I Will Be Re-Opening Selected Posts from the Private Archives
I have decided that one of my personal projects is going to be revisiting the thousands of posts we put into the private archive prior to launching our asset management firm, Kennon-Green & Co.®, and, to the extent reasonably possible, release them back to the public blog if we feel they might be useful from an academic, entertainment, and/or historical perspective. Some of these may contain what we consider to be non-material edits for clarity, formatting, and/or privacy, such as fixing some outdated links, increasing image resolution due to improvements in broadband over subsequent years that make a high-resolution reading experience possible, and removing pictures of family members if they were originally included in the post, but the content is essentially identical. In some situations, particularly if a post has been requested and I am making access to it available as a courtesy, if I feel a post is largely salvageable but contains passages that I am not comfortable with due to our careers in fiduciary asset management, I may edit, clarify, delete, or expand upon a passage to the extent I feel it is acceptable for republication. For example, I may include hedging language that was not necessary years before we opened our proverbial doors to allow other families to invest alongside our own (and deal with the extensive Federal and state regulation that goes along with those responsibilities). Note that the sheer volume of content may make this impossible and I am not under any obligation to do so. The goal is to get as much of this work back in your hands as possible given how much many of you have told me it means to you.
Thus, on that note, although this is plainly obvious and goes without saying, and there is a passage explaining it in our regulatory filings, I’ll say it, anyway: these posts and any related comments were never intended to be, and should not be construed as, investment advice. When they were originally written, we were not in the fiduciary investment advisory business and were still living as semi-retired private investors with a collection of privately-owned companies. Additionally, conditions may have changed, more complete information may have become available, and I, and/or Aaron, may no longer hold the same opinions we did at the time these posts were originally published. Do not rely upon them. Do not assume they reflect our current thinking. This is solely an accommodation – a gift – to those of you who have been (gently) pushing me to make them available, again, including by telephone, e-mail, and in person. Note that I’ve been trying to close the comments on each of the archived posts that deal primarily with finance-related themes though I’m not settled on what that may ultimately look like or how far-reaching that decision may be.
I have no idea how long it will take to go through the thousands of posts that are in the private archive, or even what percentage of them we will decide to give the green light to once again make available to the public blog. For example, pictures of our family holidays are not going to be salvageable due to privacy concerns, meaning they must remain hidden. Suffice it to say that this could take months or years. This project is low priority for me compared to my work at the firm, or even sitting on the beach with a good book. It will happen when it happens. Furthermore, the process will be somewhat random. I might pick a category in the administration panel and start working my way down, going for the easy, low-hanging fruit first.
To make it simple to follow the progress, I am starting this directory, which will link to posts that should now be visible publicly. It will be updated from time-to-time so please check back for further updates. Note that word counts are approximate and do not include text that are part of graphics or photographs.
Progress So Far
Click on Each Group to Expand and Find Links
8 Posts Re-Opened from the Private Archives on May 5, 2019 – 8,737 words
- The Power of Marketing – A post that discussed a then-recent experience involving my four-year-old nephew, which made me appreciate how powerful marketing is in motivating consumer behavior. Originally published July 8, 2015. 389 words.
- An Accounting Homework Assignment for Those of You Who Want to Learn to Analyze Businesses – A post that discussed equity dilution experienced by shareholders of McCormick & Company. Originally published April 7, 2015. 1,865 words.
- Mail Bag: How to Read Large Numbers on Financial Statements – A college student wrote asking a question involving a conflict he had with one of his professors regarding how to interpret numbers in an annual report. The student was right. The professor was wrong. Originally published March 12, 2015. 525 words.
- The Standard Life Insurance Demutualization (Or How 72,000 Former Policyholders in the United Kingdom Are About to Forfeit £113,000,000 in Unclaimed Stock and Cash) – This post was an opportunity to explain a real-world example of a concept known as demutualization, through which policyholders of an insurer receive stock certificates in a new for-profit corporation. Originally published October 15, 2014. 926 words.
- Economic Reality Isn’t Always Reflected on Your Account Statements – It is a common mistake for inexperienced investors to look at the realized or unrealized gains or losses reported by their broker, using it as a proxy for economic reality. Total return, particularly on an after-tax basis, can be wildly different. Here is one real-world illustration of how the difference may arise. Originally published July 17, 2014. 1,428 words.
- Dealing with Business Rejection, the McDonald’s Franchise Disclosure Document, and a $114 Million Coffee Fortune – From time to time, I get messages from business owners or entrepreneurs who are discouraged and upset. Their family, friends, colleagues, bank officers, or suppliers don’t believe in what they are trying to do and they take it personally. The afternoon I wrote this post, I sat in a McDonald’s restaurant having coffee and found myself revisiting an excellent book called McDonald’s Behind the Arches that details the historical rise of one of the world’s largest real estate portfolio masquerading as a hamburger chain. It reminded me of a story I first read back in college that I think has a lot of powerful lessons. Originally published July 21, 2014. 1,175 words.
- An $8,000,000 Investment Mistake of Omission – Often your best investment opportunities are staring you right in the face based on situational knowledge you have due to your physical location, career, or network; things that other consumers and capital allocators don’t, yet, realize. In my own family, it’s easy to think of one such mistake of omission – failing to buy something that was plainly obvious given unique information and personal experience – that cost at least $8,000,000 in foregone wealth as of the original publication date. Originally published April 16, 2014. 2,053 words.
- How John Maynard Keynes Beat the Stock Market by 8% Points Per Year Between 1921-1946 – The Journal of Economic Perspectives: Vol. 27 No. 3 (Summer 2013) has a wonderful piece on the investment record of John Maynard Keynes, who managed to beat the market by an average of 8 percent per year from 1921 through 1946 by focusing on long-term, high quality dividend-paying stocks as well as smaller enterprises that had room to grow. When he died in his early sixties, Keynes had achieved the rank of one of the richest economists in history, amassing a fortune equal to $30,000,000 today. Originally published February 17, 2014. 376 words.
17 Posts Re-Opened from the Private Archives on May 6, 2019 – 24,064 words
Based on the comments, there has been a request that I look at certain, specific archived posts and consider re-releasing them from the private archive. I have done this for you and you will see this section updated throughout the day as the changes go live. However, there was a trade-off: some of these posts required edits, a few material, for me to be comfortable with them being publicly-available, again. For example, there were passages that I re-worded from what sounded like future tense to past tense to clarify that I was not making stock price predictions or guarantees, which I never do and never have done – you know I place a heavy emphasis on explaining how one should think probabilistically and attempt to build a portfolio that can withstand most adverse developments that, inevitably, will arise. In some cases, there were somewhat tertiary asides that I removed for multiple reasons. One illustration: there was a passage I deleted in which I criticized, rather harshly, the valuation multiple equity investors of several companies were willing to pay. Those particular equities now exist on the equity book at Kennon-Green & Co., at least in some accounts, for multiple reasons, some of which involve changing facts, interpretation of those facts, changes in those valuation multiples, and/or client-specific factors. Had you not requested access to these old posts, I probably would not have allowed them through because I didn’t want a disconnect between what we were actually willing to do, or hold, in our professional life on the date of re-release from the archives and what I said on the date of the original post in our private life on my personal blog before the firm existed. That is the compromise I am willing to make or else they will need to be made private, again. I hope you find that both fair and reasonable.
Also, please note that some of these posts will likely not be made here in the future as they were part of the blogs then-community rituals. For example, I’m probably never going to write another Nestlé dividend day posts. If I want to discuss Nestlé, it will mostly happen through any future private client letters at Kennon-Green & Co., not my private blog, since I want to keep my personal hobby writing and professional work separate.
- Nestlé Dividend Day 2016 – This post was one of our regular discussions of Nestlé as an instructive academic case study in investor psychology and long-term returns. It followed the end of the company’s fiscal year 2015. Originally published May 20, 2016. 1,269 words.
- Nestlé Dividend Day 2014 – This was one of the posts when the community would discuss the Swiss food giant distributing its dividend once per year following the end of its fiscal year 2013. Originally published May 29, 2014. 685 words.
- It’s a Hyper-Focused Project Day Today – This was one of my daily journal blog posts where I talked about what we were doing and I was excited about a new brokerage statement format we were using in our family portfolio as well as the fact one of the rose varieties we had grown – the Dick Clark Rose – was producing enough flowers to provide cuttings for my desk. Posts like this originally were thrown into the private archive because we didn’t have time to review them when we were launching the asset management business and a quick search showed we had mentioned some company names in them. For example, this was a few years after the Great Recession, when our personal household had done well with shares of General Electric; a stake with which we have long since parted and that worked out satisfactorily for us due to the low cost basis we enjoyed. I’ve written online long enough to know that when you publish something on the Internet, even if 99% of people are well-reasoned and sane, a small percentage of people who stumble across an article are either nuts, lazy, or stupid (to put it mildly). I once had a college student write me, berating me about a post I wrote at Investing for Beginners during my time with that network, explaining that I was clearly a moron since I assumed mortgage rates were something like 6% in all of the examples, which, he argued, wasn’t reflective of the real world. Only, he never bothered to check the date on the post because it was written during the economic meltdown when rates were nearly cut in half and the post he was reading had been published at the tail-end of the dot-com boom roughly a decade prior when he was still in elementary school. Or something like that. It’s been a long time. To the extent possible, I try to avoid situations like that but I’m not going to hold back older content like this for the rare percentage of folks who don’t seem to realize time goes on and the Internet is not like a newspaper – what you find one day may have been published twenty years prior or it may have been re-edited yesterday. That’s the challenge of digital content. This should be common sense. Originally published August 21, 2013. 1,039 words.
- I Can’t Seem to Stop Myself from Buying Nestlé – Many years ago, I wrote this post explaining why I was buying more shares of the chocolate and packaged food company. It provides insight into my thought process; how I sometimes found it wise to buy shares of slower growing, more stable blue chip companies as part of an overall portfolio with these companies serving as economic oak trees. Originally published July 24, 2013. 1,109 words.
- I’m Building a Ghost Ship Portfolio for Someone; A Sort of Index Fund on Steroids – As with others posts released from the private archives today, this one was by request. It involved building a passive portfolio for someone back in our private investor days, modeled on the concept of a ghost ship portfolio and a legendary fund that was then-called the ING Corporate Leaders Trust (but has subsequently changed names). Originally published December 5, 2014. 1,910 words.
- November Is for Buying More Nestlé Shares – This post, which, to repeat myself ad nauseum, was not and is not investment advice (I am not sharing my current estimate of intrinsic value nor whether we are buying, selling, or holding the stock), was written many years ago before we started our asset management firm and detailed some of the reasons Aaron and I were so willing to buy more shares of Nestle at then-prices based upon what we saw as risk-adjusted return probabilities. It should be read with the clearly intended qualification, “… for members of the Kennon-Green family”. It was a serious topic discussed in a light-hearted manner, as you can probably tell from the meme-like drawings. It is part of the Nestle posts I’m bringing back by request (see comments). Originally published November 12, 2014. 1,916 words.
- We All Won the Lottery (Yet People Still Think the World Is Going to Hell) – This was a post I once wrote after looking around at a grocery store and realizing we were living at the apex of a great civilization. The stock market was booming, the economy was expanding … it led to Aaron and I to realize we were doing so well that it made no sense to continue taking certain risks. We completely deleveraged our balance sheet at that time with the exception of a small mortgage that was at a rock-bottom rate (3.75%), shifting our risk profile in a counter-cyclical way. It provides some insight into how we think about risk and protecting wealth. It also provided a good counter-example to the posts I had been writing back in 2008 and 2009 at About.com, screaming about how great the bargains in common stocks were. Counter-cyclical behavior can make a lot of sense in certain circumstances, particularly for value investors. Originally published November 3, 2014. 1,069 word count.
- Reading the Johnson & Johnson Annual Report to Stockholders – The experience of Johnson & Johnson owners over the decade prior to when this post was written was informative in understanding the role valuation and growth plays in determining total return outcome. Let’s take a closer look. Originally published March 29, 2011. 1,503 word count.
- An Overview of How I Research Stocks – This was a trip down memory lane! I wrote it after some members of the community had asked me to explain how I researched stocks – specifically, where I looked for investment ideas, which data sets I used, and how I found potential holdings for the portfolios I manage for my household and businesses. While the core of the process is still similar, if I were to write such a piece today, it’d be significantly different. For example, now that Aaron and I are no longer private investors, but, instead, the managing directors of a global asset management company, we have institutional subscriptions that allow us to program valuation models to screen the entire market capitalization of the known world and produce “idea” lists, exportable into a spreadsheet, offering added efficiency. Accounting rule changes, and some other considerations, have changed what we would be looking for compared to such an old post – e.g., the accounting standards board has essentially made reported net worth almost useless as a proxy for “real” earnings if and when a company owns shares of publicly traded assets to the point it is, in my opinion, professional malpractice – but the core of our approach is the same. Originally published October 13, 2012. 2,736 words.
- Finding a List of Stocks for Your Portfolio – As with the earlier post, it is really interesting to see how our research process has evolved in the many years that have passed since this was first published. Originally published January 30, 2011. 1,194 words.
- My Day In Pictures – Sunday, October 17th, 2010 – I remember this day! This is from the period when it was mostly just updates about what was happening so Aunt Donna could keep track of us. I needed to write more content on About.com as part of my contract and this was back during the period where the network was owned by The New York Times and, because their newsroom profits were collapsing and the digital division was keeping the proverbial lights on, we were required to disclose that to give a dot-com halo effect to the NYT brand anytime About.com was mentioned. I mean it – they quite literally made me, along with hundreds of other writers on the network, revisit our past content and add, “About.com, a division of The New York Times” to everything. It was so much work. Then, I ended up outside that afternoon reading tear sheets searching for stocks in the wreckage that was the stock market. It was a brutal time for a lot of the country yet Aaron and I were doing better than ever. We had taken advantage of the situation and bought the house the year prior, kept expanding our online businesses … man this was so long ago. Originally published October 17, 2010. 139 words.
