There are several "mini-Berkshires". The key question for each one of them is whether they are likely to compound wealth at a faster rate than the original Berkshire. I question whether this is true even without considering the question of risk and internal diversification. I've owned two companies often thought to be mini-Berkshires. $L for several years in the early '10s and $MKL from 2011-23. It's not easy to beat $BRKB.

A Man For All Markets

I first read Ed Thorp's autobiography in early 2017 and it made a huge impression at the time so I wrote down my thoughts. I recently revisited my notes. Here are some key take-aways from the book:

1) Thorp's early experiences in Las Vegas were crazy. In 1963, he was part of a team of six that pretended not to know each other and sat down at the baccarat tables at the Dunes Casino. He ended up doing so well that the pit boss drugged his coffee! Later, the brakes on his car mysteriously failed. Wild stuff!

2) Thorp gained an edge in blackjack with a card counting method. He proved the theory through hands-on methods in Reno and published his findings in a book, Beat the Dealer, which is still read by gamblers today.

3) Roulette was a bigger challenge. To gain an edge, Thorp collaborated with Claude Shannon to build the first wearable computer. It was intended to provide the user with an edge in roulette. The computer was conceived in 1955 and tested in Las Vegas in 1961. Some technical problems prevented serious betting but it was a success and unveiled to the public in 1961.

4) Thorp turned his attention to a bigger casino: Wall Street. At least on Wall Street, no one would doctor his drinks or mess with his car's braking system. Thorp read Graham and Dodd but also immersed himself in technical analysis. Early forays were not satisfactory but he kept at it and eventually struck gold ...

5) Common stock warrants proved to be fertile ground for Thorp. He came up with a mathematical model to detect mispricing of warrants relative to the underlying common stock. By purchasing the relatively underpriced security and shorting the relatively overvalued security, he scored profits. Thorp wrote another book, Beat the Market, to explain his strategy.

6) Thorp came up with the math behind the Black-Scholes model before Black and Scholes who were partly motivated by reading Beat the Market. Thorp was, at heart, a mathematician and academic and shared his ideas, perhaps a bit too freely. Otherwise, the Black-Scholes option pricing model may today be known as the Thorp-Black-Scholes model.

7) Meeting Warren Buffett. Thorp met Warren Buffett in 1969 when a dean at U.C. Irvine asked Warren Buffett to vet Thorp. The dean was receiving a distribution from the liquidation of the Buffett Partnership and wanted to know what Buffett thought of Thorp's warrant strategy. Buffett must have been impressed enough because the dean invested additional funds with Thorp.

8) Princeton Newport Partners. Thorp remained an academic through the 1970s but his income from investments eventually grew larger than his salary. Princeton Newport was Thorp's investment vehicle and he eventually gave up academia and devoted all his time to investing in the early 1980s. From November 1, 1969 through 1988, Princeton Newport returned 19.1% before fees and 15.1% after fees compared to 10.2% for the S&P 500. Importantly, this was accomplished with far lower volatility than the S&P 500.

9) Thorp and Madoff. In the early 1990s, Thorp was asked to evaluate Madoff's fund for a client. He was stonewalled by the Madoffs, but eventually discovered that the returns claimed by Madoff were impossible and that the trades reported by Madoff could not have possibly happened since they exceeded the volume for the market for certain securities. Thorp made it known that Madoff was a fraud but the establishment simply ignored his warnings.

10) Personal Finance. The book ends with a section on personal finance because Thorp felt strongly that lack of education in this area is a major problem for society. This was an unusual ending to an autobiography, but one that I think can be helpful for many readers.

A few years ago, I saw an interview of Ed Thorp who was in his late 80s at the time but appeared to be a man in his 60s. Thorp seems to have cracked the code of how to live a good life. His autobiography is essential reading for investors but also for anyone with a sense curiosity regarding a fascinating and well-lived life. Ed Thorp is now 91 years old. This is the interview I mentioned:

I have questioned the wisdom of a 4% withdrawal rate for early retirees (FIRE) and recommended 3% or less, especially for retirees in their 30s or 40s. At fifty, my projected withdrawal rate for 2024 is only 1.6% of liquid assets, on a trajectory to be less than 1% by my sixties. Some might say that I'm underspending my potential. All I can say is that, given my current life circumstances, I cannot spend more money in a way that will add meaningful utility. It would only be a waste. I live modestly and like it that way.

The significant degradation of my vision over the past year (thankfully not related to any serious eye issues and corrected with new glasses) shows how we can never take current physical strength for granted. Things can degrade quickly, non linearly, and without much warning. Of course, there is much we can do to preserve health for as long as possible and we should not be fatalistic. But at the same time, it is foolish to think you’ll never decline. We all will in various ways, it’s just a matter of when. But that when can often be pushed back.

Never in my life have I spent as much money as what most people consider ”normal”. And, of course, you can’t miss what you’ve not been accustomed to. The utility of money is independence, not consumption.

Americans Can’t Stop Spending. Five Reasons Why
wsj.com/economy/consum… If I had behaved like some of the people in these articles, I’d be working for someone else today, probably earning several times the median income and consuming nearly all of it, would have no independence and be stuck on a endless hedonic treadmill. What a horrid thought.

Berkshire Hathaway reported after-tax operating earnings of $10,043 million.

This is a new high for quarterly operating earnings and the first quarter over $10 billion. Here's part of a spreadsheet I keep tracking quarterly operating and net earnings. $BRKA $BRKB https://t.co/z2ddwTDFJgtwitter.com/i/web/status/1…
Net earnings are useless from an analytical perspective due to swings in the market quotations of Berkshire's massive portfolio of stocks.

The Fed might soon "declare victory" on inflation, but let us not forget the arrogance they displayed in mid-2021 that led to massive pain for those of limited means most exposed to a rising cost of living (who don't own stocks).

