no capital in the bank

“This young lady does not realize that she has no capital in the bank to finance this request.”

- Buchanan PR

buffett’s 2011 letter – lessons for entrepreneurs

Some interesting excerpts, ones that I found interesting anyway, in Buffett’s 2011 annual letter. I read it every year and if you are interested in business you should too. I don’t own any Berkshire stock. I just like how Buffett thinks. All bold emphasis added by me.

On Railroads, Trucking and the Environment (for the PR curious, check Bernay’s work for Mack Trucks in 1949)

…railroads have major cost and environmentaladvantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. (pg 3)

Rail moves 42% ofAmerica’s inter-city freight, measured by ton-miles, and BNSF moves more than any other railroad – about 28% of the industry total. A little math will tell you that more than 11% of all inter-city ton-miles of freight in the U.S. is transported by BNSF. Given the shift of population to the West, our share may well inch higher. (pg 14)

On being optimistic in the current economic environment:

No matter how serene today may be, tomorrow is always uncertain.

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.

We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and1941, America’s best days lie ahead. (pg 3-4)

On the folly of economic reporting periods to understand the value of a company:

Yearly figures, it should be noted, are neither to be ignored nor viewed as all-important. The pace of the earth’s movement around the sun is not synchronized with the time required for either investment ideas or operating decisions to bear fruit. (pg 4)

On hiring well. Talent is the secret to business:

Our trust is in people rather than process. A “hire well, manage little” code suits both them and me. (pg 7)

On the mobile home industry (they own Clayton) and the government’s policies that relate to home ownership:

To explain: Home-financing policies of our government, expressed through the loans found acceptable by FHA, Freddie Mac and Fannie Mae, favor site-built homes and work to negate the price advantage that manufactured homes offer.We finance more manufactured-home buyers than any other company. Our experience, therefore, should be instructive to those parties preparing to overhaul our country’s home-loan practices. Let’s take a look.  [Net Losses as a Percentage of Average Loans in 2010 for Clayton was 1.72%]

…

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind.

…

But a house can be a nightmare if the buyer’s eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country’s social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford. (pg 16-17)

On selecting talent:

One footnote: When we issued a press release about Todd’s joining us, a number of commentators pointed out that he was “little-known” and expressed puzzlement that we didn’t seek a “big-name.” I wonder how many of them would have known of Lou in 1979, Ajit in 1985, or, for that matter, Charlie in 1959. Our goal was to find a 2-year-old Secretariat, not a 10-year-old Seabiscuit. (Whoops – that may not be the smartest metaphor for an 80-year-old CEO to use.) (pg 19)

On Net Income and why it is useless to measure the health of a company:

Earlier in this letter, I pointed out some numbers that Charlie and I find useful in valuing Berkshire and measuring its progress.Let’s focus here on a number we omitted, but which many in the media feature above all others: net income. Important though that number may be at most companies, it is almost always meaningless at Berkshire. Regardless of how our businesses might be doing, Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like.

We have that flexibility because realized gains or losses on investments go into the net income figure, whereas unrealized gains (and, in most cases, losses) are excluded.

…

…Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate Americain the 1990s and still persists, though it occurs less frequently and less blatantly than it used to. (pg 21)

On real valuations and being unable to pinpoint a number:

Our inability to pinpoint a number doesn’t bother us: We would rather be approximately right than precisely wrong.

John Kenneth Galbraith once slyly observed that economists were most economical with ideas: They made the ones learned in graduate school last a lifetime. University finance departments often behave similarly.Witness the tenacity with which almost all clung to the theory of efficient markets throughout the 1970s and 1980s, dismissively calling powerful facts that refuted it “anomalies.” (I always love explanations of that kind:The Flat Earth Society probably views a ship’s circling of the globe as an annoying, but inconsequential,anomaly.) (pg 21)

On the social responsibility of conservative financial practices (no leverage) and keeping cash on hand:

Charlie and I have no interest in any activity that could pose the slightest threat to Berkshire’s well being. (With our having a combined age of 167, starting over is not on our bucket list.) We are forever conscious of the fact that you, our partners, have entrusted us with what in many cases is a major portion of your savings. In addition, important philanthropy is dependent on our prudence. Finally, many disabled victims of accidents caused by our insureds are counting on us to deliver sums payable decades from now. It would be irresponsible for us to risk what all these constituencies need just to pursue a few points of extra return.

On NOT paying dividends and instead reinvesting. Always a growth stock in a way:

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way.

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in oureconomy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008 (pg 24)

And towards the end of the letter he does what a good business man should. HE ASKS FOR YOUR BUSINESS!

The best reason to exit, of course, is to shop. We will help you do that by filling the 194,300-squarefoot hall that adjoins the meeting area with products from dozens of Berkshire subsidiaries. Last year, you did your part, and most locations racked up record sales. In a nine-hour period, we sold 1,053 pairs of Justin boots, 12,416 pounds of See’s candy, 8,000 Dairy Queen Blizzards® and 8,800 Quikut knives (that’s 16 knives perminute). But you can do better. Remember: Anyone who says money can’t buy happiness simply hasn’t learned where to shop.

GEICO will have a booth staffed by a number of its top counselors from around the country, all ofthem ready to supply you with auto insurance quotes. [etc...] (pg 24)

If I have quoted it above. Particularly if it is bold. It is an opinion I agree with. I think the man speaks the truth.