- Our Value Investing Research Process for Stocks – Again, this is wild to me to revisit. It was published almost a decade ago. I had apparently just bought 500 share of a business called Sonic (a Midwestern drive-in fast food chain that was bought out last year and is now part of the company which owns Arby’s and Buffalo Wild Wings). To give you an idea as to a source of my frustration – an issue that I even covered in our asset management firm’s regulatory filings even though it wasn’t necessary – I mentioned in this post that I had written an article at About.com the week prior. Yet, if you follow that link, About.com’s successor, The Balance, shows the article live on their servers only it has an “Updated April 07, 2017” date. That’s going to make a hell of a difference in understanding the context of that article – as I just mentioned, Sonic isn’t even a stand-alone publicly-traded company anymore! – yet there is little I can do about the technological limitations of the entity that now holds the licensing rights to that piece. In fact, any time one of the freelancers they hire to edit my content now that I’m no longer writing for the network edits one of my old pieces, that date changes and doesn’t even list the name of the person who edited it while still displaying my name. This means they could change the content in ways with which I vehemently disagree, or believe to be outright incorrect, and it appear as if I wrote it. It was this sort of thing was partly behind my serious contemplation of scrubbing our entire digital body of work, especially after the firm crossed $50 million in assets under management. The only reason I reversed course was people contacting me years later – literally calling me at work – asking for specific pieces that had helped them, which made me re-evaluate the utility some of these older pieces had for people. This piece also references the GE stock that we had bought personally back during the Great Recession, paying far lower prices that we subsequently sold entirely for a highly satisfactory profit. Given GE’s recent troubles, if someone were to see that without realizing how old the post is, it would sound strange. We are not buying GE shares right now. People are going to have to pay attention to post publication dates. Our process today is different from this, as I’ve mentioned. But this is what it was at the time. I cleaned up some of the formatting and gave it a newly-licensed header image so it worked with the blog’s template. Originally published March 8, 2010. 947 words.
- Aaron and I Divested Mount Olympus Awards, LLC – This was the announcement I posted after Aaron and I had sold our ownership of Mount Olympus Awards, the letterman jacket retailer. it included a few, brief reflections on our experience with the company. Originally published November 8, 2017. 817 words.
- Tiffany & Co.’s Valuation – A Five-Year Re-Examination of the Nation’s Premier Jewelry Store – This is one of my favorite posts I ever wrote not because of my affinity for the company but because it demonstrates how we think about the stock market in general: that, ultimately, and speaking broadly absent rare exceptions, it is the performance of the underlying company that drives the economic experience of owners. Originally published January 17, 2016. 2,638 words.
- The Valuation on Tiffany & Company Common Stock Continues to Perplex Me – This was published eight years ago, and five years prior to the post immediate above (see #14). At the time, I felt Tiffany & Co. shares were being overvalued by investors in the market and laid out a quick back-of-the-envelope analysis as the reasons I felt new purchasers were not receiving the full measure of their dollar when outlaying capital. Originally published May 26, 2011. 753 words.
- How to Manage Your Cash Using The Central Collection & Disbursement Account Method – This is being restored because so many of you have requested it, including via private e-mail, telephone, and in person. If I were to write it today, it’d be a bit different as things have changed since our early e-commerce / private entrepreneur days. Over the past few years, Aaron and I have developed some perfections to the system, including introducing what we call the Strategic Liquidity Reserves, or SLRs. I don’t want to get into them right now but they, along with some asset protection and security measures, are now features I’d bolt on to any good CCDA system. We also routinely have dividends retained within the account that receives the dividends at a global custodian for various reasons rather than paying out to our CCDA but, again, that’s a future discussion as I plan on someday writing about revocable trusts, etc. Originally published March 1, 2012. 2,515 words.
- Hamilton: An American Musical About Self-Study, Obsessive Reading, Taxation Policy, and Hustling for What You Want In Life – A post I wrote about Alexander Hamilton at the time the musical was becoming popular. This was one of the ones requested in the comment section so I’m bringing it back from the private archives. Originally published September 28, 2015. 1,825 words.
9 Posts Re-Opened from the Private Archives on May 7, 2019 – 10,281 words
- Castlevania: Lords of Shadow Illustrates Why Nintendo Is In Trouble – I’m working my way through old video game related posts due to a request to republish something left in the comments. This piece detailed my thoughts on why I thought Nintendo was experiencing the troubles it faced at the time – namely, that they needed to do things like develop The Legend of Zelda into a Skyrim open-world system. It’s fascinating to see they have done just that all these years later. Originally published December 12, 2011. 400 words.
- I’m Working My Way Through the 6th Edition of Security Analysis – I enjoyed finding this one (which came up because of the search for the word “Nintendo” I was performing (explained in previous item #1). One really interesting thing is that it mentions Graham talking about three businesses: Coca-Cola, Abbott Laboratories, and General Electric. Even with GE’s recent troubles (and even worse, let’s assume a catastrophic outcome as imagine it were to go bankrupt), a portfolio built from those three stocks back in 1940 would have done extraordinarily well. In addition to your purchase price being paid back many, many times in the form of cash dividends, you’d actually own quite a few more companies due to spin-offs, mergers, buy outs, etc. In some cases, it would have depending upon what you did with it; e.g., in cases of split-offs, as opposed to spin-offs, you had to make a choice, which is how the GE breakup with Synchrony was structured. Originally published March 23, 2014. 902 words.
- I Captured a Metroid – This was a post involving a Pixel Art Metroid we received as a gift from my youngest sister. However, most of the text of the post involved discussing how Nintendo stock in Tokyo was, at that time, a 1934-style Benjamin Graham deep value play due to the fact that there was so much cash on the books of the video game company that an owner was essentially getting the operating business and intellectual rights to Mario, Zelda, Metroid, Donkey Kong, etc. for free. The stock has nearly quadrupled since then, plus there were dividends paid, in no small part thanks to the Nintendo Switch. Originally published March 17, 2014. 503 words.
- A Handful of Rare Businesses Enjoy Annuity Streams That Can Generate Cash for Decades – This was an old post in which I discussed the power of certain types of businesses to create what amounted to economic annuity streams, using Disney and Nintendo as illustrative case studies. Charlie Munger has talked about these types of enterprises, Disney in particular, pointing out that they are akin to oil companies that can keep pumping oil out of the ground in never-ending supply if they manage it intelligently. Originally published December 3, 2013. 1,474 word count.
- Building a $250,000 Coca-Cola Portfolio By 35 Through the Coca-Cola Direct Stock Purchase Plan – Another one that was requested, and we’re reaching really far back in the archives here! When I was in my 20s, I was trying the new Coca-Cola Freestyle machine with Aaron. I began running calculations, trying to answer a fun academic question as to what it would take for one of my family members to have $250,000 worth of Coke stock by the time they were 35 given that they had already been gifted $7,000 or $8,000 in shares and they had another 19 years until reaching that milestone. I then used this to run all sorts of hypothetical scenarios about what might happen under certain conditions. In the real world, of course, an intelligent person would not have all of his or her net worth invested in a single company like this absent extraordinary circumstances. The point was not Coke. It, like any business, could someday find itself in bankruptcy even if it is not something that seems remotely probable at the moment, present known factors considered. Rather, the thought process is what counts – getting your hands on productive assets, planting them like trees, and letting them bear fruit for you down the road. Originally published September 30, 2011. 2,492 words.
- Sometimes, I Feel Like I Live in Oakfield from Fable II (or “The Utility of Home Ownership”) – Another one from way back in the archives, this was a couple of years after Aaron and I bought our first home. As with most things given my passion for business and investing, it ended up becoming a discussion on the value of stocks. Originally published June 30, 2011. 546 words.
- The Mathematics of Diversification and Wealth Building – I wrote this roughly in conjunction with a piece I was writing at my old Investing for Beginners site because I was astonished at all of the data I was seeing which showed only relatively small minority of American households owned any stocks outright and those that did tended to concentrate in one, two, or three positions. The mathematical proposition of diversification is often misunderstood so I wanted to highlight what I believed was a better framework for thinking about it. It was one of the few times I decided to dive into a more intermediate topic on a whim and I regretted it almost immediately. I’ve made the point over and over again that, despite their structural flaws, if an inexperienced investor who has no idea what he or she is doing must choose an investment, the safest option is probably an index fund (though subsequent experience and data now makes me believe that even that might be a mistake absent behavioral coaching – the horrific underperformance of index fund investors relative to the performance of their funds is a massive disaster that appears to cost substantially more lost wealth but it is largely ignored due to mistakes of omission being mentally under-weighted in analysis. That is, most people feel worse about losing $1 than they do about turning down an opportunity to make $5 as nuts as that sounds. There is also an interesting discussion in the comments section involving Kraft Foods, which had just received a buyout offer from Heinz. That deal made a good bit of money for my family. I ended up redeploying the special cash dividend into other positions, rather than using it to buy more Kraft Heinz on top of the shares received during the merger. I was optimistic that the deal could end up being good in the long-run – in fact, I still am – I simply don’t trust management any longer. I think they are completely out of touch and refusing to take responsibility for going too far on the cost cutting side. The business itself is still incredible and, frankly, there is a part of me that would still prefer to see it end up a wholly-owned subsidiary of Berkshire Hathaway at this point but I doubt that will happen in the near term. Who knows, though. It will be interesting to watch. If you haven’t, listen to the most recent earnings call and compare it to the SEC filing with which it corresponded. In my entire career, it was one of the only times I felt a combination of contempt and anger. Originally published March 20, 2015. 2,402 words.
- Factor In Your Income Sources When Seeking Diversification – Another posts that is almost a decade old, this piece dealt with a book I once read that posited investors should evaluate their income streams as if they were equities or fixed-income substitutes, then use that information to inform the ultimate asset allocation they employ in their portfolio. Under most situations, I consider that a prudent way to behave and wholeheartedly agree. Originally published September 13, 2010. 853 words.
- The Decluttering and Minimalism Project Is Now Turning Toward My Personal Library – This is another of the requested posts in the comments section. It details how we were applying the minimalism project to our book collection. Years later, I can say the project was mostly a success. A huge percentage, though not all, of our book purchases are now digital. Originally published March 2, 2013. 709 words.
3 Posts Re-Opened from the Private Archives on May 8, 2019 – 2,311 words
- Belgian Waffle Party (or Why The KitchenAid Pro Line Waffle Baker Waffle Maker Is One of Mankind’s Greatest Achievements) – I remember this night clearly. Aaron and I hosted a Belgian waffle party where we made these delicious, fluffy Belgian waffles using one of the greatest pieces of kitchen equipment that, even to this day, we have ever owned. The post in its original form had a picture that included my nephew when he was six months old so I had to remove it for privacy reasons. This doesn’t seem that long ago … time seems to pass more quickly as you grow older. Originally published December 28, 2011. 879 words.
- Winter White Honey Is Among the Best Tasting Honey Varieties in the World – Oh. My. Gosh. After updating this post to include a new video that the company released talking about the honey, I ended up going into the kitchen and grabbing a fraction of a teaspoon to enjoy. It really is one of the best finds we have ever come across in our entire lives. Go to the grocery store and get ordinary, cheap honey and then get a bottle of this and do a side-by-side comparison. It’s like frosting. It really is. I took this post down years ago because I didn’t want to create mass competition for our purchases given the limited supply. We’re fully stocked for the moment, though – you better believe this was one of the first things that was in our new kitchen in Newport Beach when we moved to California – so make a note of it. Originally published May 27, 2013. 584 words.
- I Just Realized My Elementary School Curriculum Committee Was Made Up Of Geniuses – One of the strange realizations I’ve had in adulthood is how much foresight the people who designed the curriculum of the tiny farm town in which I lived had compared to most school districts in the United States. The bizarre range of things we learned – and often, how those lessons were integrated so whatever we were studying in Social Studies was, for example, also covered in our spelling lessons – is truly exceptional now that I have the benefit of hindsight. The lesson for me, in revisiting this, is that it is important to do your job well, to the best of your ability, no matter how low you think the stakes may be. You can change the world, and improve lives, even if you are only responsible for a tiny corner of civilization; that your actions can have profound ripple effects, unleashing tremendous good. Originally published January 29, 2013. 848 words.
The last couple of days have been busy so I haven’t had a chance to restore many posts. I did post something new, though … earlier this week, during one of our lunch breaks at work, Aaron and I tested a Beef Stroganoff recipe.
13 Posts Re-Opened from the Private Archives on May 11-12, 2019 – 15,317 words
- A Real-World Illustration of Correlated Risk Lurking Beneath the Surface – Trying to identify and mitigate correlated risks is one of the most important jobs you have in your personal and professional life. I wrote this post years ago on a whim to point out that there is often a lot of inter-connectedness in assets that seem independent. Another example: imagine your family owned 100% of a small community bank in a county in, say, Texas or Oklahoma in which a disproportionate percentage of the local economy was tied to the health of the oil industry. You should care very much about the price of crude because it has a powerful effect on your deposit base and loan book. Originally published October 25, 2013. 319 words.
- Don’t Let Wall Street Analysts Do All Of Your Thinking For You – This was a trip down memory lane! Back during the aftermath of the financial crisis, I was surveying the previous decade using examples from my own career to illustrate how I thought analyst research could be useful but only if you kept it in its proper place and did not allow the analyst to make the conclusion for you. One of the major reasons I said this, and continue to believe it, is because analysts often face massive career and institutional incentives that cause them to (rather intelligently) realize when someone asks, “Is [XYZ] a good stock to invest in right now?”, they are not asking the right question (which would be, “Do you think owning [XYZ] at a reasonable weight and as part of an intelligently-constructed portfolio is likely to do well over the next ten years, present known factors considered, even if there is enormous volatility in the interim?”) but, rather, a useless, even dangerous questions (which is, “Do you think the stock price of [XYZ] will be higher or lower 3 months / 6 months / 12 months from now?”. No one can predict the stock market. One of the best investments in the history of human civilization – shares of Coca-Cola bought at its IPO in 1919 – promptly dropped 50% in the first few years after it debuted on the stock exchanges due to a conflict with bottlers and some issues with the price of sugar. It’s also interesting going back and reading what the stock prices were at the time. As of the close of the market yesterday, AutoZone is at $1,000.59 per share, while Berkshire Hathaway Class A is at $315,500 per share (the Class B stock is at $209.02 per share). Bank of America is at $29.58 though you would have to include historical dividends in any total return calculation. U.S. Bancorp is at $52.17 and, here, again, you would need to include any historical dividends in a total return calculation. This whole thing is so much simpler when people stop trying to predict stock prices and, instead, focus on paying prices that would make sense to a private buyer willing to acquire 100% of the shares and hold them indefinitely, living off the real operating earnings. Originally published September 8, 2013. 3,649 words.
- This Is the Kind of Business Behavior That Disgusts Me – All these years later, this one still astonishes me. I don’t understand how a business, especially one of this size and in the era of the Internet, could have thought they could get away with this kind of behavior. Aside from being immoral, dishonest, and unethical, it’s so … stupid. Originally published April 26, 2013. 1,074 words.
