Whitney Tilson In his email discusses favorite Mungerisms; 4 stories by Roddy Boyd; Bezos prime; the last days of Target Canada; and what happened when venture capitalists took over the golden state warriors.
Whitney Tilson – Favorite Munger quotes
1) I recently pulled together a collection of my favorite Munger quotes for a presentation I’m giving. Enjoy!
- The more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be…So the game is to keep learning.
- What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience – both vicarious and direct – on this latticework of models.
- Most people are trained in one model and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.
- Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. If you took our top 15 decisions out, we’d have a pretty average record.
- As Jesse Livermore said, “The big money is not in the buying and selling…but in the waiting.”
- There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts.
- All I want to know is where I’m going to die, so I’ll never go there.
- No wise pilot, no matter how great his talent and experience, fails to use his checklist.
- In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.
- We have never given a damn whether any quarter’s earnings were up or down. We prefer profits to losses, obviously, but we’re not willing to manipulate in any way just to make some quarter look a little better.
- To say accounting for derivatives in America is a sewer is an insult to sewage.
- We think there should be a huge area between what you’re willing to do and what you can do without significant risk of suffering criminal penalty or causing losses. We believe you shouldn’t go anywhere near that line.
- Our approach has worked for us. Look at the fun we, our managers, and our shareholders are having. More people should copy us. It’s not difficult, but it looks difficult because it’s unconventional.
- If you rise in life, you have to behave in a certain way. You can go to a strip club if you’re a beer-swilling sand shoveler, but if you’re the Bishop of Boston, you shouldn’t go.
- Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day, if you live long enough, most people get what they deserve.
Whitney Tilson – Articles by Roddy Boyd
2) Roddy Boyd of the Southern Investigative Reporting Foundation with four good stories:
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
- This enterprise piece takes us back to the bad old days of March, 2008 and Bear Stearns’ collapse. SIRF, through independent reporter Teri Buhl, obtained a just-unsealed lawsuit, emails and dozens of other exhibits from Bruce Sherman’s litigation against Bear Stearns and its former senior management. Suffice to say, the concept of Bear having been done in by a run on the bank is finished for now; the firm was dying for a longtime and its senior management knew it…and did nothing. http://sirf-online.org/2016/03/31/bear-stearns-and-the-bodyguard-of-lies
- A story looking at the shareholder abuses possible from disregard of cunningly crafted related party dealings. In this case, re $GMED, the founders walked away with a cool $68mm. http://sirf-online.org/2016/03/22/globus-medicals-inside-job/
- Two weeks ago SIRF put out a deeply reported investigation about the abusive accounting and risks in Diamond Resorts, $DRII. It turns out that just owning a time share company can be deadly. http://sirf-online.org/2016/03/07/27464/
- The Cost of Standing In the Gap http://sirf-online.org/2016/03/13/the-cost-of-standing-in-the-gap/
Whitney Tilson – A profile of Jeff Bezos
3) Fortune’s Adam Lashinsky with a profile of Jeff Bezos:
It’s an unexpectedly sunny mid-March morning in Seattle, and Bezos’s disposition is even sunnier. Who can blame him? Amazon’s AMZN 2.34% market value is $260 billion, with Bezos’s stake worth $46 billion. Bigness hasn’t sapped its growth: Sales jumped 20%, to $107 billion, last year, and Amazon surprised investors with operating profits of $2.2 billion, a 12-fold increase from 2014. The Post, a declining icon before Bezos bought it for $250 million in 2013, is bubbling with new ideas. Even Blue Origin, the secretive rocket-ship company Bezos funds out of his own pocket, is enjoying a moment of prominence, having promised to blast off with space tourists in a few years.
To say all this leaves Bezos energized would be an understatement. Dressed in jeans and a checkered shirt, sleeves rolled up to the elbows, the notoriously intense CEO is the picture of contentment. He’s deploying his trademark cackle—the auditory equivalent of Steve Jobs’ signature black turtleneck—liberally. Says Bezos: “I dance into the office every morning.”
He’s got every reason to cha-cha. More has gone right for Bezos lately than perhaps at any other time during his two-decade run in the public eye. His company is expanding internationally and spreading its hydra-headed product and service offerings in unexpected new directions. Bezos, too, is evolving. Always a fierce competitor and stern taskmaster, he has begun to show another side. With the Post, he’s taken a seat at the civic-leadership table. And with his various projects Bezos is also becoming known as a visionary on topics beyond dreaming up new ways to gut the profit margins of Amazon’s many foes.
Bezos is preternaturally consistent. He still preaches customer focus and long-term thinking. Yet of necessity, as Amazon has become massive—and as he has indulged his eclectic and time-consuming pursuits—he has become the sort of leader who empowers others. “He was at the center of everything at the beginning. The leadership was Jeff Bezos,” says Patty Stonesifer, the former Microsoft MSFT 0.44% executive and Bill & Melinda Gates Foundation CEO who has been on Amazon’s board for 19 years. “Today it’s not a hub-and-spoke connecting to him. He has become a great leader of leaders.” Indeed, his evolution portends dramatic repercussions far and wide: The possibilities of a less tethered Jeff Bezos are equal parts exciting (imagine what he’ll do) and terrifying (pity whom he’ll crush).
Whitney Tilson – The last days of Target Canada
4) What a fascinating case study of a great company, Target, absolutely falling on its face expanding into Canada, blowing $7 billion!
It was Mark Schindele who took over as head of Target Canada. He was a 15-year company veteran and previously served as a senior vice-president of merchandising operations in Minneapolis. At one point, Target Canada had printed a weekly flyer in which nearly every single item featured on the front cover was out of stock, a situation that would have been unheard of in Minneapolis. When Schindele learned of it, according to a former employee, he remarked, “I can’t believe it’s as bad as it actually is.”
