Eye2theLongRun

There are a handful of larger companies, and there are older companies, but there are few companies that have been around as long as Berkshire that have compounded as consistently. In this sense the stock is at least a reasonable proxy for a diversified exposure to relatively conventional US stocks.

Earnings Recap

Berkshire Hathaway’s most recent quarterly release beat analyst estimates on both the top and bottom lines, with metrics such as:

• $85.93 billion in revenue, up 21% year-over-year,
• $8.065 billion in operating earnings, up 12%,
• $35.7 billion in net income,
• $16.25 in GAAP EPS,

These earnings metrics were all well ahead of average. GAAP EPS, in particular, was 364% ahead of analyst estimates. It’s possible that some analysts have taken Buffett’s words to heart, and are using operating earnings as their “EPS” metric. If that’s the case then, with 2.184 billion ‘B’ shares outstanding, EPS was $3.69, which was also ahead of the $3.50 estimate. Especially noteworthy in the release was $4.4 billion worth of buybacks, which helped propel EPS slightly higher, and showed management’s commitment to returning value to shareholders.

Not only did all relevant metrics beat analyst expectations, but underwriting earnings rose from $167 million to $911 million largely through turnaround of the auto insurance business . 

In their path breaking paper of Kahneman and Tversky worked with perhaps the two major breakthroughs that set the scene, explicitly, for the cognitive behavioural movement that developed from there on. At last count in that rough but for these purposes reliable enough source Wikipedia I found no fewer than 173 allegedly different but supposedly identifiable cognitive biases, tendencies and distortions. Really? A reasonable argument exists to suggest that by far the majority of these can, given some thought, be collapsed to the original Kahneman and Tversky categories “framing” and “risk aversity”. Their elaboration may or may not be useful depending on purpose which might span a spectrum stretching from pursuit of understanding to the attaining of tenure.

A category which remains at best implicit and is, at the other extreme simply missing I chose to call “Subjective Superiority Dominance”. This term seeks to capture the propensity we seem to have for:

1. Thinking we have the best judgment, the closest to true explanation, that we make the wisest of choices, that our conclusions are the best, and in assessing our own interpretations of the myriad situations and activities which make up life, we see ours in a more favourable light than those of others. In short, our ubiquitous conviction that on most if not all matters we are “right” relative to the alternatives; and what’s more,
2. We are frequently of the view that others ought to adopt our views, preferences (for music, art, books and so on), and favoured explanations. We see our views as correct and right not just for us but for all others since they are “right”. Period. Others we think, would be better off through adopting our views and abandoning the errors of their ways in favour of our superior approach to whatever is in question.

My suggestion here is not so much that this habit, bias or tendency arises from some base motivation, absence of intellect or malfeasance but rather that it exists in readily documented form to (no doubt) greater and lesser extents as a close to universal trait and is thus a factor ever influencing behaviour.

This factor is I believe critical in trying to better understand explanatory schemes.

The notion is explored further elsewhere, and a better description of the phenomenon appears in James Otteson’s “Seven Deadly Economic Sins”, Cambridge University Press, 2021.

From Ralph Ellison’s essay on Minton’s Playhouse, 1958:

[Of] those who came to Minton’s… no one retained more than a fragment of its happening. Afterward the very effort to put the fragments together transformed them – so that in place of true memory they now summon to mind pieces of legend. They retell the stories as they have been told and written, glamorized, inflated, made neat and smooth, with all incomprehensible details vanished along with most of the wonder. (quoted by DeVeaux, S. in The Birth of Bebop, Univ of California 1997.)

Which is a useful description of how the process of recalling and retelling risks draining the very life out of the events we seek to capture. This is a fundamental limitation of any method we might devise for describing or relaying objectivity. Dealing in objectivity becomes elusive and awkward.

A friend, Stephen Jennings, has always had a great knack for expressing tough ideas very succinctly. Here he is on risk – very pithy, apparently obvious, but frequently ignored here is one of his summaries of risk:

If you want to do risky things, you have to accept that things will go wrong. You can’t say you’ll take the good times and have a lot of success then be resentful when things don’t go well.”

11 Jan 2022

Three ways to be more rational this year – BBC News

“You can’t replace reading with other sources of information like videos, because you need to read in order to write well, and you need to write in order to think well.”

— Paul Graham

One reason is that:

Writing is often the process by which you realize that you do not understand what you are talking about.