- The Economic Tragedy of Ed Toman and the McDonald’s Fortune That Could Have Been – I shared what I felt was the moral of this case study in the comment thread of that same post. Namely: 1.) A lot of things in life can result in 10x or 100x the outcome with only 1% more work. The difference between being successful, and changing your life forever, isn’t always a Herculean task. I would argue that even if he, himself, had no interest in the excess money, he could have transferred the patent to a soup kitchen in his home town and used it to feed countless homeless families for decades. It would be like running a marathon and not finishing in the last ten feet. I want people to be aware of when situations like this arise so that they can make an informed decision.; and 2.) The biggest costs in your life are most likely going to be opportunity costs, not explicit costs. To paraphrase several great business leaders, it is the things you didn’t do that have the biggest influence on your scorecard (personal, business, financial, educational, charitable, experiential). It’s the investments you don’t make, the vacations you don’t take, the people you don’t meet that often hold you back far more than mistakes ever could. There are always exceptions, but as a general rule, it works. To paraphrase something Dolly Parton once said, if you can get paid millions instead of thousands, you’re going to do the work, anyway, why not enjoy the extra cash? Originally published April 4, 2013. 677 words.
- A Look at Laugh-O-Gram Films, the Business Walt Disney Bankrupted – People sometimes forget that before he built the empire that was the Walt Disney Company, including his secret family holding company, WED Enterprises, Walt Disney was a cartoonist living in Kansas City, Missouri who drove his first animation studio into the ground and experienced total financial ruin. Disney’s early investor, Thomas Pendergast, came from St. Joseph, Missouri, where Aaron and I lived (about 45 miles north of Kansas City). This was one of those short historical pieces I hoped would remind people that the path to success is not always a smooth, upward slope. Sometimes, you can have major setbacks along the way. The point is to learn from them and keep going. Originally published June 23, 2013. 1,009 words.
- Union Pacific: A Company That Looked Expensive But Was Undervalued – Early this decade, I spent some time studying situations in which an investment that initially looked expensive turned out to be extraordinarily cheap. I could be mis-remembering this but I believe this chapter of research in my past was spurred by the discovery that during the dot-com boom of the 1990s, the cheapest stock an investor could have bought turned out to be Dell Computer at 50x earnings, or a 2% base earnings yield. The subsequent growth in profitability meant the intrinsic value was far in excess of the quoted market price. Investors who took advantage of it not only got rich, but in some cases, obscenely rich. This reinforced what Benjamin Graham used to teach: the investor of today cannot profit from yesterday’s growth so the key is figuring out the cash generating power of the enterprise relative to what you pay for it. That means a company trading at 20x earnings might be a downright bargain compared to one trading at 8x earnings. Originally published February 18, 2013. 1,338 words.
- The Walt Disney Company Adds Lucasfilm To Its Stable of Investments for $4.5 Billion – This one was fascinating to read so long after it was written because you could see the natural evolution of my analysis of the enterprise as Bob Iger continued to transform it. In the penultimate paragraph, I wrote, “The more and more I look at The Walt Disney Company, the more and more I think it needs to be a serious consideration to be brought into the personal and business portfolios I run. Right in front of our eyes, one of the world’s biggest businesses is transforming itself into a powerhouse that the entertainment industry has never seen. It would take a royal screw-up to derail it. It is sitting on a portfolio that is so valuable, it should drown the owners in cash for decades to come, and still have inflation protection built into it due to the fact the sales just keep coming years after the product has been paid for and the actors or animators have cashed their checks.” Here we are, roughly seven years later and, as I posted a couple of weeks ago, not only have we launched an asset management firm with ownership in Disney representing a multi-million dollar stake on the equity book but Aaron and I live twenty miles away from the park and have season passports. I said it in this old post but it is worth repeating (or at least paraphrasing): it is easier for good things to happen in your life if you pay attention to the world around you. Do not sleepwalk through your day. There is likely some opportunity staring you in the face right now; something that is at least worth serious consideration even if it doesn’t make sense to take advantage of it today or even this year. Originally published November 1, 2012. 1,562 words.
- Why Are People Surprised That Savings Bonds Beat Stocks Over the Past 12+ Years? – This post is far more important than many inexperienced investors probably realize. Originally published December 27, 2012. 814 words.
- Focus on Total Return to Manage Your Investments Better – The concept of total return versus change in market value is one of the fundamental aspects of intelligent portfolio management. Too often, the press and average investors focus solely on the realized or unrealized gains or losses on an assets, ignoring cash flows produced by those assets. In some situations, the difference can be material (e.g., there are certain types of “wasting” assets that decrease in value over time but that are expected to produce sufficient cash flows on a time value of money basis to justify the investment losing value or even declining to zero). Originally published December 2, 2012. 1,152 words.
- Trust Funds Aren’t Just for the Rockefellers – During my late twenties, I became somewhat obsessed with studying different trust fund structures and arrangements, wanting to build a base of knowledge about how they might play a role in estate planning, asset protection, and a host of other situations. This was relatively brief, high-level introduction to the concept of trust funds that resulted. Originally published November 17, 2010. 1,064 words.
- The Worst Business Advice I’ve Read In a Long Time – This was an old post that I wrote during a period when I was studying the underlying economics and multi-level marketing systems, trying to decide how I felt about the moral and ethical framework for selling it as a point of entrepreneurship to undercapitalized individuals with little to no business experience. In retrospect, what caught my eye is a comment I left in which I mentioned Apple and an inability for me to comfortably project cash flows out to the year 2018 because by the time 2018 had rolled around, that had most definitely changed. I wrote a response to my old comment so that an addendum is visible, which reads: “On May 12, 2019, I released this post from the private archives. It’s interesting going back and reading the old discussion because by the time 2018 had rolled around, I felt comfortable enough with the changes in Apple’s business model and the competitive landscape to project Apple’s cash flows and estimate its intrinsic value. This is one of the reasons it is important to constantly pay attention to what is happening in the world and to be ready and able to evaluate new information.” What I didn’t say, and is worth discussing sometimes, is there are now businesses that have changed for a variety of reasons – divestitures (including spin-offs and split-offs), mergers, acquisitions, strategy shifts – that have caused me to back away from them because I no longer feel their cash flows can be reasonably projected. All of this matters when thinking about ways to protect capital. Originally published April 24, 2014. 849 words.
- I Forgot How Much I Loathe Don Draper in Mad Men – This is a post that I’m restoring due to a request in the comments. I updated and edited it slightly, including fitting it to the new site template so it displays correctly. Six years later, I sometimes think of this post when I’m in certain situations because it contains a short comment that stands out to me as one of the biggest mistakes of judgment I’ve ever encountered. The purpose of a liberal arts education is to teach you to think – to learn how to extract ideas, understand connections, and see the bigger picture; to step outside of yourself insomuch as that is possible; to get to the great truths and then figure out how to apply them in a way that helps you improve yourself, your family, your community, your nation, and the world. Historically, art, music, literature, architecture, television, film … all of these things have played an important role in that. For example, when I was younger, I made a point to read through the myths and fairy tales of different cultures around the world to try and understand what those stories and narratives could reveal about universal truths across time, cultures, government systems … I remember a teacher once looking at me, criticizing me for wasting my time on what they saw as children’s writings and feeling, like I did for Don Draper in this post, a mix of contempt (and, in this case, pity). This is one of the easiest pieces of low-hanging fruit you can achieve. You can learn something from nearly every situation. Do you know how much money and productivity Aaron and I have accumulated that arose because of lessons we learned in video games? All of it matters. All of it is interconnected. Fictional character analysis can be a life changing and powerful tool. What is truly sad is that this has now become a source of class inequality. If you look at the curriculum programs at the private schools and better universities, they are arming the children of the top 1% with this liberal arts framework; this Charlie Munger find-how-the-web-fits-together-and-learn-to-look-at-the-interconnection. Shakespeare’s King Lear has lessons you that can employ to reduce the chance of disaster in inter-generational succession planning, especially for private family businesses. The Evil Queen in Snow White should be a cautionary tale of not losing your advantages over 99% of the population – wealth, power, beauty – due to jealousy causing you to behave in fundamentally irrational and immoral ways. It. All. Matters. If you can’t see that, you are squandering so much opportunity that could belong to you. That, appropriately enough, is a tragedy. Originally published April 22, 2013. 587 words.
- Mail Bag: Disappearing Blog Posts at About.com – Talk about a trip in the time machine. This one goes back 11 years when all is said and done. It was a mail bag question from 2014 asking me about a blog post I had written over at Investing for Beginners at About.com back on October 9, 2008 during the midst of the economic and stock market collapse. About.com had been removing huge amounts of past content and it, along with innumerable other posts that are lost to the sands of time, were deleted. Thankfully, I was able to recover this post (something that may be all but impossible today as even more time has passed). I’m going to be candid and to the point: reading this makes me somewhat uncomfortable. I was in my early twenties, I knew we were looking at what was likely to be once-in-a-generation pricing, and I basically called people idiots for not buying stocks. I would never do something like that today (especially given that we now run a fiduciary asset management company and I wouldn’t want the professional liability of appearing to offer financial advice which, in this case, it wasn’t due to the fact I was simply a financial author writing an educational site). I point-blank told people I’d be running down to the HR department and maximizing my 401(k) contributions. I … this just makes me uncomfortable. It’s the difference between a young man who is just out of college and enjoying financial independence versus a much wealthier thirty-something year old executive who is about to have kids and now understands the importance of security through obscurity as well as the lack of upside for helping perfect strangers who are probably going to behave in irrational ways and blame you for their mistakes. I really don’t like it. I’ll make an exception because I trust this community, and the original 11-year old piece has been requested many times that it clearly strikes a chord with people, but this is on the edge of my comfort zone. Originally published August 17, 2014 referencing a post originally published on a different site on October 9, 2008. 1,223 words.
It’s been a couple of days but I am back at it again during my coffee breaks and after-hours as this gives me something I can do for five or ten minutes at a time to clear my mind.
38 Posts Re-Opened from the Private Archives on May 14-X, 2019 – 46,056 words
- Creating Huge Wealth With Trust Funds – This is another requested post that I am restoring because it provides an interesting historical snapshot about how I (and, really, Aaron) thought about trust funds and passing on wealth as an inheritance nearly a decade ago. Our thoughts have evolved substantially since that time and this essay no longer reflects how we feel; namely, we plan on leaving far more wealth to our children than we thought when we were in our twenties. Originally published November 20, 2010. 1,941 words.
- New York Federal Reserve President William Dudley Teaches About Inflation Using the iPad … And Makes People Angry – This post is extremely relevant to things happening today that the average American is not noticing. Essentially, economists argue that inflation is not accurately measured. One of the reasons is that ever-greater productivity, particularly in terms of technology, is not being captured, resulting in a far lower inflation rate than otherwise reported. One example that has been given in the press recently is that before Google Translate, the hourly cost of translating a document using human translators was meaningful. Now, you can essentially access it for pennies in terms of electricity and amortized device cost (or even free if you go to the local library). That massive cost deflation in service cost for translation has not been captured anywhere. It matters. Even a few years ago, it was not possible to stand in the middle of a major suburb and stream high definition video to a large screen phone held in your hands using the cellular network yet, now it is. The cost increases were a fraction of the productivity gains required to deliver that, meaning deflation wasn’t accurately recorded. Some of this is going to end up in government policy and the result will be tax brackets rise more slowly relative to old inflation metrics (read: Congress buried tax increases on the poor and middle class in the recent tax reform) and Social Security and/or Medicare benefits get reduced. One estimate I saw, which I have not yet had time to investigate, is that a change in the inflation calculation would cost the typical family something like $178 per month, or roughly $2,136 per year, in additional expenses and/or lost income. This is happening. It is coming. Most people have no idea these things are occurring right now or the fact that it’s going to hit the rural poor particularly hard. Originally published March 11, 2011. 1,401 words.
- The Coming Collapse of the Middle Class – A Lecture by Elizabeth Warren – This post included a wonderful lecture given by then-academic Elizabeth Warren about the economic shifts that were squeezing middle class families. She has subsequently become a politician and jumped the shark by proposing blatantly unconstitutional laws like this one. Seeing her transformation from a fair-minded, even-keeled professor to a demagogue has been one of my biggest political disappointments over the past decade. As I said in the update note to that post, politics changes some people. I suppose she couldn’t resist the temptation to appeal to the base prejudices of the people throwing votes and cash at her rather than remain independent and rational. Sometimes, when I read her recent policy positions, I find myself thinking, “She knows this won’t work. She knows this won’t pass. She knows this isn’t constitutional. if she doesn’t she’s now lost all touch with reality. If she does, at what point does that make her a liar to advocate for it to drum up support?” I don’t know … it’s something with which I haven’t made peace. I don’t like it. At all. Originally published July 24, 2010. 398 words.
- Bank of America Has Lost $40+ Billion Since Acquiring Countrywide for $2.5 Billion 4 Years Ago – This relatively short post contains one of the most valuable lessons a person should know in his or her life: avoiding bad deals, especially those that pose wipe-out or near wipe-out risk on a consolidated or portfolio-wide basis, is more important than trying to knock the ball out of the park. Success sometimes requires being able and willing to earn nothing or next-to-nothing for long periods of time while you wait to find something intelligent. Originally published June 30, 2012. 440 words.
- Lehman Brothers and Shearson – The Importance of Corporate Culture – It is difficult to overstate the importance of corporate culture in determining how well a company will do, its ability to compete, and the propensity for the employees to behave ethically and morally in the face of even overwhelming pressure. Trying to acquire a business that has a radically different corporate culture can present insurmountable problems. (It might still be worth it if the target is being acquired as a strategic acquisition. Management and owners must be prepared for the downsides, though.) Originally published June 6, 2012. 262 words.
- The Douwe Egberts Coffee Machine at Headquarters – This post was written all the way back in 2009 about a machine I had purchased a couple of years prior. It is one I’m bringing back and adapting to the new template due to a request for it in the comments. When we first installed the machine, Aaron and I were barely out of college, we had our first outside office, I got to spend my days reading annual reports and redeploying the cash flow of our online businesses into buying stocks. This great coffee machine was one of the first things that we bought that said, “commercial office” (we still have it but is in storage in Newport Beach, now). This coffee system has a well-deserved cult following. For heaven’s sake, I develop a mental map of any nearby Douwe Egberts machines out of habit. When you want it, nothing else is as good. I know, for example, that if we go through Flagstaff, Arizona, again, I need to stop at that specific Chevron station in case they still have the machine. This seems to be normal behavior among those of us who adore this the system. Originally published August 19, 2009. 991 words.
- Retirement Investing: A Married Couple Working for Wal-Mart Could Retire and Live Very Comfortably – I had forgotten about this post until it was mentioned in the comments. I ended up adapting it to the new blog template and adding an update that is as long, if not longer, than the original post itself! The thought process behind what I wrote here really is one of the key things that I think gave me a huge advantage early in life. One of my obsessions is tilting probabilities (I’ve been meaning to write about that for awhile), positioning yourself so good things can happen, and using every advantage you can so they all work together and create a disproportionate, reinforcing, exponential effect on your outcomes that is much greater than the sum of the inputs. I’ve said it before but it is all connected. Originally published December 12, 2011. 1,292 words.