A new crop of senior leaders arrived from U.S. HQ with Schindele, replacing some of the exhausted execs who handled the launch. The biggest difference between the two groups was attitude: The new team had energy. Decisions were made faster as well. Under Fisher, the company had trouble making tough calls. “We had so much faith we could solve any problem. If we just work a little harder, we’ll get to the resolution,” says a former employee. “But then the thing in front of you explodes.” For example, inventory started piling up in Target’s distribution centres again in early 2014, and it became clear the company needed to rent additional storage sites. Discussions dragged on for months. The new leadership, however, quickly implemented a plan to rent more space.
Schindele brought increased focus to the company too. He prioritized what he called “mom’s shopping list,” which consisted of basic household items such as toilet paper, toothpaste and detergent. Employees at all points along the supply chain were to ensure those items made it to stores and stayed in stock. Those particular products were important because Target Canada needed to change people’s shopping habits and lure them away from Shoppers Drug Mart and Loblaws. But it didn’t stand a chance if it couldn’t offer the basics that bring people back to stores. Even so, the company planned to reduce its emphasis on groceries. Target used groceries as a traffic driver in the U.S. and attempted to replicate that strategy here, failing to fully realize how competitive the category is in Canada. To further differentiate from other retailers, Schindele wanted to promote apparel and accessories, emphasizing Target’s “cheap chic” image, in direct contrast to Walmart. A massive product revamp was planned for the fall.
…A small group of employees also made an alarming discovery that helped explain why certain items appeared to be in stock at headquarters but were actually missing from stores. Within the chain’s replenishment system was a feature that notified the distribution centres to ship more product when a store runs out. Some of the business analysts responsible for this function, however, were turning it off—purposely. Business analysts (who were young and fresh out of school, remember) were judged based on the percentage of their products that were in stock at any given time, and a low percentage would result in a phone call from a vice-president demanding an explanation. But by flipping the auto-replenishment switch off, the system wouldn’t report an item as out of stock, so the analyst’s numbers would look good on paper. “They figured out how to game the system,” says a former employee. “They didn’t want to get in trouble and they didn’t really understand the implications.” Two people involved in the discovery allow that human error may have been a component, too. Like SAP, the replenishment software was brand new to Target, and the company didn’t fully understand how to use it. When Schindele was told of the problem, he ordered the function to be fully activated, which revealed for the first time the company’s pitifully low in-stock percentages. From there, a team built a tool that reported when the system was turned on or off, and determined whether there was a legitimate reason for it to be turned off, such as if the item was seasonal. Access to the controls was taken away from the analysts, depending on the product.
Whitney Tilson – What Happened When Venture Capitalists Took Over the Golden State Warriors
5) An interesting article from the NYT Magazine, What Happened When Venture Capitalists Took Over the Golden State Warriors:
Silicon Valley — the place itself, but also the society of smart, technologically savvy people who surround it — is full of basketball fans. Many of them made a lot of money in their 30s and 40s. Now in their 50s, they’re looking for something gratifying to do with it. In 2002, Wyc Grousbeck, a principal at Highland Capital Partners who spent two years at Stanford’s business school, bought the Boston Celtics along with a group of investors that included Lacob. In recent years, venture capitalists, private-equity investors and hedge-funders have been acquiring N.B.A. teams. The Detroit Pistons, Milwaukee Bucks, Philadelphia 76ers and Atlanta Hawks all belong to this new class of investor. The Sacramento Kings and the Memphis Grizzlies are both owned by Silicon Valley engineers. If you include Lacob’s Warriors, that’s more than a quarter of the league.
Lacob was not the first venture capitalist to buy a franchise, but he is the first to operate one according to what might be called Silicon Valley precepts: nimble management, open communication, integrating the wisdom of outside advisers and continuous re-evaluation of what companies do and how they do it. None of that typically happens in professional sports. Most franchise owners of previous generations became wealthy mastering businesses that did one specific thing, if only because that was the way that people used to become wealthy in America. They’ve run their teams, for better or worse, in the same autocratic, hidebound fashion that they ran those companies. As a manager, Lacob prefers to surround himself with expertise and exploit it.
This season, Lacob’s sixth as majority owner, the Warriors are on pace to break the league record of 72 wins in a season (which is just 82 games long). He and his partners bought a team that already had Stephen Curry, Golden State’s best player and a transcendent talent who is having one of the most dominant seasons in league history. He would be hitting tongue-flick jump shots from 30 feet away from the basket no matter who owned it.
But Lacob won’t accept that what the Warriors have achieved is a product of anything but a master plan. “The great, great venture capitalists who built company after company, that’s not an accident,” he said. “And none of this is an accident, either.”
After the pickup game, Lacob pulled on a sweatshirt and went to breakfast at a cafeteria on the ground floor. He goes there so often that one of the smoothies on the menu, involving orange juice, vanilla yogurt, bananas and strawberries, has been named for him. He pointed this out, then ordered one. When I asked him about the previous night’s game, he could hardly contain himself. He boasted that the Warriors are playing in a far more sophisticated fashion than the rest of the league. “We’ve crushed them on the basketball court, and we’re going to for years because of the way we’ve built this team,” he said. But what really set the franchise apart, he said, was the way it operated as a business. “We’re light-years ahead of probably every other team in structure, in planning, in how we’re going to go about things,” he said. “We’re going to be a handful for the rest of the N.B.A. to deal with for a long time.”