Thread by @wolfejosh

1/ This is a good + fair question.
I hope i give a good + fair answer…

Why is BRK (buffett) a different ‘religion’ than TSLA (musk)?

A thread🧵…

https://twitter.com/APompliano/status/1464366099160576004

2/ The fun thing about making lots of money in VC + crypto + any asset or security that makes money by selling it for more than you paid for it is this:

you don’t NEED it to profitable business—
you only NEED others to buy it for more

A 🔑 difference between TSLA + BRK…

3/ And if you don’t need the business underlying your investment to be profitable 💵(because you just need others to believe that others will believe that others will believe 📈)…

You might not NEED to know 💁‍♂️what actually makes a business profitable….

4/ An entire generation is making money having learned nothing about (as there is + has been no need to learn anything about...) what makes a “GOOD” ⚖️business…

Only thing that matters is the PRICE goes up 📈 and that others believe price will go up based on NARRATIVE📖

5/ Oscar Wilde said the cynic knows the price of everything + the value of nothing

Alas most “investors” today are “speculators” and though they THINK💭 themselves optimists they are actually cynics––as they know the PRICE of everything + the VALUE ⚖️of nothing

6/ “Few.”

Few know how to define

-depreciation
-free cash flow
-owner earnings
-retained earnings
-operating leverage
-return on incremental invested capital

Or read a balance sheet 🧾 or income statement 🧾 or cash flow statement. 📑

7/ The last time there was a rush to get educated👩‍🎓👨‍🎓📚 on accounting + value investing was post 2000 crash leading to boom of long/short hedge funds studying businesses—betting on good ones that could compound capital 📈+ betting against bad businesses who would incinerate it 📉

8/ Over past 14 yrs––“value” investing has underperformed + entire generation has made fortunes 📣 pumping, promoting luring greater fools to buy, to the moon

Speculators need only BELIEF of others to BELIEVE that others will BELIEVE that others will believe––ad infinitum📣

9/ This is the difference between INTRINSIC vs EXTRINSIC value

—latter depends on charisma + cheerleading + influencing strangers

—the former depends on logic + math

10/ Business owners depend on customers––

and the profit 🤝that they make is the value they provide

(for if they provided less value, customers would pay less 🏷 and profits would be lower)

11/ The reason that BRK has a following is it because the culture of character and honesty and integrity is a model for people in their own personal lives.

THIS 📺plays at every BRK annual meeting

If there is a religious element––
it is community at the altar of MORAL CHARACTER

12/ Contrast this kind of public moral leadership from Buffett with recent examples of Elon + TSLA

-tells SEC to blow him
-obsessed with critics
-calls a rescue hero a “pedophile”
-paid $40M for lying + faking a buyout
-paid a record $137M settlement for racist discrimination

13/ Fans + believers admire Elon
not for his DECORUM or RATIONALITY
But for his irreverence + impulsivity

In contrast the reason people admire BRK
is they behave with DECORUM with RATIONAL decisions

The best case study is a candy store.
Buffett’s investment in See’s Candy…🍫

14/ For Buffett’s dream biz:

-is boring
-earn huge returns on tangible assets
-has more profits than any competitors
-gets most of its sales in a few states
-has ~50% of entire industry earnings

15/ When Buffett bought See’s Candy in 1972 for $25M in they made 16M lbs of candy with sales of $30M and pretax profits <$5M.

It cost $8M a year to run the biz.
Thus earning 60% on invested capital.

By 2007…

16/ By 2007 they sold less <2x that ~31M lbs
(growing only 2%/yr)

Sales were up from $30M to $383M
and pretax profits were $82M.

It cost $40M to run the biz.

Meaning they only had to REINVEST $32M––since 1972.

And the business delivered $1.35B of pretax earnings…

17/ And the business delivered $1.35B of pretax earnings…

with ALL OF IT––except that tiny incremental $32M needed to run the biz––going to Buffett to buy OTHER GREAT BUSINESSES.

(Great business that earned profits on invested capital and could be reinvested)…

18/ What Buffett did NOT need?

📣 Promoting or pumping
or depending on ANYONE
to buy his shares or price them higher

Because he OWNED legitimately amazing businesses that produce cash 💵 by the💰

He owns 100% of his best biz’s
+ requires NO EXTERNAL capital

That is WHY 🙏🤲

19/

That is the difference between the “religion” and disciples of

Buffett (who are students of logic + math, reason + rationality + moral character in business + family life)

And those of Musk or Tesla or any purely pumpy speculative movement,

As poet rev. MC Hammer said:

20/ Original Buffett letter excerpt from 2007