- What AIG Can Teach Investors About Diversification – I am always amazed to see that otherwise rational people have a tendency to accumulate ownership (stock) in only one or two businesses when expanding that number to even 10 to 15 can result in a drastic reduction in wipe-out probability. Note that this doesn’t apply to an alternative strategy I’ve sometimes mentioned, which can involve a person who holds, say, index funds as the best selection among their employer’s 401(k) making a decision to selectively add long-term stakes in wonderful companies from time-to-time. The key is to make sure the overall weighting of that stake is reasonable if you “look through” to the underlying holdings of any pooled investments such as those index funds. Originally published April 4, 2014. 530 words.
- Mail Bag: Return Assumptions in Your About.com Articles – Whenever writing about long-term return assumptions in my old Investing for Beginners content, I often felt it was best to use the historical, academic record of typical compounded returns from the statistical gold standard of equity and fixed-income asset class returns, which is the Ibbotson & Associates SBBI Classic yearbook: Market Results for Stocks, Bonds, Bills, and Inflation 1926-Present. Common sense should make it plain that long-term average returns of, say, 10% for large-cap equities come with enormous volatility. That is not a number that materialized in some smooth, upward slope. Yet, you would not believe (or maybe you would) how enraged a minority of readers would get any time the stock market started to decline, convincing themselves that their failures in life were someone else’s fault or that the game was somehow rigged against them. In reality, they simply had no idea what they were doing. If you own stocks for a long enough period of time, you will see them decline 50%+ occasionally. Charlie Munger pointed out recently that during the journey from Berkshire Hathaway Class A shares going from around $8 each to (what is now) $305,580 each, there have been at least three different periods, some lasting years, where he and Warren Buffett had to sit on 50%+ drops in value, peak-to-trough, where it looked like more than half of their wealth had gone up in smoke. It hadn’t, of course, because the underlying businesses were just fine and churning out cash. If anything, it was during those periods they set the foundation for becoming even richer as they bought up wonderful businesses at cheap prices. I do not understand, on an intellectual or emotional level, why this is so hard for people. I get all the scientific arguments about evolved biological heuristics that cause sub-optimal decisions but it seems so plainly evident to me that accumulative productive assets at a reasonable price leads to a better life that I don’t understand why people don’t immediately see it. In my own experience moving up the economic ladder and reaching the top 1%, it seems as if some folks are addicted to learned helplessness and poverty. They wear it like a comfort blanket because it’s all they know. Any sort of self-improvement – e.g., going to college, investing for the first time, getting in shape through diet and exercise, reading biographies – is denigrated as somehow being delusional or a traitor. People who don’t have exposure to that background don’t understand how toxic it can be. Originally published April 3, 2013. 736 words.
- An Example of Real World Value Investing Through the Lens of Dr. Pepper Snapple Group – This post has so many important lessons, including one that was not intended at the time I wrote it and that happened solely due to subsequent developments. As I wrote in the post-script, in the years since it was first published, a lot has happened to Dr. Pepper Snapple. This post was originally written on July 13, 2013. The day prior, the stock closed at $47.46 per share. From there, each share generated $9.34 in cash dividends until a special buyout dividend of $103.75 was received on July 10, 2018 and the company re-named itself Keurig Dr. Pepper [KDP] following the consolidation with the single-serve coffee giant. Each old share of Dr. Pepper Snapple (with a much lower market value following the large one-time cash dividend) now represented a share of Keurig Dr. Pepper, which was entitled to less equity due to a higher outstanding share count. The now-renamed KDP stock has since distributed an additional $0.45 per share in cash dividends per share. The current market price of KDP as I write this is $29.09. This means that each share bought for $47.46 when this post was published has since turned into $142.63, consisting of one share of the new Keurig Dr. Pepper stock with a market value of $29.09 plus $113.54 in cumulative cash dividends collected. This assumes no dividend reinvestment, which would have made the profit even larger. Interestingly, an investor who bought shares at the time this post was written would now show a 38.7% unrealized loss on his or her brokerage statement despite having turned $47.46 into $142.63 because of how the merger was structured with a special dividend windfall and renaming of the old common equity. (Investors who bought the shares at higher prices in subsequent years, when the stock still represented a very attractive investment, would show an even larger unrealized loss due to the higher initial cost basis.) This is yet another reason that economic reality is not always reflected in your brokerage statements. It sounds nuts but that is how the accounting works. You can have an investment that generates enormous profits but is carried at an unrealized loss, making it look like you are losing money when you open your statement. Originally published July 13, 2019. 2,343 words.
- What Sam Merlotte of True Blood Can Teach You About Investing – This is being restored due to a request in the comments. At the time, I was marveling at what I considered to be the ability of people to build what I might now call “silent empires” or “stealth empires” – ordinary people living in smaller towns and even some cities who own apartments, office buildings, bars, restaurants, storage units, entertainment venues, and a host of other cash generators that allow them to capture a meaningful portion of the local economy. This allows them to earn 10x or 50x the income of their typical neighbor while appearing to be just like everybody else. Sometimes, the person is a professional such as a real estate broker, physician, dentist, or banker who builds a niche in their corner of the world. It’s important, though, to remember the lesson from that whole debacle with Dr. Walter Palmer and Cecil the Black Maned Lion – make sure a decent portion of your holdings are invested in assets that can remain anonymous and/or essentially immune to localized boycotts, such as a well-managed portfolio of stocks and bonds. If you do something, rightly or wrongly, to anger your customers, they might be able to boycott your bar. They cannot, however, effectively boycott your oil and gas, spice, hotel, theme park, software, jewelry, insurance, bank, automobile parts, soft drink, alcohol, tobacco, doughnut, cheeseburger, coffee, and logistics holdings en masse, especially if they don’t know you own them and your ownership, while large in absolute terms, represents a relative tiny portion of the outstanding float. Originally published June 6, 2012. 683 words.
- The Black and White Burgers of McDonald’s Taipei – As with so many posts, given my love of finance and investing, this somehow ended up becoming a philosophical piece about the joy of accumulating cash-generating assets. I can’t help myself. I’m passionate about it. As I mention in the updated postscript, this post was particularly sweet for two reasons. Today, Taiwan became the first nation in Asia to legalize civil marriage equality for same-sex couples, including certain adoption rights for family formation. Secondly, adjusting for dividends (but assuming no dividend reinvestment), McDonald’s has produced a total return of more than 127% in the few short years since this post was originally published. It was also interesting to read the comment thread on the post as there was a discussion about whether or not we would ever accept outside money to manage. Less than sixty months later, we live on the West Coast, are responsible for what is now nearly $60 million in capital, have created our embryos through gestational surrogacy, and through it all … we’re still collecting dividends from McDonald’s. What can I say? We’re fine taking risks and always improving but how much of that is due to the peace that comes from owning boring, stable, profitable enterprises? I’d say a lot. That is by design. Originally published June 24, 2014. 960 words.
- Mozart, Money Problems, and Voltaire – Mozart penned one of his greatest symphonies as a result of dire financial need – something he wouldn’t have had to if he would have humbled himself and admitted that someone he considered evil, Voltaire, had something to teach him when it came to wealth management. Originally published November 23, 2013. 758 words.
- Measure the Success Of Your Day by the Seeds You Plant – This is a core part of the philosophy by which Aaron and I manage our lives and careers. It was written at a time when the blog was still far more intimate than it can be today with a lot of readers consisting of friends and family. The point of the post was not to discuss AutoZone or any specific stock, which is why I am comfortable making it available, again. Rather, it was to emphasize that the days most responsible for your success include those when you put a seed in the ground even though harvest time seems to get all the glory. If you are living your life, and managing your career, with wisdom, you will do things on days that go totally unnoticed but that years down the line can result in windfalls, showering you with wealth and achievement. As I’ve said, maybe it’s developing your personal skills, going back to college, learning a new language, funding a Roth IRA, whatever. Think about what you want to accomplish, examine your overall risk profile, and spend your life planting seeds! In this case, the example I used in the post, AutoZone shares, closed on the NYSE this afternoon at $984.09 each. That would have meant the original block of stock used as an illustration had a market value of $162,374.85 on a cost basis of roughly $13,500 for a total profit of 1,149%. Aaron and I have long parted with our shares, meaning we didn’t capture all of that gain, but, instead, focused on building our private operating companies and establishing our household which made us much, much more money. It was a better, competing use for our funds. As a result of those allocation decisions in the aggregate, $162,374.85 is a fraction of what I expect our household will generate in income this year. I wrote in a recent post that was a bit more intimate, reflecting on the past twenty-four years of my life, all of these decisions compounded, little bit by little bit, day after day, in a way that turned into something extraordinary. All of it – the equity investments, my copyright income, our letterman jacket sales, special one-off projects where we thought we saw an opportunity, ecommerce platforms we developed for others and on which we charged an override of revenue, it all mattered. It all came together and built what we have. You see this over and over and over again in the lives of successful people; people like Miller Gorrie who funded his operating company with a block of IBM stock or Walt Disney (think about how each of the movies, each of the theme park rides, each of the short cartoons, each of the product sales, all of it worked together to fund and expand the core economic engine). I want you to understand this because I want you to be free and enjoy what a life without financial stress feels like. Go through life planting seeds that can pay off in positive ways for you and your family. Tend your garden with patience and discipline. Amazing things can happen even when there are storms along the way that derail your plans or cause damage. Those storms will come. AutoZone, for example, could have gone bankrupt. A well-designed garden, though, can handle it. There should always be other trees and other shrubs producing flowers and fruits. Originally published June 3, 2012. 1,037 words.
- You Can Still Get Rich and Make Money In a Terrible Economy with a Miserable Stock Market – This was another one of those posts I wrote in the aftermath of the Great Recession, which a lot of economic metrics were still objectively terrible and people were being financially destroyed. The goal was to remind people that the broader economic picture matters, yes, but that you should expect recessions and depressions. They are not something that can be avoided indefinitely and your business model and life should be arranged to not only survive them but thrive. You look at so many successful careers and you see that a lot of the real money was made during these periods of economic stress. They are filled with opportunity. You will wake up to one day to see horrific unemployment. You will wake up one day to see your equity holdings down by 50% or more. That is life. Get over it. The sooner you do, the sooner realize the nature of the task at hand with greater clarity. Originally published April 19, 2012. 520 words.
- The World Is Full of Hard Businesses. You Should Probably Avoid Investing In Them. – For the countless time, this is not investment advice, it was a piece I wrote back when I was going through a period focusing on differentiating how to identify a “good” business versus a “bad” business and why some companies were almost assuredly statistically doomed to sub-par returns over longer periods of time. It is an important academic concept. Originally published April 15, 2012. 710 words.
- Lottery Winners Go Bankrupt Just as Often as Non-Lottery Winners – This is another one I’m making available, again, due to a request in the comments. The findings discussed in this post should come as a surprise to no one: poor people who win money end up declaring bankruptcy just as often as you’d expect. The surprise is the fact that when they declare bankruptcy, there is usually no sign they ever won a windfall since they squandered the money rather than use it for something useful like putting a down payment on a house or investing it. The biggest difference since the time the post was written is that cap rates on passive real estate projects in most of the United States have come down considerably, which would require using a different example. On the flip side, in actual practice, if I were in a situation like the hypothetical posed here, I most likely would have done something slightly more complex – e.g., it would be fairly easy to convert a $65,000 after-tax lottery win into a three or four unit, owner-occupied set of townhouses in a suburb of Kansas City using things like specialty FHA loans. Originally published September 3, 2010. 1,731 words.
- Mail Bag: How Would You Convert a Pile of Money Into Passive Income? – As I explained in an update on the post itself, I restored access to this article by request. It required making a few minor edits along with adapting it to the new blog template by adding higher resolution images. In addition, several of the conversation threads in the comments were deleted as they involved discussing different scenarios. Although neither the post nor conversations were intended as investment advice, and clearly all of it was general and academic in nature, I was not comfortable with it being published on my personal blog now that, all these years later, Aaron and I are the founders of a fiduciary asset management firm, Kennon-Green & Co., and we manage wealth for other individuals and families alongside our own. This compromise was the only solution in which I found myself willing to restore the piece so those of you who found the core lessons valuable could have access to it. Originally published May 24, 2013. 2,385 words.
- Watch QVC Hosts Debate Whether the Moon is a Planet or Star (and a Lesson on Basic Economics) – I had forgotten about this entirely. It’s an important lesson because people sometimes get this idea in their heads that they are entitled to make a lot of money then become upset or disenchanted when those they deem below them out-earn or out-perform them economically. The truth is, you can be completely ignorant in entire areas of basic knowledge and, if you provide enough value to your fellow citizen in a specific niche area, do extraordinarily well in life. Of course, you shouldn’t be content with that – the goal should always be to constantly become wiser, improving yourself each day – but it is true. It’s best to make peace with that fact. Originally published January 31, 2015. 1,453 words.
- How One of My Family Members Used Shares of U.S. Bancorp to Build Substantial Wealth – Reading the piece nearly a decade after it was originally written, I want to reiterate again that none of this was intended as investment advice and that the point was not to discuss a specific stock – as I say above, any business can go bankrupt, this particular family member at this time happened to select U.S. Bancorp because he thought it was undervalued (something that turned out to be the case as the rise in quoted market value and dividend payouts for bank stocks since the Great Recession has been extraordinary) – but, rather, to point out that the way in which you allocate capital can have a substantial end-result in your net worth and income. That is, the rules of corporate finance apply to your personal household. The exact same initial stream of cash, put to work in ways that offer a compounding advantage, might seem insignificant on a year-to-year basis but are rather breathtaking after 10, 20, 30+ years. No reasonable person would want their entire investment portfolio to consist of a single stock (as I’ve reminded you in the subsequent years, it is important to pay attention to your portfolio weightings!) but going through your life and career accumulating productive assets that produce what you hope will be ever-increasing amounts of cash per annum, and paying reasonable prices for those assets while maintaining a strong, liquid balance sheet that survive recessions and depressions, has been a winning economic formula for as long as civilization has existed and there is no reason to think that is going to change any time soon. Different people approach this differently. Some place a heavy emphasis on real estate, while others prefer common stocks. Some operate their own private businesses while others are specialists in accumulating commodity royalty streams such as those involving oil, natural gas, and/or mineral rights. The underlying philosophy is what matters. Try to find intelligent things to do, then do them. It can be amazing how much easier things get over time. Originally published February 5, 2010. 1,067 words.
