing amount of money” who make decisions based on minute-by-minute stimuli, said Mr. Buffett, adding, “I think it’s a fool’s game.”

It seems that the Q&A is also a venue for people to grill Buffett about his personal life:

A shareholder from St. James, N.Y., who said he brought one of his five daughters to the meeting, asked Mr. Buffett to explain why he supports organizations such as Planned Parenthood. “It just doesn’t seem to jibe with the hero that I studied,” the shareholder told Mr. Buffett amid boos from the audience.

“Men set the rules for a lot of years, and I think it’s wonderful that women can make reproductive choices,” Mr. Buffett replied, as shareholders applauded and cheered.

Almost makes you wanna raise $109,500 to buy a single share of Berkshire Hathaway.

(Speaking of which, here’s a link to a PDF of the tangled web of investing in PetroChina.)

(Update: more coverage from a variety of sources.)

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Backdating Option

I hit a nearby Apple Store after work yesterday to pick up a pair of iPod Nanos. I’m using them as giveaway incentives for a couple of surveys we run at my magazine. While I was at the counter, a strange transaction took place nearby.

I had missed the early stages of it while I was shopping (I found a neat future purchase), and it reached “I want to speak to your manager” level by the time I was checking out.

The gentleman next to me was in his mid-30s, wearing a t-shirt, athletic shorts, and flip-flops. He asked the store manager, “What’s the problem with returning this? I didn’t open it.” and pointed at the box on the counter.

The manager replied, “The box is still sealed, so that’s fine, sir. The problem is that we stopped selling this version of the iPod in early 2005.” At this point, I looked over. It was a 40gb iPod Photo, which would’ve dated it late 2004/early 2005.

“So?”

“So, if you bought it from Apple, that means it’s been sitting in that package for two years. If we accepted it as a return, what are we supposed to do with it? We can’t resell something that’s been obsolete for two years.”

“Why is that my problem?”

“Because you don’t have a receipt and you’re asking us for $499 credit for something with no value.” I forgot how much those were selling for. The biggest iPod nowadays costs $150 less than that, with twice the capacity, video, and longer battery life.

“I’m going to take this up with your corporate office.”

“Do you want their number?”

He stormed out, flip-flops slapping at his heels.

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Happy May Day!

In honor of The Worker, Hugo Chavez will be seizing 4 oil projects in the name of a free Venezuela today! By “free” I mean “free to see their oil production fall apart as they drive out foreign investment”:

Critics say that [state company PDVSA] has hired many inexperienced personnel, resulting in a string of deadly refinery and oil field accidents. The company had a chance to retain hundreds of experienced employees from its joint-venture partners when it took control of the 32 fields last year, but it stumbled badly by cutting salaries by an average of 30%. That led to mass desertions [. . .] Production at the 32 fields taken over by the company last year has fallen 100,000 barrels a day, or roughly 20%, the result of lower investments by PDVSA and its minority partners, prompted in part by legal uncertainties. Diminishing prospects in Venezuela lead international companies to cut their investment there last year to $540 million, down from $1 billion in previous years.

As Mr. Nobody put it, “Workers of the world, ignite! You have nothing to lose but your minds!”

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Bulb-Us

In one of those “power of the internet” moments, Instapundit mentioned the One Billion Bulbs movement last week. The idea behind the site is to get one billion incandescent light bulbs replaced with compact fluorescents. The site lets you calculate how much power you save, based on wattage and estimated daily hours of use. His post on it led to hundreds of people signing up on the OBB site, joining the Instapundit group, and documenting the number of bulbs they’ve swapped out.

Now, I’ve held off on buying these things for a while, because I heard they gave off crappy light. But, on Insta’s recommendation, I picked up a pair of 20 watt GE Soft White CF bulbs at a local hardware store (Home Despot only carries a limited selection) and plugged them into the lamp in my office, which is in use 8 hours a day. The light’s just fine (it’s a shaded lamp, which probably helps), and the 20w CFB is the equivalent of 60-70 watts of incandescent light. I haven’t noticed much of a difference in the quality of the light, which I take as a good sign.

So, in the spirit of Instapundit, but with infinitely fewer readers, I’ve started my own group on One Billion Bulbs. If you’re of a mind to start replacing any of the incandescents in your home or office, click on the One Billion Bulbs banner in the sidebar (above the Links section), sign up at the site, and join Byron’s Brigade (it’s a Pynchon reference; sue me).

