No one knows the impact of COVID yet because it's unknown and unknowable.
Reading Zeckhauser and @AnnieDuke is a better preparation for investing in this scenario than the predictions of economists.
Also, focusing on analyzing a single business at a time helps a bit.
Reading Zeckhauser and @AnnieDuke is a better preparation for investing in this scenario than the predictions of economists.
Also, focusing on analyzing a single business at a time helps a bit.
" In the fog of pandemic, action must come before perfect information"
Most Buffett-fans don't talk about it, neither does Buffett talk about.
Zeckhauser does: Buffett is a master player when it comes to investing in the unknown and unknowable. One example is Earthquake reinsurance
Zeckhauser does: Buffett is a master player when it comes to investing in the unknown and unknowable. One example is Earthquake reinsurance
Another example: Buffett's 2008 Goldman Sach investment
Known: 10% dividend, GS converted to bank holding co, "GS is global franchise"
Unknown & unknowable: will $700B bailout pass? What will happen next in credit crisis?
money.cnn.com/2008/09/23/new…
Known: 10% dividend, GS converted to bank holding co, "GS is global franchise"
Unknown & unknowable: will $700B bailout pass? What will happen next in credit crisis?
money.cnn.com/2008/09/23/new…
"Warren often talks about these discounted cash flows, but I’ve never seen him do one" - Charlie Munger
This makes sense when we consider Buffett as investor in unknown and unknowable situations - DCF can't be done there! It's more like horse race handicapping or bridge
This makes sense when we consider Buffett as investor in unknown and unknowable situations - DCF can't be done there! It's more like horse race handicapping or bridge
Viewing the AMEX salad oil crisis from this "unknown/unknowable lens"
Known: a sub of AMEX was on hook, balance sheet, joint stock that was assessable (i.e. holders on hook if liability > assets)
Unknown and unknowable (at least upfront): amount of liability
Known: a sub of AMEX was on hook, balance sheet, joint stock that was assessable (i.e. holders on hook if liability > assets)
Unknown and unknowable (at least upfront): amount of liability
AMEX salad oil:
Knowns: Balance sheet (see pic), equity of $83M
Unknowns: liability from salad oil scandal
Buffett probably bet that deposits won't disappear overnight & salad oil liability wasn't even close to equity + deposits
Buffett bought 5% of AMEX at $150M valuation
Knowns: Balance sheet (see pic), equity of $83M
Unknowns: liability from salad oil scandal
Buffett probably bet that deposits won't disappear overnight & salad oil liability wasn't even close to equity + deposits
Buffett bought 5% of AMEX at $150M valuation
But Buffett himself does folksy rewriting of AMEX storyline.
Likely reality: betting in unknown/unknowable using Balance Sheet understanding
Folksy retelling: Buffett saw patrons in restaurant use AMEX cards
Likely reality: betting in unknown/unknowable using Balance Sheet understanding
Folksy retelling: Buffett saw patrons in restaurant use AMEX cards
Result in AMEX salad oil scandal: AMEX paid out $45M - almost half of their equity, though they were not liable for their subsidiary, to maintain "public confidence".
Buffett couldn't have known actual damage number (unknown/unknowable). But he bet big coz price was too low
Buffett couldn't have known actual damage number (unknown/unknowable). But he bet big coz price was too low
Continuing with this unknown/unknowable and low pricing thread:
Buffett talks about using initial yield when investing in farm land. This same story repeats for this investor who bought real estate on Via dei Condotti, near the Spanish steps in Rome, in 1948
Buffett talks about using initial yield when investing in farm land. This same story repeats for this investor who bought real estate on Via dei Condotti, near the Spanish steps in Rome, in 1948
Known: beautiful buildings, 15% starting yield, Rome
Unknown: when would Italy get out of post war recession, will rents go down?
Investor bought 7 buildings on Via dei Condotti in 1948, and was rich when he sold in 1960
(h/t @ThePIBnyc -
privateinvestmentbrief.com/blog/alpha-in-… )
Unknown: when would Italy get out of post war recession, will rents go down?
Investor bought 7 buildings on Via dei Condotti in 1948, and was rich when he sold in 1960
(h/t @ThePIBnyc -
privateinvestmentbrief.com/blog/alpha-in-… )
Buffett's AMEX investment from Zeckhauser unknown framework:
Known: initial yield of 8%, growing revenue, strong balance sheet with $83M equity, deposits that won't go away overnight
Unknown: salad oil scandal liability
Buffet bet that salad oil liability won't wipe out equity
Known: initial yield of 8%, growing revenue, strong balance sheet with $83M equity, deposits that won't go away overnight
Unknown: salad oil scandal liability
Buffet bet that salad oil liability won't wipe out equity