- Paying for Your House with Dollar Cost Averaging – This post was the precursor to the previous one (see Group 6, Item #20 in bullet point directly above), written a decade ago. It is interesting to see how the underlying assumptions have change – mortgage rates aren’t 6%, for example – but more than anything, I want to reiterate, yet again, that none of this was intended to be investment advice. There are no guarantees that any of the figures used will materialize, they were simply the rough estimates my family member was using when he designed the plan. For example, while large cap stocks in the United States have generated long-term returns as a group of a bit more than 10% between 1926 and 2017, there is no guarantee they will do so in the future, there were long periods during that span when returns were lower, including even negative, and no individual stock is likely to exactly mirror the broad equity returns, anyway. In fact, such an approach may result in losses, perhaps substantial. The point of writing it a decade ago during a period when this site was almost exclusively read by close friends and family, and long before Aaron and I sold our private operating companies and established Kennon-Green & Co., our fiduciary asset management firm through which we now manage wealth for other successful individuals and families, was to explain that small decisions can add up to major advantages over time; that they compound in ways you might not realize but that, in the end, can be breathtaking. A few years after the original publication of this post, I reiterated the same underlying concept in a post called Measure the Success Of Your Day by the Seeds You Plant, which has also been restored as part of this project. Originally published December 15, 2009. 1,213 words.
- My Pure Mage Strategy for Elder Scrolls Skyrim Is Based on the Late 1980’s Ganon Character from The Legend of Zelda – The good old days of Skyrim! A conversation in the comments made me look these up during a coffee break and work on restoring them. This was my strategy for optimizing the magic configuration for my character. When are they coming out with a new one? I wonder if I should go back and play this one with a new save file, especially now that they have high definition and all kinds of mods. Having beat the original game, it’d probably be fun as enough time has passed. The issue right now is that, as many of you know, one of our productivity rules is to restrict ourselves to one form of entertainment at a time. That way, they don’t distract us from our goals. If I were to pick Skyrim back up, I’d have to set aside some other games I’ve been considering. I want to play now … Originally published December 10, 2011. 942 words.
- My Pure Mage Strategy Worked: Level 100 Conjuration, Level 100 Destruction, and Level 100 Enchantment – A follow-up to my earlier post, I had optimized my mage character in Skyrim including using a stacking trick with alchemy (see explanation in comments). This led me to creating an even more powerful version of my custom enchanted items. It was so much fun. I remember back to these days fondly. Most of you weren’t here during this time but Aaron and I had bought our house two, almost three, years prior in February of 2009. Our days (and nights) were sometimes filled with developing e-commerce sites and reading annual reports, working on whatever projects we found interesting. Though, because of our flexibility, we’d sometimes spend a few days at a time playing games like this before working like crazy. Originally published December 14, 2011. 472 words.
- Alchemy Potion Making Profit Calculator for Elder Scrolls: Skyrim – This potion calculator was extremely helpful in developing the strategy that allowed me to build my Level 100 ultimate mage. Originally published November 28, 2011. 194 words.
- We Are Embarking on Elder Scrolls V: Skyrim – Continuing with the theme of releasing the old Skyrim posts, this was one from the day after launch. Looking back now, I didn’t fully appreciate how great of an adventure we were about to enjoy. Reading these in succession, I noticed that I mentioned multiple times (including in this post) how video games are a replacement technology – people that play them tend to lower their time spent watching other forms of media such as television. That’s important because it could have huge implications for content consumption in the future, which is the one of the reasons you see companies such as Apple and Google moving into the space more aggressively. It’s also interesting to me that this is an area where revenue exceeds Hollywood, as I stated in the post, yet Hollywood somehow seems to loom larger in the imagination of a lot of people. I still don’t think any company has truly captured the power that it could unleash. Nintendo is in the best position to do so but, really, there needs to be a Disney-like company that develops content and reinforces it with theme parks, merchandise, etc. It’s happening more and more but nothing on the scale of what Walt pulled off back in Orange County a couple of generations ago. Originally published November 12, 2011. 515 words.
- Elie Mystal Says Earning $250,000 Per Year Doesn’t Make Him “Rich” – Another post that was requested in the comments so I’m restoring access to it from the private archives. I ended up writing a fairly extensive update with my current thoughts, which you can read at the end of the piece. Originally published September 25, 2010. 3,073 words.
- The Basics of How to Analyze an Investment Portfolio of Individual Stocks or Other Securities – My motivation in writing this at the time, when memories of the dot-com boom of the 1990s and the 2007 peak were quite fresh, was to help people put a safety brake on their own propensity to see a company, exclaim, “I like that stock!”, then dump most of their liquid net worth in it; a behavior pattern I have never understood. Maybe 15+ years ago, I think it was, I called this “the refrigerator problem” on Investing for Beginners because I was astonished to find that data showed most Americans spent more time shopping for a new refrigerator than analyzing their investment portfolio or thinking about ways to achieve financial independence, particularly in retirement. This presentation tool offered some mechanism, no matter how imperfect, to potentially identify companies trading at obscene valuations. It also was intended to re-frame the psychology of Wall Street, emphasizing the underlying operating results of the businesses rather than the day-to-day fluctuations in stock price. Why? Because ultimately, over the long-term for an owner paying cash and avoiding debt, the operating results relative to the price paid are what drive changes in net worth. There might be a lot of fire and fury in the meantime, including periods of 50% drops, but as long as civilization is functioning and capitalism is working, that’s the math. Life is better when you don’t ignore math. Originally published March 17, 2011. 3,633 words.
- Berkshire Hathaway Shares Are Trading at the Lowest Valuation In Nearly a Decade – This post was written at a time when shares of Berkshire Hathaway were selling for a mere 1.15x book value in the open market (during a period before the share repurchases had begun), representing what was then a demonstrably cheap price. Originally published June 23, 2011. 1,833 words.
- Morningstar Says Berkshire Hathaway’s Intrinsic Value Is $89 Per Class B Share. I Think They’re Wrong. – This was another post from that same year. It seemed perfectly evident that the holding company was cheaper than it should have been so I told my friends and family about it. I was having most of them buy it at the time, anyway. It’s been a wonderful cornerstone position for nearly every portfolio I’ve overseen throughout my career absent special circumstances or unique mandates. Originally published October 5, 2011. 1,649 words.
- Berkshire Hathaway Board of Directors Approves Share Repurchase Plan – This is tied to the other posts around this time about Berkshire Hathaway so I am restoring it as it makes sense in context. Originally published September 28, 2011. 743 words.
- Morningstar Is Getting Closer On Its Intrinsic Value Figure for Berkshire Hathaway – A few years later, in 2013, I wrote an update after Morningstar began increasing its estimate of intrinsic value for the conglomerate. Originally published February 4, 2013. 730 words.
- Thoughts on Berkshire Hathaway’s Intrinsic Value – 2015 Edition – As you know, none of this is investment advice. At the time this was published, our asset management firm did not exist and we were private investors. This was a discussion in which I shared how much I was willing to pay for ownership in the diversified holding company at that time. Originally published May 17, 2015. 2,394 words.
- Is Wells Fargo Undervalued? – Stated candidly, this post is a historical anachronism from nearly a decade ago that arose because we weren’t in the asset management business but, rather, were private investors. In the future, things like this will not be posted on my personal blog but, instead, if they are written, released through Kennon-Green & Co., including letters to the firm’s private clients. Originally published October 6, 2011. 1,772 words.
- A Century Later, Ben Graham Still Seems Like a Prophet – I don’t even remember writing this but re-reading it, it’s one of my favorite old pieces I’ve encountered because I see it every single cycle. Asset prices fall, people want nothing to do with them. Asset prices begin to rise and they want to buy things they can’t explain, don’t understand, and, worse, often add leverage or derivatives to it. Originally published March 1, 2014. 896 words.
- Mail Bag: How Would You Measure Financial Success? – Here are a few thoughts on what I think it takes to be considered a financial success in life. Originally published June 24, 2014. 1,057 words.
- I’m Starting My Week by Buying More Shares of Nestlé – Here, again, I’ll say this was not, and is not, investment advice. It allows you to see how we sometimes look at certain businesses that have unique qualities to them. In the case of Nestlé, that quality is a defensive-like business model that is slower growing but that has held up remarkably well during periods of economic stress. There are no guarantees that will always be the case but we like our odds – generally, if people are out of work, they’re not going to give up on their favorite brand of ice cream or frozen pizza. Originally published August 4, 2013. 1,638 words.
- I Forgot I Ordered a Nestlé Corporate Biography! – It’s a good book. You should get a copy while you can. Originally published July 31, 2013. 260 words.
- The Smell of Brut Cologne Reminds Me of My Grandfather – It’s late. I’m feeling … a sadness, I guess you’d call it, about the people in my life who have passed away. This is one of the older types of posts that were part of the first Great Purge – the things that only the earliest readers of the blog saw. I still think of my grandfather every once in awhile. Aaron loves going to this old fashioned doughnut place a few miles away from Newport Beach. We make it a regular thing because it’s important to him. One of my earliest memories is driving the 9 or 10 miles into Warrensburg with my grandfather his pickup truck to order chocolate long johns, which were my favorite. The memory sort of falls into my mind like a leaf descending in autumn, if that makes sense, when I’m standing there waiting to pick my doughnut with Aaron. Time really can be a tyrant. I probably wouldn’t be restoring this if I weren’t so tired but right now, it matters much more to me than the business-related posts. Originally published June 11, 2011. 1,404 words.
I love my life. I woke up this morning a little before 5 a.m., made a pot of coffee in my French press, and spent and hour and a half reading essays on monetary policy at my kitchen table before sunrise. Now, Aaron is in the kitchen making breakfast and I’m trying to plan my day – there are some 10-K filings I want to read, as well as evaluate different software that could make us more productive. (There are some businesses that might be cheap but the prospects of a trade war complicate things significantly, requiring a lot more conservatism to be built into both the security-specific assumptions and overall portfolio construction.) That’s at work, though … the day doesn’t officially start for another couple of hours. I thought I might try and restore more posts from the private archives before I dive into all of that.
47 Posts Re-Opened from the Private Archives on May 23-28, 2019 – 43,536 words
- Moroccan Trade Routes and Lines of Credit – This is a great example of the uniqueness of this community. This was a post that involved discussing a game of Civilization V I was playing, as well as the structure of a line of credit one of our operating businesses had. The comment section ended up turning into a discussion about accumulating wealth through start-ups that utilize negative cash conversion cycles, as well as thoughts on the role of risk. Reading it now, I wish I hadn’t been so direct in some of my responses but they are what they are. Originally published May 8, 2014. 584 words.
- How I Structure My Day – On most days, I still follow a modified form of this basic prescription as laid out by Gene Bedell in his excellent book though, understandably, the implementation of it has changed as we completed our transition out of semi-retirement and our roles evolved and grew. For example, while I always read enormous quantities of books, newspapers, trade publications, etc., a much larger part of our day is spent reading a much wider range of materials especially if we believe it might help us serve the firm’s private clients more effectively. We also tend to use task management software and certain other productivity tools and platforms rather than pen and paper. The core process, though, is very, very similar. It’s just that I’m not thinking of new companies for us to start, or product lines we can expand, to increase our sales and earnings, but, instead, analyzing businesses and acquiring ownership for the people who have entrusted their capital to our management. Originally published on September 3, 2010. 718 words.
- American Manufacturing Profits Are the Same After Inflation As In 1960 – When I wrote this back in 2010, I said … “when people talk about “rebuilding manufacturing”, they aren’t actually talking about manufacturing because it is still generating the same profit for “America, Inc.” as it did half a century ago. They are talking about manufacturing jobs that put a worker with only a high school diploma in the top 20% of household income. It will never happen again, people. It doesn’t matter who you put in the White House, what trade policies you put in effect, and what laws you pass.” A lot of Americans didn’t get the memo and so we’re living through a stupidity explosion right now. This trade war – these tariffs – vanity and foolishness; an outdated 19th century discredited solution the economic equivalent of which is blood letting. Tariffs are a tax on Americans. China doesn’t pay them. You pay them. You are directly poorer, in both money and choice, because they exist. You. Full stop. Que será, será. Originally published September 3, 2010. 751 words.
- If Our Banks Were Structured Like Pictet & Cie, The Banking Crisis Wouldn’t Have Happened – This was a post I wrote back during the aftermath of the Great Recession. I used Pictet & Cie as an example. The company, which is a wealth management firm that does not engage in investment banking or commercial lending, is run by eight partners with unlimited liability. My musing was that if the United States required our investment banks or commercial banks (again, Pictet & Cie is neither, but I thought a real-world illustration of a related financial business would help demonstrate how such a partnership structure might look) to operate under the same model, system-wide risk could be reduced as underwriting standards would necessarily become stricter and leverage ratios would likely decline. Were I writing this today, for a larger audience beyond friends and family, I would have probably expanded my thoughts substantially because you have to deal with two problems were you to go down that route, which would be foolish under present regulatory requirements. Firstly, Congress and regulators essentially require certain banks to bank loans that they otherwise wouldn’t want to make, and/or incentivize loans that never would be made absent government intervention. It seems fundamentally unfair to require someone to be on the hook for business practices with which they may not agree. Secondly, it is possible that the reduced risk tolerance would result in slower capital formation as people were unable to gain bank financing. This is already happening for different reasons. Namely, if you look at how regulatory costs and other system-wide incentives created by Congress have driven the entire banking industry into mass consolidation so that most of the country’s deposit base is held by half-a-dozen institutions, they are not providing nearly the same level of capital to rural and suburban enterprises as the regional banks did prior to amalgamation. The banking industry is broken for much of society in the United States. That doesn’t mean the top banks can’t be extremely lucrative for shareholders over long periods of time, nor does it mean that executives and employees can’t make a lot of money. Banks, however, serve an important function in any successful and upwardly mobile republic or democracy. Ours aren’t performing that function as well as they should which, again, can largely be blamed on Congress, in my opinion. The things they’ve done over the past thirty years are just … stupid. So, so stupid. Now that stupidity has crept into the accounting profession. I cannot tell you how asinine some of the new GAAP rules are. The people who promulgated them are setting us up for systematic risk accumulation and it’s not likely to end well. Real lives will be destroyed because they worshiped these godforsaken theoretical frameworks that ignored real-world consequences and economic reality. Originally published October 30, 2012. 814 words.
- The Best Kind of October Afternoon: Reading Annual Reports By the Fireplace and Playing Video Games for Hours – I truly loved our home in Missouri. For almost ten years, Aaron and I built our lives and businesses, played video games together, learned to cook, practiced piano, took Korean lessons … if it weren’t for personal and political factors that matter a great deal to us, we would have kept it for the rest of our lives even if it ended up being a third or fourth house. Frankly, neither of us plan on going back to St. Joseph, Missouri. October 18, 2012. 521 words.
- The Heat Wave Has Reached 110 Degrees, My Brother Secretly Flew to Colorado to Propose to His Girlfriend, and Other Random Happenings on a Tuesday in July – This one was linked to from the last post so I decided to tackle it while I had it open and in front of me.
I need to track down the original picture files and replace them because they are lower resolution due to broadband speeds and server optimization. There was no reason to hold it up so if and when I can ever find them, I’ll try to swap out the better images.Done. I added the higher resolution images and put in an extra one from that same day. It looks much better in the template now that it is updated. You can actually see what our room looked like in Missouri back in those days. Originally published July 24, 2012. 575 words.