Written in June 2021:

rationalwalk.com/pounds-of-salt… Inflation has a terrible impact on the poor and lower middle class because they consume nearly all of their income and have little if any money in stocks.

rationalwalk.com/the-high-cost-…

CBDCs will eliminate remaining privacy in society by exposing all activity to government monitoring.

If you think this is OK because you like the Biden administration, think about whether you would have been fine with Trump administration having this power.

Wake up, America. CBDCs will be irreversible once implemented.

Initially, we will be assured that it will exist along with physical cash. Citizens will then be herded into CBDCs with carrots and sticks and cash will be eliminated due to "consumer preferences" -- supposed "lack of demand".

The most significant threat to the existence of humanity on Planet Earth is thermonuclear war and it isn't even close.

Anyone who thinks that any other risk comes close, and that includes climate change, either doesn't understand physics or is in a state of deep, deep denial. My admittedly dark view is that it is a miracle that we have avoided civilization ending nuclear war over the past 78 years and that this is very unlikely to be repeated over the next 78 years.

This is not an argument for nihilism. In fact our only hope is the exact opposite.

This is what 3.9% annualized inflation over sixty years will do.

I’m pretty sure the next sixty years will be much worse. I’ll be dead for sure by 2083 but all the fintwit bros out there in their twenties should get used to trading c notes for chipotle burritos by then. Guac will be extra.

Whatever the merits a mandate might be, you can bet that BLS will categorize the feature as a quality improvement. Therefore, this won’t be “inflation” in CPI but new cars will cost more and you won’t have the option of buying a car without the feature.
wsj.com/articles/u-s-a… Plot median wages in nominal terms against new car prices is nominal terms if you care about whether the median American can afford a new car. It’s great if new cars get better if you can afford one. Buying a new car is part of the American dream, as envisioned by most people.

I wrote this almost 3 1/2 years ago and it gets worse and worse. And even worse. Intellectual honesty keeps me from deleting it. But my policy is to block and report anyone who updates the calculation, since I have no recourse to a safe space.

$AAPL

rationalwalk.com/my-2-million-a…

Isn't this saying the quiet part out loud?

"JPM stock will go up even more when he becomes POTUS as he can do more for the bank and our economy as President than he can as Chairman and CEO of JPM." twitter.com/i/web/status/1… It might be rude to post a link to this, but I will anyway.

wsj.com/articles/jamie…

A successful business career used to be a strong qualification for public service and politics. Today, public service is a ticket to wealth and power in business.

wsj.com/articles/lazar… I would rather see a long and successful career in business followed by retirement to pursue public service than a long and successful career in politics followed by a business career.

Inflation erodes trust in society but is good for the textbook private equity model of using massive debt to buy up companies, asset stripping, and increasing margins. Why? Debtors escape the real value of their obligations and real wages are quickly eroded. Fed's got your back. The idea that inflation helps the poor is complete and total hogwash. As we have seen over the past two years, nominal wages go up but not enough to cover the higher cost of living.

Is this about heroin or ZIRP?

The litmus test for giving government power that could be irreversible is NOT what you think of those currently in power when you like them. It’s what your worst enemies would do with the same power because eventually they’ll gain access to it. #CBDC If you’re progressive, imagine what Trump or DeSantis would do with CBDCs.

If you’re a conservative, imagine what Biden, Harris, or Newsom would do with CBDCs.

It’s not difficult to think these scenarios through. You must be ok with your political enemies having the power.

“When the ac­qui­si­tion closed, I would say it was anal­o­gous to be­ing tele­ported to a plane that was plung­ing to the ground with its en­gines on fire [and] the con­trols don’t work.”

— Elon Musk (aka Bizarro World Buffett)

wsj.com/articles/elon-… But he’s probably right about this:

“Over a 20- to 30-year time frame, I think things will be trans­formed be­yond be­lief,” Musk said. “You prob­a­bly won’t rec­og­nize so­ci­ety in 30 years.”

I have no problem tipping 20%, but the deal is that it is in exchange for doing something beyond handing over a coffee or snack over a counter. Espresso drink? Sure. Drip coffee? No. Bagel with cream cheese? Sure. Handing over a plain, uncut bagel? No.
wsj.com/articles/why-t… I used to tip 15% with 20% for excellent service. During Covid, I bumped it up to 20-25% and that’s fine. It doesn’t make a difference to me and makes a difference to the server. But I am tired of the shakedowns for handing something over a counter.

I have no sympathy for companies caught up in the “culture wars” or shareholders who allow this to happen. Allowing pressure groups with agendas and no skin in the game to infiltrate the boardroom has consequences. These companies are playing a losing hand. They go too far on one side, creating an enormous backlash they cannot ignore. Then they walk back partially, pissing off the pressure groups that prompted the initial decision and failing to placate the other side. Talk about a stupid lose-lose proposition. Everyone hates you.

You have a choice between having a net worth of $10 million and being completely unknown or $1 billion and being a celebrity who is recognized in public more often than not.

Which do you prefer? The answer to the poll depends on whether you’d have any need or desire to spend more than the enormous sum of $300K every year in perpetuity. If not, the answer is easy. If so, is the reduction of privacy worth it.

As a teenager, Henry Ford loved to tinker with watches. He took apart watches and put them back together to see how they work and how they could be modified and improved. He was fascinated with machines and disliked the manual drudgery of the family farm.

Ford soon turned his… twitter.com/i/web/status/1… While working as a machinist in Detroit, Ford obsessively pursued his study of engines and built his first car in 1892. He built several experimental vehicles in his garage during the 1890s.

Automobiles were not mass market products at the time. Far too expensive for the middle… twitter.com/i/web/status/1…