(But do your due diligence first, or you might find that you’ve spent $5-$8 on a bulb that gives off really crappy light.)

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Road trip!

Actually, it’s not much of a trip: we have a conference in NYC this week, so I’ll be staying at a little hotel near Times Square for the next couple of nights. Since the exhibit hall doesn’t open till 10am, I should have a little time for blogging in the morning. On the other hand, we’ll also be taking clients out for dinner, etc., so I may be in no shape to write in the morning.

Don’t expect so much outta me, okay?

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Flat Panels, Cratering Sales

Here’s an article from BW about how Wal-Mart’s flat-panel TV pricing for the 2006 holidays helped destroy a number of electronics stores. Looks like the chain’s decision to sell a 42-inch Panasonic for under $1,000 sent its (partial) competitors off a price-war cliff:

Along with Wal-Mart’s determination to lower prices, two other factors played key roles in last winter’s 40%-to-50% flat-panel price drop and the ensuing turmoil. For one, many more retailers such as Sears and CompUSA were starting to stock a wider selection of flat-panel TVs after seeing demand soar over the previous two years. Also, manufacturers like Samsung, Sony, Panasonic, and Westinghouse had ramped up production last year with new factories in Asia and the U.S. They began flooding the market with new TVs in the latter half of 2006. All these forces combined to make a commodity of what just six months earlier had been a solidly high-end, high-margin entertainment product. “It’s Econ 101: Best Buy and Circuit City had seen fat margins from flat-panel TVs for a while, and as it happens with any product, eventually the margins come down and the music stops,” says David Abella, a portfolio manager at New York-based Rochdale Investment Management, with assets of $2 billion.

Wal-Mart is the second-largest electronics retailer today, behind Best Buy, which has fared relatively well compared to many of its rivals. But it has done so by imitating some of Wal-Mart’s best practices, most notably an efficient supply chain, by the admission of CEO Brad Anderson himself. It also has more diversified merchandise than other specialty-electronics retailers.

I think the collapse of CompUSA — and maybe some of the other retailers — was also triggered by the post-holiday delay of Windows Vista and the ensuing realization that Vista wasn’t a compelling reason to buy a new computer, but that’s just my pet theory. I’m sure the demolition of flat-screen margins was the biggest factor, given the amount of floor space all of these chains devoted to those TVs. I’m fascinated by the way different sectors become commoditized.

The pharma biz, which I cover, has historically been insulated against that (until a drug’s patent life expires, that is), leading to less concern about reducing manufacturing costs. That’s changing nowadays, insofar as major companies are trying to wring excess costs out of manufacturing processes, but the market prices (and the high cost of regulatory compliance) still insulate them.

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Missed by that much

I just finished reading Taliban, Ahmed Rashid’s study of the Taliban’s rise in Afghanistan, this weekend. The book was published early in 2001 (pre-9/11, that is), so its perspective about the civil war is untinged by What Would Come. Rashid does paint a very bleak picture about the region and the regime, and offers a ton of insight into how Afghanistan got so messed up.

The book is also a product of its time, of course. One of the “problems” with Taliban is that oil was priced around $13/barrel in the years leading up to its publication. That fact was a key to his understanding of Russian and Iranian policy, and it’s completely understandable; who would even entertain the notion that oil would someday trade for 5x that price?

I found myself marveling over how the country, long seen as the prize in The Great Game, achieved its present-day notoriety only when it fell under the radar and became an utterly failed state. Once “we” stopped paying attention to it, Afghanistan became the engine of the new world.

Which brings me to the end of the book. Usually, I don’t give away endings, but I don’t think I’m doing Rashid any disservice in this case. Here’s the final paragraph:

But if the war in Afghanistan continues to be ignored we can only expect the worst. Pakistan will face a Taliban-style Islamic revolution which will further destabilize it and the entire region. Iran will remain on the periphery of the world community and its eastern borders will continue to be wracked by instability. The Central Asian states will not be able to deliver their energy and mineral exports by the shortest routes and as their economies crash, they will face an Islamic upsurge and instability. Russia will continue to bristle with hegemonic aims in Central Asia even as its own society and economy crumbles. The stakes are extremely high.

I don’t mean to goof on Rashid by writing this, but isn’t it amazing how much worse it got than his most pessimistic projection?