- I’ve Made the Perfect Fall Sandwich – Black Pepper Turkey Panini on Wheat Bread with Cranberry Chutney and Smoked Apple Gouda Cheese – This remains one of my favorite sandwiches to this day and one of the best things to ever come out of our kitchen. From time to time, I swap out the Cranberry Chutney for Lingonberries (a big thank you to the entire nation of Sweden for introducing the world to those incredible treats). Man … I want that sandwich now. But it’s already night and I am not going to let myself eat anything else. Originally published October 14, 2012. 271 words.
- An Autumn Thunderstorm and Dinner at Home Experimenting with Blue Cheese Panini Sandwiches – These small glimpses do not do justice to how wonderful this time was in a lot of ways. Would I want to go back there? No, because we have made so much progress in the years that have since passed. But I wouldn’t mind visiting … Originally published October 13, 2012. 440 words.
- Booking a Business Trip with My Father Is Like a Comedy Routine – Back during the days when we were all involved in the letterman jacket awards industry, it was sometimes necessary to take business trips with my family if we, or our companies, were somehow jointly involved in a project. It was like trying to broker an international peace accord. You had the Ritz Carltons vs. the Super 8s. Everybody has their utility calculations and priorities, though, right? No one was wrong, it was just a difference in trade-off values. It’s funny reading old post like this because it would never have warranted even a thought, let alone an article, today. When we travel, Aaron and I now have “our” hotels in most major cities; places where we know we want to stay if we are in the area, usually with a secondary hotel as our backup. The comfort, efficiency, and familiarity of these routines makes life and business so much easier that a few hundred bucks saved either way would be a poor bargain trade-off. Time is much, much more precious and rare for us. Still, I don’t see any reason not to restore this so I’ll go ahead and do it but … what value is there in it? I read it and think, “Maybe I should just delete it entirely, even from the private archives.” Whatever. It is what it is. Originally published June 12, 2012. 1,024 words.
- A $31,000 Lesson on Paid Search – This post was written after reviewing the results of a test we had run the year prior, in 2008 – so now, 11 years ago – for our then-collection of e-commerce businesses. Paid search was still in its relative infancy but we were having such good results from our organic search program that we decided it at least made sense to see if bringing in even more customers could justify the cost. It took us awhile to get right but the whole learning experience was fascinating to me. I wrote this post from a hotel in St. Louis, Missouri when Aaron and I were swinging through town to visit my younger brother on the way back from Columbus, Ohio, where we had spent time with our friends, Ashly and Ian. I can’t tell you how happy I am to not have to arrange my writing around search engines these days. Sure, I do the basic modicum of search engine optimization, but by stripping the blog of advertising, and paying for the cost of hosting out of pocket as my own personal side-hobby, it lets me write posts like the one I published yesterday, when I started out talking about how Coke will be releasing a limited edition of “New Coke” from the 1980s so people can try it but it turned into a mini-case study of Coca-Cola stock, a discussion of financial independence, a walk down memory lane as I revisited parts of my during that time period, links to music and video game videos, etc. I like that freedom. Originally published September 9, 2009. 289 words.
- Real Life Angry Bird Is So Tempting … – This is the sort of post that was much more common back during one of the transition periods where the site was going from close friends and family to a larger community. It had no purpose other than to keep everyone updated on what we were doing. In some cases (not this particular post) they have a lot of value because the comments section would end up turning into a long discussion chain covering all sorts of areas – economic, political, philosophical. It’s interesting to go back and see how my thinking has evolved on some topics or watch the community work out intellectual problems. Originally published July 22, 2012. 205 words.
- A Quick Cash Flow Statement Lesson – A Look at How McDonald’s Real Payout Ratio Is 110%, Not 54% As First Appears – I wrote this on my lunch break six years ago, using it as an academic example of how reported earnings can be higher or lower than what a competent business person might consider the real, or “intrinsic”, earnings. It was a way to point to an actual company – a huge, liquid, blue chip stock that was part of the Dow Jones Industrial Average – and illustration real-world conditions that could help a person better understand the limitations of conventional accounting. Originally published March 29, 2013. 2,102 words.
- Change the Way You Think About Business Ownership and You Can Change Your Life – This post hits on many of the same themes of some of the other restored articles and essays: one of the best ways to achieve financial independence is to go through life accumulating cash-generating assets that are capable of replacing your physical labor. That way, you can enjoy streams of checks when you are unable or unwilling to sell your time. Originally published April 23, 2012. 1,735 words.
- How a Family Holding Company Can Be Used to Transfer Wealth and Bind a Family’s Economic Future Together – The world has changed so much since this high-level overview of family wealth structures was written almost eight years ago that some of the information is no longer useful. That wasn’t the point. This was never intended to be advice nor a blueprint but, rather, an introduction to how you might think about different tools at your disposal for more efficiently building, protecting, and gifting your family’s wealth to future generations. Originally published December 3, 2011. 2,734 words.
- Mistwalker Studios Might Just Eclipse Square Enix – The past decade has been interesting for the video game industry. Mistwalker Studios led the forefront of a movement called Concept Teams in Japanese gaming. It purposely stayed small – under twenty people – and worked with other companies so the founders could focus on the creative side, rather than the business management side, of the enterprise. On March 16, 2018, Polygon wrote a wonderfully informative article providing a behind-the-scenes look at this new business model. You should read it if you are interested in the economics of this sort of thing. I wrote this post because I was excited about the quality of the flagship games released at the time they set up shop. Originally published August 15, 2009. 760 words.
- I Won My First Two Deity Victories in Civilization V – I played this game so, so much over the years. I’ve barely scratched the surface of Civ VI’s new expansion due to my schedule. Originally published July 3, 2014. 254 words.
- Loren the Amazon Princess, Pot Roast, and Snow Days – We have a problem. I’m working my way through the video game category right now since I figured it’d be a fairly easy group to tackle for this project and all of these stories of snow days and thunderstorms, cooking delicious food at home, and playing games that I overwhelmingly enjoyed … oh my gosh, I just want to go find some great recipes and download a bunch of indie titles to try. I am nearly 100% certain that if Aaron and I hadn’t launched the global asset management firm, we’d have been funding a video game development studio right now. Or software of some sort. That’s where the opportunity is these days, in my opinion. Originally published January 2, 2014. 943 words.
- Mail Bag: Investing in Bank Stocks – This is a post that was specifically requested in the comments section so I am releasing it from the private archives. I made an important, three-paragraph update to it so read it. Nothing is intended to be investment advice as I cannot, and will not, tell you what to buy, sell, or trade on this, my personal blog. Your circumstances, risks, needs, etc. are all unique and you should talk to your own qualified advisor. This simply gives you a glimpse into what we were thinking about bank stocks – and how we felt about the risk exposures involved in holding shares of a bank – many years ago in the aftermath of the worst economic collapse in generations. Originally published 02/03/2013. 2,899 words.
- Four Companies Control 94.8% Market Share of the Domestic Cigarette Industry in the United States – The earlier post about bank stocks led me to clean up a post about the collapse of Wachovia (which was not in the private archives but had not been updated for the new blog template) which led me to a post about the legendary R.J. Reynolds employee stock ownership plan (same situation – updated for new blog format with better images) which led me to this private archive post. I decided to restore it continuing that reading chain in case any of you follow the same path as it’s all connected. Wachovia (now part of Wells Fargo) was essentially built by tobacco money. As always, this is not investment advice. None of it is. You got that by now. Originally published October 22, 2010. 2,347 words.
- Scrooge McDuck with Treasure Chest Added to the Collection – Someone requested a Scrooge McDuck / Carl Bark collecting post in the comments so I am restoring them as I find them. Originally published November 8, 2010. 41 words.
- Breakfast of Tycoons by Carl Barks – I think one of the reasons I can focus so long on business and finance, besides intrinsically loving the work, is because things like this remind me that it is a game; that your life and career should be fun. Look at how ridiculous this thing is. It’s totally over the top. But that’s why I like it. It makes me feel like a little kid, again. Originally published March 23, 2010. 148 words.
- Girl Scout Cookies, Capitalism, and Cookie Dividends – A family member of mine has a daughter who was selling Girl Scout cookies. To help, I decided to buy half-a-dozen boxes. That led me down a research path to figure out who, exactly was making money from baking those treats. Originally published October 31, 2010. 612 words.
- My Day In Pictures – October 26th, 2010 – Another addition to the Scrooge McDuck collection, reading a tobacco annual report, and picking up more books were on the list of things I enjoyed this day. Originally published 10/26/2010. 245 words.
- Scrooge McDuck Limited Edition Cookie Jar Added to the Collection – Still working my way through some of the Scrooge McDuck posts as I mentioned a bit ago. I love this limited edition cookie jar. Why don’t you see many cookie jars anymore? Is it because of fast food and convenience? People don’t bake at home and stockpile cookies for the week like they used to do? Originally published 10/24/2010. 85 words.
- Three New Carl Barks Scrooge McDuck Prints for the Office – Another one of the posts from back in the days when the blog was showing Aunt Donna what we were doing. I was really fortunate because around these years, quite a few of the Barks prints were coming up for sale at really attractive prices. Originally published October 19, 2010. 54 words.
- If Monopoly Were Real Life, How Rich Would You Be If You Owned the Entire Board? – If you wanted to be as rich as Mr. Monopoly, how much would it take? How high would your annual income be? Your net worth? Ten years ago, I tackled this question. With cap rates so low these days as a result of structural issues and record low interest rates, the asset values would necessarily need to be higher than those shown here but it’s still a fun exercise in valuation. Originally published October 16, 2010. 696 words.
- Sugar Prices Hit 30 Year Highs – Congress had passed protectionist policies to isolate sugar from free market competition (and, let’s be blunt, to reward a sugar billionaire in Florida). It, along with other factors, drove the price of sugar to a 30-year high. I was curious as to how bad the damage was going to be so I looked at some “hard businesses“, including Imperial Sugar, which is a marvelous example of a real world “value trap“, as they are called. It also demonstrates the importance of knowing financial history (see update note on post). Originally published May 14, 2010. 637 words.
- The S&P 500 and U.S. Household Wealth Have Reached Record Highs – I wrote this only a few short years after the worst collapse since the Great Depression. The speed at which the United States recovered without sending us into a multi-decade downward spiral was, and is, truly impressive. The fact that this recovery was not broadly shared, like past recoveries, was a by-product of structural economic changes that are as profound and wide-reaching as the move from an agrarian to industrial society. It’s going to get even more interesting over the next 10 to 20 years when the remainder of most low-skill work will be automated. The political unrest is likely going to be extraordinary unless we get some sort of forced Keynesian economics that temporarily kicks the can down the road, such as a World War III. Though, that could turn out to be even worse. That’d be a whole different discussion. Originally published October 19, 2013. 1,262 words.
- Income Inequality Is Partially Caused By Women Joining the Work Force – I’m not sure why people are surprised when smart women want to marry other smart men or women. Add two earners in a household, both of whom are educated and making decent salaries, and you have a new source of structural inequality. I’d argue that family structure is the major source of advantage or disadvantage today. I can’t come to any other conclusion looking at the data. As I mentioned in the update note on the post itself, in the six years since it was originally written, this trend has not only continued, but accelerated. Successful individuals are self-segregating, coupling up, then moving to concentrated geographic areas to be around others like them. The result: over the past ten years, nearly all of the economic gains have gone to the top fifty banking markets. Meanwhile, additional trends have begun to develop within the marriage figures themselves as individual freedoms and equality expanded. In August 2016, the Department of the Treasury, through the Office of Tax Analysis, released Working Paper 108, entitled Joint Filing by Same-Sex Couples after Windsor: Characteristics of Married Tax Filers in 2013 and 2014 [PDF]. Note that this followed the Supreme Court Windsor decision saying the Federal Government must recognize lawful marriages of same-sex couples but before the landmark Obergefell decision that required every state to perform such marriages and offer them on the same terms as opposite-sex marriage so the full effect had not even begun to hit, yet, and won’t be measurable for several years. That working paper found that on their 2013 tax filings, married opposite-sex couples earned $107,970, a number far above the typical American household. Married female-female couples earned even more at $124,760. Married male-male couples earned an astonishing $165,540. Economies of scale matter. Any system that leads to greater individual freedom of choice is going to lead to greater inequality. This inequality has also been exacerbated by changes in interest rates; something that plays a far more powerful role than most people realize. A reasonable person might logically conclude that inequality is here to stay unless family formation and incentives are addressed. Even then, it might have risen a naturally higher baseline than was the case in the past as a result of these greater individual freedoms and the resulting economies of scale. Politicians and policymakers refuse to address this for fear of hurting people’s feelings so it keeps happening. Sometimes, fixing a problem requires feeling bad for awhile. That’s life. Originally published August 26, 2013. 1,894 words.
- There Is a Great Depression Happening In Several European Countries – Across the Atlantic Ocean, several members of the European Union were experiencing an economic catastrophe that was, for them, on scale with what the United States went through during the Great Depression. To illustrate the depth of the pain using two examples, the unemployment rate in both Spain and Greece stood at 27.2% when this was written. Things have improved since then but the recovery in Europe is still far behind that of the U.S. Originally published April 25, 2013. 979 words.
- Horne v. Department of Agriculture: Supreme Court Hands Down Major Win for Constitutional Property Rights – I love posts like this. Answering tough questions such as the one posed in this case is the work of building and maintaining a civilization. It also reveals the beauty of the American system of checks and balances despite their occasional failure. Originally published June 24, 2015. 1,584 words.
- Mail Bag: How To Save Money on $40,000 Per Year – This was another post that was specifically requested in the comments so I’m restoring it. When it was written, it really angered some people. It’s worth noting that were I writing it today, my response would be different because conditions are different. Note that $40,000 in April 2013 is the equivalent to about $44,000 as of last month, April 2019. To feel comfortable releasing this, I make a few non-material clean-up edits but, unfortunately, I couldn’t find high-resolution pictures of the house I used as an illustration. Still, comparable houses are available all over the U.S. For example, in the city where Aaron and I lived before moving to Newport Beach, a decent place might run you $125,000 to $189,900 with a 4.1% fixed-rate mortgage rate, give or take before any points. Alternatively, I might take advantage of different FHA programs for owner-occupied multi-unit housing that allow small down payments and can facilitate an entrance into investment properties (though not without risk and labor). I’d still consider a barely-used Fiat as a car. As I’ve mentioned in the past, my emphasis on side cash generators would be on digital goods these days, most likely not retail as I think the landscape has shifted substantially. This post is not financial or investing advice. It was an academic thought experiment based on my own life experience and success with frugality. Originally published April 25, 2013. 2,329 word count.
