Floats And Moats
I am going to talk about two different ideas. Floats. And Moats.
Over the last few months, I have been obsessed by these two ideas.
I have spent a lot of time researching them and thinking about them and also about they might be related. It’s been a fascinating journey so far.
This talk is the story of that journey.
The story starts in 1964. Warren Buffett is a young, dynamic investment manager. He makes his first big bet. Between 1964 and 1966, he buys 5% of American Express. That’s 40% of his assets under management. And Amex is embroiled in a scandal involving of things, salad oil.
This guy can’t get credit from a bank because he is a convicted fraudster. So he comes up with a neat plan. Amex is a prosperous company with a stellar reputation. It also has a subsidiary which owns and rents warehouses.
Don’t ask why in the world is Amex in the warehousing business. Anyway, Antonio De Angelis goes to Amex warehouse and deposits tank loads of sea water. Except that he tells the warehouse that those tanks contain salad oil. No one checks out this guy or the tanks. I guess there were issues with KYC even back in 1964.
The warehouse takes the sea water and issues a warehouse receipt certifying that it has in storage a large amount of vegetable oil. The receipt carries the name of American Express, which is a name that stands for trust. An elated De Angelis takes the warehouse receipt to a bank and ofers it as collateral and gets a loan, whereupon he goes gambling in futures and options. As you’d expect, he loses, and promptly goes bankrupt.
Now the bank has a warehouse receipt as collateral on what it thinks is valuable salad oil, except that it’s sea water.