 

Egypt Social Media Activity Unexpectedly Small

I have been digging into the background story on the 2011 revolution in Egypt. Follow that last link for a good recap of how the police beating of Khaled Said created a maelstrom that has turned into massive protests and labor strikes in Egypt. A man named Wael Ghonim has emerged as a symbol of the revolution in Egypt after his CNN Interview as a rebuttal of Omar Suleiman, the General now promoted to a VP, did an interview with ABC News.

Regarding the politics of Mubarak’s autocracy, I think we can agree on some fundamentals:

1. The killing of Khaled Said was unjustified and horrible.
2. The government response to these allegations in Egypt was insufficient.
3. The protests are right to object to 30 years of “Emergency Rule“
4. Mubarak should step down immediately
5. The US historical support for Mubarak, while unlike the situation with the Shah in Iran, will likely not win us many friends in post-Mubarak Egypt.
6. Social media has played a key role in the protests as evidenced by the Internet blackout implemented by the government.

Wait. I’m not so sure about number 6. The role of social media is unclear.

Working in social media I was curious and looked up the facebook group and the twitter accounts. What struck me was that for a country with a population of 77 Million, the page and the twitter account have relatively few followers. Right now Wael Ghonim on twitter has 46,035 followers

and the Khalid Said page on Facebook has 61,687 fans

Both of those numbers seem small to me given the scope of the protests. My first thought was “you must be looking at the wrong page. Surely there is an arabic page that is the real FB connector. I emailed a politically active Egyptian friend (Fayza!) and her response was:

I think that’s probably as good as you’re going to get. It’s a very active page, so my guess is that it’s the best resource for his supporters that Facebook has to offer. Lots of Egyptians speak fluent English because of the prevalence of tourism. It doesn’t surprise me that the primary FB presence is in English at all.

Perhaps Gladwell is right that the Revolution will not be tweeted. When Gladwell in his post talks about networks he says:

The drawbacks of networks scarcely matter if the network isn’t interested in systemic change—if it just wants to frighten or humiliate or make a splash—or if it doesn’t need to think strategically. But if you’re taking on a powerful and organized establishment you have to be a hierarchy.

So either social media isn’t the huge driver for change, or it is a very small subset of the population communicating through social media that is facilitating the action. But you certainly can’t say that hundreds of thousands are responding to direct tweets with a central call to action.

So to me the role of social media in the revolution is still a conundrum. And as I type this, it looks like the rumors of him stepping down tonight on 2/10/2011 were false.

More to follow….

Edelman Trust Barometer 2011

Edelman Trust Barometer 2011 Released. Highlights from Meg Strout’s blog followed by the slideshare. Meg’s summary:

There’s been a decline in trust in “a person like myself” and regular employees, arguably because of “over-friending”

Trust in credentialed experts (70%) and company technical specialists (64%) is soaring

Informed publics (media consumers) need to hear things three to five times for it to effect a behavior change

To stand out and build trust, businesses must activate internal thought leaders across several spheres of media

Via Meg Strout

rosen on wikileaks – stateless news organization

Worth a read on wikileaks Wikileaks, the World’s First Stateless News Organization

Ask yourself: Why didn’t Wikileaks just publish the Afghanistan war logs and let journalists ‘round the world have at them? Why hand them over to The New York Times, the Guardian and Der Spiegel first? Because as Julien Assange, founder of Wikileaks, explained last October, if a big story is available to everyone equally, journalists will pass on it.

“It’s counterintuitive,” he said then. “You’d think the bigger and more important the document is, the more likely it will be reported on but that’s absolutely not true. It’s about supply and demand. Zero supply equals high demand, it has value. As soon as we release the material, the supply goes to infinity, so the perceived value goes to zero.”

pay to play journalism – all of them?

Like the National Enquirer (who oddly enough just filed for bankruptcy), now everyone is willing to pay for stories. OK, technically it sounds like they pay the interviewee for use of images and video an exorbitant amount to avoid (theoretically) crossing that journalistic line. From the story on the Washington Post on Checkbook Journalism.

“thanks to heightened competition for the next big “get,” journalism’s Thou-Shalt-Not-Pay commandment has lately been taking a beating. News and gossip sites that paid for information have broken some of the biggest and most sensational recent stories. TV news divisions have joined in, spurring an arms race to buy big stories.”

and

CNN spokeswoman Edie Emery insisted, however, “CNN does not pay for interviews or sources. Yes, CNN did pay a licensing fee for exclusive rights to Schuringa’s cellphone image. Payment for the exclusive license of the image was never a condition of the guest interview.” In fact, CNN did interview Schuringa.

and

An ABC News spokesman, Jeffrey Schneider, also said the fees were not tied to any promises of an interview. “We compensate a rights-holder for video or pictures that they own in the same way that The Washington Post would pay a photographer for his pictures,” Schneider said.

So who can you trust? IMHO whether paid or based on some agenda, you should always be skeptical of the media regardless of the SPJ code of ethics.

And in disclosure, the WP has agreed to pay me $100,000 to run this story on my blog. OK, actually they are paying me for RIGHTS to use my cc licensed photo top right at some future date. Yup, the photo of broken stuff.

It’s true.

OK, it’s all true except that last part. But if you know someone at the WP, will you send them my address so they can mail a check?