- I’ve Become Obsessed with Fine Cheeses – Oh my gosh, that Merlot cheese was so good … I need to get some. I love the expertise in this community. Read the comment chain. It’s so helpful! Originally published October 19, 2013. 730 words.
- The Ceramic Mr. Monopoly Bank Arrived – This post was requested in the comments. I am so glad I have this bank. I really like it, even all these years later. Originally published September 14, 2011. 66 words.
- My Birthday in Pictures – September 16, 2011 – This was never made available despite being written. It had a picture of the Monopoly lamp I ordered at the same time as the ceramic Mr. Monopoly bank in the last item (see above). Written September 16, 2011. 99 words.
- The Oil Tankers Are On Their Way – This was a requested post (there are several related oil toy truck collectible posts that I’ll be trying to track down and restore in my spare time today). I used them as an example of how I made the concept of business ownership tangible. It was a wonderful psychological tool that works with how I’m wired. Originally published April 19, 2013. 283 words.
- I Found a Model Total Oil Truck! – This was during a period when I building a collection of diecast replica oil tankers for our family investment cabinet. It was related to one of the requested posts and I’m working my way through them now. As part of the release from the private archives, I went back and inserted high resolution images and adapted the post to the new blog template. Originally published April 22, 2013. 442 words.
- Energy, Oil, Natural Gas, Pipelines, Refining, Coal and Timber – This was a project that involved setting up a segregated custody account for the specific purpose of acquiring energy assets when and if they became undervalued by our estimates. Although it is long out of date, and we’ve restructured our family portfolio so that it no longer exists in this form, it’s one of those pieces that helps provide insight into how we were thinking all of those years ago with our core online businesses churning out cash and our diversified collection of holdings serving as a way to plant additional economic trees. Originally published April 18, 2013. 1,351 words.
- After 9 Years of Waiting, I Finally Have Scrooge McDuck’s Evening Adventure Added to the Collection! – Some of you might remember the other day when I left a comment on this post (you have to expand it to see it all) showing a picture of my desk? Or at least part of my desk? In the corner, I have a beautiful Scrooge McDuck figurine. This is the story of my nine year hunt for it and the night I finally got it. It was one of the requested releases from the comments so I’m going to go ahead and restore access. It makes me happy reliving that victory … I waited so, so long. I’m always tempted to buy another as a backup in case anything happens to it but what is the saying – “enough is as good as a feast?”. I’ll leave them for others to enjoy. Right now, there is one selling on eBay for $175 + shipping. They make me so happy!!! Originally published February 12, 2013. 1,375 words.
- The Site Will Be Migrating to a New Theme and Undergoing Tests for a Couple of Weeks – Please Don’t Mind the Mess – If you are new, and ever want to see what one of the earlier versions of the blog looked like, here is the screenshot. Originally published April 25, 2015. 934 words.
- We’re Turning Back On One of the Caching Systems Today So The Blog Should Start Loading Much Faster – This was an easy one to restore. If I’m going to ever make it through this enormous collection of writing, I need to get as much cleared out as quickly as I can during my free moments. Originally published June 2, 2015. 281 words.
- Crown Maple Syrup from Madava Farms Should Be In Your Pantry (and a Case Study for Your Entrepreneurial Files) – Oh my gosh we love this stuff!!! One of the many things we discovered, with delight, upon moving to California was that we could buy enormous 25 fluid once bottles of bourbon barrel aged limited edition varieties at a local grocery store. Originally published March 10, 2015. 1,060 words.
- You Can Get Free Pancakes If You Go to IHOP Today! – This turned into a long discussion of the pancake and maple syrup industry in the United States. Originally published March 3, 2015. 1,497 words.
- Surprise, America! Your Meat Is Held Together By Meat Glue and Some Hershey’s Isn’t Even Chocolate, Anymore – It’s possible your beef, pork, lamb, fish, or chicken is really a bunch of scraps held together by something known as meat glue, or transglutaminase enzyme. The next time you go to the store, you may want to check for it so you know what you are actually buying. Originally published September 11, 2014. 1,650 words.
- French Stocks, Protestantism, and Old Money – This was an update into what was happening in my life at the time, thoughts on cultural differences in wealth and work expectations, and other commentary. Originally published April 30, 2015. 1,322 words.
- The Socialists Have Taken France – France stupidity implemented a 75% top tax rate only to … you guessed it … quietly reverse it years later because it was hurting the country. Who could have seen this except for … everyone who ever studied economic history ever? Someone who advocates for socialism is as ignorant as someone who believes vaccines cause autism or who denies that climate change is happening. The data is overwhelming. Facts are facts no matter how you feel about them. The question is one of values and trade-offs; what are we willing, as a civilization, to sacrifice today in order to accommodate different decisions that may have severe long-term consequences. Originally published May 6, 2012. 777 words.
- Wrapping Presents and Getting Ready for Christmas Eve – This was the year we gave our nephews and niece shares of Hershey along with giant boxes of candy to unwrap under the tree. It was also the year we got one of my brother-in-laws this awesome thermos that looks like a shotgun shell since he is a firearms enthusiast. My favorite thing, though, is the audio file you will find embedded in the middle of the post. My then-youngest nephew and I were watching Teenage Mutant Ninja Turtles and he kept saying the name. I recorded it for Aunt Donna to hear. Since there are no pictures or anything like that, I’m fine leaving it up. It makes me smile, even all these years later. December 23, 2014. 1,137 words.
The project continues. I haven’t posted for awhile because I decided I wanted to devote some of my personal time outside of work to studying a few other businesses that I might want to consider for the asset management company and, to be candid, that is always going to be my priority. Once my mind gets going on a specific industry, I can’t stop. I need to understand it to figure out if there might be a way to potentially profit from it, maybe even years down the line when and if the relationship between price and intrinsic value changes. (Plus, let’s be real – those of you who know me realize the firm’s hours may be Monday through Friday, 9 a.m. to 4 p.m. Pacific time but I don’t really stop working. Ever. Even if you see me sitting my a pool on a weekend, I’m probably reading an annual report or taking a break from analyzing something. If you see me on a random afternoon walking into a movie theater, it’s probably because I have been up since 5 a.m. and looked at Aaron, saying, “I need to let this settle to organize my thoughts. Let’s take a break.” It doesn’t end. I do it because I love it. It’s not work to me. It’s 7:44 a.m. as I write this and I’ve been up since, maybe, 4:45 a.m. or a bit later and have already been thinking about everything from bourbon tariffs to different risk models for traditional banks if the U.S. government were to ever attempt a digital cash alternative to paper currency which very well may come at some point. That’s a whole other conversation for a whole other day but I could talk about it for hours.)
Anyway, as I start this next group, we are up to 135 restored posts, or 150,301 words. That seems so insignificant compared to what remains in the private archives but I have to approach this like trying to move a mountain one stone at a time otherwise it might be completely overwhelming. There is a real possibility that I might still be restoring posts six months or a year from now. It will happen when it happens, when and if I can find a few minutes here or there to do it during my personal time such as nights, weekends, and/or coffee and lunch breaks. That’s the best I can do. I’ve said it before but I hope you can understand. I really want to do this for you all. It’s been amazing hearing and reading some of the comments, e-mails, and face-to-face stories about ways in which different posts over the years have helped many of you in your own lives and careers. Knowing that anything I’ve said or written made your own journey easier … it brings me more joy than you could ever imagine. Aaron and I are rooting for you!
20 Posts Re-Opened from the Private Archives on May 29-June 24, 2019 – 26,603 words
- The Kennon-Green Family Method for Managing Life and Business: How We Arrange, Evaluate, and Oversee Our Home and Companies – This is a post I am restoring by request. It details one of the core strategies we used in the early years to achieve our success and build the life we wanted. It still sits at the heart of how we operate. Even though it doesn’t receive a lot of attention, buried among the millions of words I’ve written over the years, it’s probably one of the most important things I’ve ever penned. It sounds simple but if you actually do it, it can take you further than you ever imagined. Originally published November 16, 2011. 3,041 words.
- How to Measure Your Wealth – This is another post I’m restoring by request. It talks about two different philosophical approaches to viewing and measuring wealth, one which I all the American approach and the other, which I call the British approach. Originally published February 2, 2011. 1,389 words.
- Income Inequality Is Caused By Single Parent Households and Assortative Mating Habits Just as Much as Technology – I’m restoring this post due to a request in the comments. This is another one, written almost a decade ago, where I looked at the fact that there is academic evidence that a meaningful percentage of income inequality in the United States was being driven by family formation and assortative mating – namely, once society became more equal and gave people individual freedoms, such as gender equality between the sexes and, later, equality in marriage for same-sex couples – smart people began to separate from the rest of society, segregating themselves and marrying others like them. This led to economies of scale in the household and the opportunity to invest surplus earnings. Over decades, and a lifetime, that advantage turned into an almost unstoppable force as these power couples leave everyone else in their dust. As life expectancy increases, and people are free to make more and more decisions about their lives and investments, the tyranny of compounding is going to cause exponential differences in life outcomes even among people who were similarly situated in the beginning. Originally published May 4, 2011. 1,646 words.
- Mail Bag: Buying Stock When Valuations Are High – This was the predecessor mail bag response that caused me to later write a much more expanded stand-alone post called Market Timing, Valuation, and Systematic Purchases. Originally published October 17, 2015. 3,495 words.
- The Missouri Sky – The thunderstorms and sunsets really are amazing in the Midwest. Originally published June 19, 2014. 446 words.
- Don’t Give In To the Siren Call of Leverage – It’s amazing how much misery you can escape in life if you live within your means and avoiding trying to get too rich, too quickly, instead letting compounding work its magic over time. Originally published March 12, 2014. 1,220 words.
- Visiting Aunt Donna, Mexican Coke, Race Cars, and Putting Together a Retirement Plan – Okay, a few things before I jump into this. As you probably saw, in the past 24 hours, I’ve posted two new blogs. One of them is about Omomo tea in Irvine, California, which is awesome. The other one is the detailed 2019 blog demographic breakdown, which is the first time I’ve updated the figures in four years. (Fun fact: 30 out of 100 of you have $1,000,000+ in investable assets. Check out the post for more details.) Alright, with that out of the way … this older post, which was a typical update for family and friends, demonstrates how the nature of the site began to change. The conversation in the comments thread became a detailed discussion about investment philosophy and our approach to building wealth. On a post about signing Aunt Donna up for Netflix and buying Mexican Coca-Cola. Originally published December 16, 2013. 764 words.
- Mail Bag: Why Do The Affluent Refuse to Help Poor School Districts When It Is In Their Best Long-Term Interest? – This is a response I wrote to a question more than five years ago. It’s been interesting in the years since given how extreme the problem has grown. Education reformers have essentially destroyed the system in some major school districts due to a refusal to accept human nature and some plainly evident facts. Now, they’ve gone off the deep end with policies advocating for the end of honors classes, further ensuring a rapid decline in public education as successful families opt out of the system. Originally published March 13, 2014. 2,460 words.
- Investing In Corporate Bonds and Debentures Is a Bit Tricky At the Moment – This is a snap-shot into what the blog was like years ago and gives you a glimpse into how I spent my days during part of that period; when Aaron and I had built our private businesses and were focused on accumulating and investing capital. One of the really interesting things that came out of it, and that I never bothered to update on this page, was a follow-up to a 2005 comment that Charlie Munger made about not wanting all of his money in a brokerage account. That turned out to be slightly incomplete. He wouldn’t want all of his money in a margin brokerage account and part of the reason was something known as rehypothecation, which I wrote about several years ago when I was still running the Investing for Beginners site. (As always, ignore the update date on that page because I resigned from the network in 2017 so it means someone has come along after me and edited the content. I have no control over that.) The short version: the way the financial system is structured in the U.S., assets held in cash-only brokerage accounts must be segregated whereas assets that are pledged against margin debts can actually be seized by the creditors of a failed broker-dealer. There is some mitigation in the form of SIPC protection but (and the comment referenced was originally made 14 years ago) Munger was talking about a $5,000,000 balance, most of which would have been exposed beyond that amount. If I woke up today and were in the same situation as the referenced comment (e.g., say I were 75 years old and my entire net worth consisted of $5,000,000 in a brokerage account), I’d be perfectly fine having all of it invested in a mix of stock and bonds provided the rehypothecation risk had been mitigated. The easiest way for the average investor to do that is to keep a majority, if not all, of his or her securities in a cash brokerage account that does not have margin trading ability added to it. That is an extremely important distinction. You know it already but I’ll repeat it: none of this is investment, tax, or legal advice. Originally published February 11, 2014. 1,366 words.
- Eli Lilly and the Insanity of Foreign Taxes – After posting the Elton John videos on the 2019 Demographics update, I came across this short post from years ago. I was listening to a song called Snookeroo and found the original demo he recorded for Ringo Starr as well as the finished version Ringo Starr released, which became the “B side” of a #3 hit here in the United States, while lamenting the self-defeating insanity of the U.S. corporate tax system, particularly as it applied to multi-national pharmaceutical companies. Originally published February 12, 2014. 394 words.
- HSBC, One of the World’s Largest Banks, Makes Customers Provide Proof They Need Money Before Processing Withdrawal Requests – The arrogance and audacity of these bankers still astonishes me years later. Originally published January 26, 2014. 538 words.
- My Objective: To Take $2.4 Million from the Stockholders of KCPL Over the Rest of My Natural Life Expectancy – I had so much fun – and learned so much from many of you! – when Aaron and I ran this as one of our efficiency improvement challenges. That project paid for itself very, very quickly. January 22, 2014. 839 words.
- A Mental Exercise: What I’d Do If I Lost Everything – As I explained in a comment response earlier this morning, this is one of those posts that is so old, and from such a different time in my life, that my response today would be entirely different. In addition, I wouldn’t have written this the same way as I did when it was intended almost entirely for friends and family. You really should read that linked comment for my full thoughts if you’re interested (you need to click on it then start scrolling down the page; it should jump to the right comment once Disqus loads). Anyway, the real value is in a response I wrote on the page itself because I talk about how the DuPont Return on Equity formula had an enormous influence in the way we selected projects and how we thought about building cash generators. Originally published January 30, 2011. 435 words.
- The Energy Saving Investigation Continues! – This was a follow-up post where I used many of the helpful suggestions from the community for how to radically cut our electricity bills and save money. It was a fun project I really enjoyed down to the point I was calculating our return on capital employed by switching out more efficient light bulbs. Originally published September 22, 2013. 977 words.
- I Think Someone Is Stealing My Electricity … or the Power Company Is Making Up Numbers – This is the post that began the energy saving project. It’s really crazy to me to see how high those kWh Usage figures are now. A quick back-of-the-envelope estimates shows that by 2017, we were running between 30% and 50% lower energy usage, on average, due to the improvements we ultimately implemented. Aside for being better for the environment, our typical utility bill plummeted as a result. For example, in June 2012, we used 3,066 kWH for $351.72 and the following year, in 2013, used 2,266 kWh for $293.48. In contrast, in June 2017, which was the last full year we lived in Missouri, we used 1,292 kWh for $168.39. Originally published September 20, 2013. 1,673 words.
