Advanced Robotics

Warren and the Blustery Day June 20, 2009

I read a comment on derivatives trading comment on the Wilmott web site about Warren Buffet. Warren, like most wealthy people believe he’s better than the rest of us. Even if not better then smarter because intelligence correlates with wealth. For those that are unfamiliar with derivatives trading it is something large firms do to hedge against problems which is also known as risk management.

Warren Buffett is a blow hard, and rather than keep his comments to areas where he has expertise like long term buy and hold strategies, he moves into an area where he has no expertise, like economics. Warren got his degree more than 50 years ago in the classic Keynesian crap that is taught at most universities around the world.  His large personal fortune makes people look to him for wisdom, as if money conveyed that. The Protestant Epic reified: more money, more wisdom. This can make his advice dangerous if heeded. Albert Einstein was a genius in physics yet a fool in economics. I do not appreciate Warren’s economic nostrums because they are dangerous and here is why.

We’ll start with 2 purported facts: in 2006 he was worth 62 billion USD (Forbes) and at the end of 2008 he was worth 37 billion USD (Wikipedia) which is a net loss of some 25 billion USD making him one of the greatest losers in investment circles. When Warren loses a dollar that loss propagates to every stockholder in Berkshire Hathaway. So another 25 billion or more equity evaporate and go to “money heaven”, pushing him ahead of  that alleged thief Bernie (Scumbag) Madoff.

Warren has done well for himself, but not as well as he could have. His comments on derivatives indicate that he just does not understand them, which is not surprising given how little he values math beyond high school algebra in his public comments. Still I never heard the Wizard of Omaha talking about luck. He has been a savvy investor for most of his career, but luck has been a huge, if not gargantuan factor as well. Warren was lucky to have a businessman father that became a congressman at just the right time for Warren to get introductions into the right circles. This is something most of us, the benighted masses, cannot rely on. In computer engineering terms this is not a scalable solution.

Of late Warren the Wizard has been a complete dunce. I am not talking about the topological dunce cap, but rather the stick your nose in corner and sit quietly on a stool kind, since 2006. If I were amongst his shareholders I would have recommended to fire him. In 2006 I publicly made the call that the housing market was tanking and gold was skyrocketing based on nothing more than reading a couple of Ludwig Von Mises books (Socialism & Omnipotent government)  see: http://www.lewrockwell.com/orig6/giles3.html. You can get these at http://www.mises.org for free along with Human Action the magnum opus of human nature and relationships.

When all your co-workers are talking about investments  and you are not working at investment firm or bank then a bubble is forming and popping courtesy of John Maynard Keynes.

Warren is a closet socialist who will most likely lose or squander his fortune faster than he made it (pretty much the way it always seems to go ). Given his losses of late I cannot see why anyone would want his advice, unless it is on corporate tax avoidance through tax loss carry forwards. Not exactly the stuff that CEO’s are supposed to be made of.

Clearly Warren does not understand economics, history, or financial mathematics. Had the “Wizard” known any one of these three subjects he could have done better than losing the tens of billions of his own and other people’s money.

Bill Gates is a bona-fide genius. He has restructured the face of computing worldwide through his creative talents. He also had some luck; like being born into a family that valued education, placed him in exclusive private schools, raised him in a surrounding that valued intellectual creativity and freedom. It was also luck that  soon after he bought an operating system his mother “knew” the Chairman of the Board at IBM just when they were looking for an x86 architecture based operating system and made the introductions. The rest, as they say, is history. Bill would have done well had he heeded my advice in 2006 as well. Still not a scalable solution for the rest of us.

As an investment adviser I have done pretty well, even thought I remain mum most of them time. I got my brother out of Silicon Graphics in 1994 when the stock was at $40 USD, I put him in around 10. I put him into Apple when it was $15, among other buy orders. Still he did not take my advice to triple mortgage his house and go long on RAMBUS on opening day 1997 and works instead of retiring in opulence.

Why do I make such excellent market calls?  It is simple I understand a little about economics, a lot more about the computer business, and I do not trade stocks. I have 2 shares of GM that were given to me when I worked their more than 25 years ago. I left Michigan and the automotive business in 1989 because it was clear to me that that particular train was going off the tracks.

If JP Morgan, John D. Rockefeller, or Nathan Rothschild were alive today they would be aghast at the concept of trading in stocks. A stock or an equity position was investment; you bought a share once, and it paid dividends forever or at least until old age and death intervened.  You only sold when it stopped paying dividends or  the P/E ratio was not what it should (typically a precursor to not paying dividends). One did not buy stocks in companies that lost money or did not pay dividends. If you were a General Manager/President ( the term CEO did not exist in the lexicon of their day) that lost Morgan, Rockefeller, or Rothschild money it would only happen once. Job jumping one step ahead of the ax was just not tolerated.

If you follow my advice, stay liquid through debt avoidance. Put 10% in gold coins as a hedge, split the rest into thirds: 1/3 to buy and hold stocks in firms that consistently pay dividends, 1/3 on high quality bonds and the remaining 1/3 in money market funds. If your broker is calling you with advice give him a warning, that if he does it again you will fire him. If he does call a second time, then fire him.

If at any time you are uncertain about major market swings sell everything and be liquid. I would recommend swiss francs with a major non-US bank. Keep your 10% gold regardless, if nothing else it will be a lesson in discipline, plus it looks nice. This is good advice because I do not buy or sell stocks and thus have no vested interest, unlike Warren, Bill, or Allen (I will rot in Hell for what I have done) Greenspan.

Remember: “finance is what you do with your own money, economics is what the government does with everybody’s money”.  What governments do with it is almost invariably bad, they waste it, lose it by making bad investments with crooked friends, destroy wealth of others thanks to the War Department, or inflate it away to nothingness.

P.S. Money Heaven is a place that does not exist so when your money goes there it no longer exists. Too many people believe that money is lost when you buy a stock which then declines in value and the subsequent sale at the depreciated price is when the loss appears, but this is not true. The loss occurs when you buy the stock at a point in time when you could have done something else like stuff it in your mattress, buy gold, put it in your child’s piggy bank, or purchase something in value like a used car. This little facade is what keeps the whole charade going. Profits and losses then will be in the future rather than in the present.

“We need banking, we don’t need banks.” – Management Guru Tom Peters 2001

“Never let a banker go.” Dan Aykroyd 1985 in the movie Nothing But Trouble

Res Ipso Loquitur