- An Update on the (Almost) Year-Long Energy Saving Program – This was a more detailed breakdown of the results of the energy reduction program comparing back-to-back years after making modifications in our house. Small things matter. Originally published September 8, 2014. 391 words.
- Mail Bag: Applying Value Investing to 3rd World Countries – I hesitated to write this mail bag response about Zimbabwe because it required me to differentiate between what was good for the individual versus what was good for the nation, concluding that, when push came to shove, the reasonable response was to prioritize the well-being of one’s own family and emigrate. It led to a discussion of discount rates in making trade-off decisions. Originally published July 27, 2013. 3,628 words.
- The Sims 3 Reveals My Strengths and Flaws – This is one of those more pointless posts from back when the site was smaller. Aaron and I really did spend our twenties largely collecting money from our cash generators, waking up, and deciding what to do with our day. Some days looked like this … I had so much fun with this game despite the severe limitations on creativity (e.g., real estate options were limited, you could only have a certain type of statue, etc.). I don’t have problems starting, and finishing, projects. I can stick with projects for years until they do what I want, constantly plugging away at them until they submit to my will. As I’ve gotten older, I think that explains a lot of outcome differentials. It seems like some people never start at all. Others start but don’t finish. Remember this truth if you want to get ahead: a good plan that is executed and actually finished is better than even the most perfect plan that remains incomplete. Do the work. Finish the task. I’ll take one decent company with good profits that actually exists over five brilliant ideas that haven’t materialized, yet. July 12, 2013. 414 words.
- Reflections on Superman and Mickey Mouse – It’s no secret I have a fondness for the power, and profitability, of intellectual capital. Good intellectual capital, properly monetized, can be a gift that keeps on giving, generation after generation; a source of wealth that showers its owners in streams of cash. Watching the decline in the market value of the Superman franchise as it lost cultural relevance is something that I needed to understand; figuring out what made him different from someone like Mickey Mouse who had managed to not only stay relevant, but actually grow in popularity. This post was me writing out my thoughts to better structure the puzzle I needed to solve. Originally published June 27, 2013. 880 words.
- Microwave Cooking for One Is the Saddest Book I’ve Ever Seen – I remember when I first encountered this book, it made me feel such a deep sense of sadness for the author and the people who were buying it. Today, while it still makes me feel sad, I appreciate the drive and productivity it took to attempt to do something of value. I feel like that should be commended. It’s also fascinating that she mentioned the oven that they were using cost $600 six years prior to filming the embedded video clip on a Tampa television show, putting the purchase price in the year 1980. On an inflation-adjusted basis, before sales tax, that means the microwave would have cost $1,975 today. People really take for granted how much progress we have made as a society over the past few decades. 608 words. Originally published October 6, 2013.
I’m returning to this project, a year later to the day, because I was on the phone with one of my siblings and they asked about an old post. I’ll try to keep updating what I can when I can.
24 Posts Re-Opened from the Private Archives on May 29-[In Progress], 2020 – 32,627 words
- The Ugliest House in the World – I was completely, totally befuddled by every choice that went into the design and construction of this house until, later, the new owner wrote and explained it had been a marijuana grow house, solving part of the mystery. I still don’t get it – if you were going to have that sort of botanical operation, wouldn’t you want it to look like a nice Apple or Tesla-style laboratory with hydroponics and white lab coats? Originally published March 19, 2014. 784 words.
- Otherkin and Mental Models – Oh boy, this was a topic. It became a popular target for people identifying as Otherkin – folks who are convinced they are really, say, a cat or a half moose – who were convinced that somehow I had just misunderstood them. Originally published May 29, 2013. 1,165 words
- Scared of Stocks, Young Investors Park Money in Cash – Written a decade ago, this was in the immediate aftermath of the Great Recession. I had read a news story detailing how young people were avoiding stocks, opting for certificates of deposit, instead, on capital that was meant to be put to work for decades, explaining why I thought it was a mistake. My inflation expectation turned out to be too conservative compared to what materialized – I assumed depreciation in the currency would be higher when actual inflation on a CPI basis between then and now meant $1.00 then now has the same purchasing power as around $0.8457 today for a decline of nearly 15% – but the general thesis was correct and it was an enormous mistake at that time for young people to eschew stocks at bargain basement prices. Originally published December 23, 2010. 1,185 words
- Why Does the Subsidized Hardware Model Bother Me So Much? – Another post I’m restoring by request from the comments. Originally published August 20, 2014. 960 words.
- Borders Group: The Single Dumbest Investment We Ever Made – Yet another post I’m restoring by request, this is one of the oldest on the site. It makes me feel nostalgic about a time in my life that now feels more like a dream, fading a bit into the background. Aaron and I were running our letterman jacket ecommerce business, and dreaming up other companies to start. The model was producing free cash flow from all of these different projects then deploying it to a portfolio of securities, all of it working together as part of our compounding machine. This was a case study of one of the rare times we underestimated how rapidly a long-established business, bought following a 50% decline and attractive by many traditional metrics of valuation, could implode when everything else around it went wrong simultaneously, including the invention of the iPhone and iTunes store (cutting into physical CD and DVD sales), the rise of Amazon (as well as the release of the Kindle e-reader), ill-timed share repurchases, then the tsunami that was the greatest recession since the Great Depression. It was an important early lesson, especially about the robustness of our business model. Profits and cash flow flooded in from our other holdings, including letterman jacket award profits, letting the experience be little more than a footnote, telling us that what we were doing worked, and resilience – avoiding wipe-out risk – was paramount. Although I’m so happy with where I am, I wouldn’t want to go back, I miss parts of that time in my life. I miss shopping at Borders, getting a coffee at the cafe, and going home to the house Aaron and I had just purchased. It’s late. I’m feeling sentimental. Originally published September 28, 2010. 1,828 words
- If Reincarnation Were Real, I Must Have Been John Stuart Mill in a Previous Life – Restored due to a request in the comments, this post was written when I was in my twenties. I was reflecting on the fact that, after having spent years trying to understand the world and what I believed, I stumbled on to John Stuart Mill, who effectively had beat me to many of the same conclusions by about 200 years; that, had I found his writings as a teenager, it could have accelerated my understanding and development of certain areas. Originally published September 27, 2011. 597 words.
- The Importance of Frugality in Building Wealth – I’ve received a couple of requests to reopen this old post. If I wrote it again, today, there would be some material differences. I think the economic structure of the country has shifted enough that the exact strategies necessary to amass significant wealth are slightly different although frugality will never go out of style in that regard. The big point I would reiterate is that frugality is best understood as a a relative metric, not an absolute metric, when viewing the mathematics of building a compounding base and deciding trade-offs for daily enjoyment. Originally published February 4, 2010. 1,659 words
- The Peasant Dishes Continue with a Cream and Chicken Soubise – This was from our kick learning about the historical concept of so-called “peasant dishes” in cuisine. Restored by request. Originally published January 22, 2013. 713 words.
- 3 Exceptional Cheeses You Should Consider Adding to Your Kitchen – Restored along with the previous post, this piece was about three cheeses we had discovered and really enjoyed using in some of our recipes. Originally published October 18, 2013. 748 words.
- Brown-Forman Is One of the Best Businesses I’ve Ever Seen – Another one of these nearly decade-old posts restored by request, this was around the time I was really discovering and appreciating the extraordinary nature of the economic engine at the heart of one of the world’s most successful distilleries. So much has changed since it was written. For one, we divested our GE shares years ago, pocketed our profits, and moved on because I didn’t trust management’s word any more and had questions about the accounting integrity, and two, Brown-Forman now represents a significant holding for not only the Kennon-Green family but many of the earliest clients of our asset management firm. Originally published August 10, 2011. 1,698 words
- We Are Living in the Midst of One of the Biggest Bond Bubbles in History – Restored as a result of a request in the comments, this is a slightly more technical piece on the massive overvaluation of intermediate and long-dated bonds as of September 24, 2010. Bonds in those days were absurdly expensive, especially compared to stocks, and it made no sense for someone to load up on them. As expected, stocks have utterly crushed comparable bond holdings over the nine years that have elapsed. In addition, inflation and taxes would have eaten effectively the entirety of interest income for many investors. This is really fascinating to read at the present moment, though, because the unprecedented intervention of the Federal Reserve as a result of the pandemic we are experiencing as I write this means that interest rates have been forced back to near zero, again. This time around, stocks are nowhere near as cheap as they were, either absolutely or relative to bonds, but they still represent the better deal for people with a multi-decade horizon, in my opinion. Please forgive the language but I want to be blunt: There is simply no way that a person buying, say, a 30-year bond at today’s prices and who expects to hold through to maturity isn’t going to get his or her ass handed to them sooner or later. It may be 15 years from now but it’s going to be horrifically ugly. I’d be scared to take the duration out further than 5 to 8 years. The Fed has all but destroyed the saving mechanism and distorted the market in a way that is creating a lot of perverse incentives. More and more investors are getting pushed into stocks who have no business being there if left to their own devices but who have little choice now that cash and fixed-income are to be sacrificed on the altar of keeping asset prices elevated for the rich. Originally published September 24, 2010. 1,346 words
- Vanguard Accused of Dodging Nearly $35 Billion in Taxes – Expense Ratios May Need to Quadruple According to Expert Report Submitted to IRS – Restored by request in the comments, this was a massive news story that broke many years ago. Subsequently, it has sort of been forgotten by the public. It deals with a fascinating, and extremely complicated, area of tax law and regulation. Originally published December 5, 2015. 5,470 words
- We Survived an Influx of Roughly 187,000 Reddit Users Caused By an Old Post on Secret Coca-Cola Millionaires – I wrote this following one of the times the blog had suddenly found itself on the front page of Reddit, causing a massive server strain and a large influx of advertising dollars. (This was before Aaron and I made the decision to eliminate 99.9% of the ads on the site for a better reader experience; something that we plan to keep indefinitely but that we reserve the right to reverse if we think it would be prudent to do so.) Originally published July 11, 2015. 802 words
- Kimble v. Marvel Enterprises: Supreme Court Clarifies Intellectual Property Contracts in Spider Man Dispute – If you weren’t careful in drafting that patent royalty or licensing agreement, the Supreme Court confirmed the intrinsic value of your cash flow stream is a lot smaller than you thought following its refusal to overturn an older decision from the 1960s. Cases like this matter a great deal even though they often don’t get the coverage they deserve. Originally published June 25, 2015. 3,188 words
- Mail Bag: Why Would an Investor Ever Buy an Asset Intensive Business? – This was a reader question asking about the reasons a person might buy an asset intensive business if companies with high returns on net tangible capital were better overall / generally speaking. Originally published August 20, 2014. 1,006 words.
- Mail Bag: Do You Still Hold Index Funds in Your Charitable Foundation? – This dealt with our family’s charitable foundation, structured through a charitable gift fund as it offered better privacy options due to the lack of 990 disclosures that could be traced back to us. The product and service offerings have advanced enough in this field that we expect, at some point in the future, to run-down the existing charitable structure and, instead, spin-up one that allows for individual investments, instead of index funds, managed by our asset management firm; something that wasn’t possible all those years ago when this was originally published. Another small note, in the years that have passed, we renamed the charitable gift fund the “Kennon-Green Family Foundation” so even the name is different. Originally published November 14, 2014. 2,159 words
- I Believe USA Today’s Money Section Is the Worst Run Financial Publication in the United States – The state of financial journalism, and financial education, in the United States has always bothered me. It’s been particularly bad with even publications such as as The New York Times degrading pretty materially in recent years. I think a lot of this has to do with the introduction of comments sections in news sites, which then influences the direction of reporters. For example, The New York Times, which I just mentioned … the comments on articles dealing with taxation and/or economic policy during this pandemic have been ignorant and dangerous. It does not bode well for democracy. Originally published August 13, 2014. 1,472 words
- Two Barred Owls Moved In Behind the House – Throughout the years we lived in Missouri, we saw several cycles of animal migration move through the trees and creek behind our house. There was a period where two owls moved in and watched us through the windows. Originally published August 5, 2014. 201 words
- Kennon Logistics Is Off to a Rough Start – My niece nephew were visiting so we played a video game that has subsequently turned into one of the best selling games of all time on Steam called Eurotruck Simulator 2. You basically are responsible for a trucking company and have to navigate the roads of Europe to deliver your goods. It’s a lot of fun. It could also be a really beneficial tool to learn certain business concepts for younger people. Originally published July 3, 2014. 280 words
- Mail Bag: What Do You Think of Jesse Livermore? – This was a question I received about a famous historical financier who, multiple times, built enormous fortunes from relatively small compounding bases. Originally published April 4, 2014. 1,021 words
- Any Of You Playing the New Final Fantasy XIII Lightning Returns? – It’s really interesting reading this because I was not optimistic about the third installment of in the trilogy but after finishing the game, it became one of my favorites. It was so well done and I’m glad I gave it time. I still believe that Square Enix has ceded a lot of ground to companies like Ubisoft and Bandai Namco when the entire market could have belonged to them. Originally published February 23, 2014. 864 words
- Magento, Shopify, Castle Story, and Five Guys – This was one of those random update posts that provided a glimpse into our day-to-day working. At the time, we were facing a major decision, which was which e-commerce platform to choose as the new home of our sporting goods businesses because it was clear the legacy system we were using, built on Yahoo!, which originally dominated ecommerce across the world, was never going to be upgraded (it seems like a lot of people have forgotten that Google making it to the top was just as much a matter of Yahoo’s management being a disaster as it was Google’s own good decisions). Originally published January 31, 2014. 1,286 words.
- The Magic of Magento for E-Commerce – This was related to the above post, towards when we had first discovered Magento and it looked fascinating. It’s gone through a lot of changes since that this post was first written and now is part of Adobe Systems. Originally published January 8, 2014. 472 words.
- How We Made $100,000 a Year as Full-Time College Students – I received a request via email from a member of the community to restore this old post. Being so old, it should be updated for inflation but I am leaving it as is. On an inflation-adjusted basis, in 2020 purchasing power terms for a more updated comparison, Aaron and I were generating household income of somewhere between $107,600 and $134,500 as full-time college students studying classical music. This was done through various side projects, activities, and cash generators. Our rule was simple: Find a way to give people something they want – a real product or real service that they desire and which can be delivered at a profit – then do it, building scalable systems so the initial work essentially created annuity streams. Then, use the cash flows from those annuity streams to buy productive assets (in our case, an emphasis on undervalued stocks). That was the model. Originally published February 8, 2011. 1,723 words.