Vane

I dig through 40 years of Berkshire tape and pull the rules most investors never hear. One per day.

[Vane @0vVane]

https://t.co/ValT8Fm3Jr

[Vane @0vVane]

@Kv0r1n at that point the buyback isn't returning capital, it's just paying employees with shareholder money and calling it a return

[Vane @0vVane]

you can own more of a company every year without buying a single share.

berkshire's stake in apple went from 5.39% to 5.55% in one year. it didn't spend a dollar to get there.

0.16% sounds like nothing. but each 0.1% of apple's 2021 earnings was worth $100 million.

most investors are taught buybacks are financial engineering. a trick to pump the stock before the ceo sells.

warren buffett, berkshire annual meeting, 2018. asked if apple should really spend $100 billion buying back its own stock:

"I love the idea of having our 5% go to 6 or 7% without us laying out a dime."

here's the mechanism.
a company has 100 slices. you own 5.
it buys back 10 and retires them.
90 slices left. you still own 5.
that's 5.6% of every dollar the business earns, forever.

but the arithmetic runs both ways.
in 2016 GE spent $21.4 billion on its own stock at about $30 a share. by march 2018 it traded at $13. more than half of that money was gone.

a buyback is just a purchase. it's only as good as the price.

so when a company you own announces one, don't ask how big it is.
ask what they're paying.

[Vane @0vVane]

@BessieHoweq36 cash versus profit is the one that's hardest to argue away, revenue recognition is a judgment call but cash either landed or it didn't. the gap can stay open for years on a legit growth story though, which is exactly why people stop watching it

[Vane @0vVane]

https://t.co/ValT8Fm3Jr

[Vane @0vVane]

@LarkDavis the $3k bill test is underrated. buffett ran berkshire the same way, always kept a pile of cash so one bad week could never force him to sell anything

[Vane @0vVane]

@Kv0r1n the moats that last are usually the ones management can't improve much, brands and switching costs hold because nobody inside can accidentally optimize them away. a tech edge needs constant defending, which means it needs constant winning

[Vane @0vVane]

@Zi01nn right, and for a bond dealer reputation was the balance sheet, funding dries up the moment counterparties stop wanting to trade with you

[Vane @0vVane]

An investor from Omaha walked into a Wall Street firm on a Sunday morning and agreed to run it for $1.

There were 8,000 employees. There were bankruptcy lawyers in the building. The US Treasury had given the firm 24 hours before revoking its license to trade government bonds.

One man with a fake bid had triggered it. One trader submitting inflated orders in Treasury auctions. The firm knew for months and told no one.

His name is Warren Buffett. He became interim chairman of Salomon Brothers in August 1991.

He flew to Washington. He sat in front of Congress. He said one sentence that every compliance department in America should have on the wall:

"Lose money for the firm, and I will be understanding. Lose a shred of reputation, and I will be ruthless."

He didn't fire the trader to protect the firm. He reported everything to the Treasury, handed over the internal files, and rebuilt the place in public.

The rule is old and simple. A reputation takes decades to build and five minutes to destroy. The five minutes usually start with something someone decided not to report.

[Vane @0vVane]

@MadCrash_X works because losses show up on a balance sheet and reputation doesn't, one you can quantify and recover from, the other just quietly reprices everything you touch

[Vane @0vVane]

@Kv0r1n that's why full disclosure worked as a strategy, once you've already lost the benefit of the doubt, hiding anything else just confirms the worst read

[Vane @0vVane]

@reidgrows exactly

[Vane @0vVane]

A billionaire told a room full of shareholders that the entire stock market had turned into a casino. then he quoted a dead economist to prove it was always supposed to happen. for free.

the finance industry has spent decades building apps that make trading feel like a slot machine. he explained why that's the point.

his name is Warren Buffett. chairman of Berkshire Hathaway. the man who turned $10,000 into $300 billion by doing the opposite of what every trading app wants you to do.

he pulled up a Keynes quote from 1936: "when the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill done." then he pointed at the audience and said it's happening right now. millions of people opened accounts to day trade. they sell puts and calls. the greatest increase in the number of gamblers the world has ever seen.

he said the gambling impulse is hardwired. people have cash in their pocket, they see a neighbor making money, and they think they're just as smart. so they play. and for a while it works more people entering the casino than leaving creates its own reality. "nobody tells you when the clock's gonna strike 12 and it all turns to pumpkins and mice."

Munger cut in: "it's not just stupid, it's shameful." Buffett pushed back he said he doesn't blame the gamblers. the impulse is human. Munger clarified: "I don't mind the poor fish that gamble. I don't like the professionals that take the suckers."

every brokerage app on your phone was designed by someone who read that Keynes quote and built the casino anyway. Munger just told you who the house is.

[Vane @0vVane]

https://t.co/PsxZoh8GJV

[Vane @0vVane]

@Kv0r1n and options pay the most per order by far, which explains why the apps push them so hard on people who've never priced one

[Vane @0vVane]

@Kv0r1n and options paid CEOs for the whole market rising, a bull run made mediocre managers rich without them doing anything different

[Vane @0vVane]

A billionaire told his board he'd rather throw a viper down his shirt than let a compensation consultant through the door. for free.

the people managing your money have spent decades paying consultants to tell them their CEO deserves more. he exposed the entire system in four minutes on camera.

his name is Charlie Munger. vice chairman of Berkshire Hathaway. sixty years next to Warren Buffett. zero compensation consultants. ever.

Buffett explained the trick. every board hires a consultant. every consultant says the CEO is top quartile. so every CEO ratchets up to match the other CEOs who also ratcheted up. nobody ever walks in and says "this bozo is worth half what you're paying him." it doesn't happen.

he said he'd been on 19 boards. one put him on the comp committee. he was chairman. he got outvoted. Munger laughed. "terrific guys, actually."

Buffett called it a rigged fight. on one side, directors spending an hour reviewing a stack of paper. on the other side, a CEO whose net worth depends on the outcome. his friend Tom Murphy called the directors' side "play money." the CEO's side is his life.

"I would rather throw a viper down my shirtfront than hire a compensation consultant."

most people who pay a financial advisor have never once asked how that advisor's boss got paid. the answer is the same trick, one level up.

[Vane @0vVane]

https://t.co/PsxZoh8GJV

[Vane @0vVane]

@Kv0r1n and even a perfectly calm fund manager ends up trading on emotion, redemptions hand him his clients' panic at the worst possible time

[Vane @0vVane]

A 92-year-old billionaire told Berkshire shareholders he makes bad investment decisions "plenty of times."

most fund managers will never say that out loud.

his name is Warren Buffett. chairman of Berkshire Hathaway.

but he did not say the fix is to feel nothing. he said "you don't want to be a no emotion person in all of your life." the rule is narrower: "a no emotion person in making an investment or business decision."

the feeling is allowed. the decision is not.

even Berkshire slipped once. they kept a manager past his best because they liked him. Buffett's verdict: "I don't think it made any difference in the results."

that is the part most investors miss. nobody is judged by whether they make an emotional mistake. they are judged by whether the position can survive one.

buy something that can survive your worst day.

[Vane @0vVane]

https://t.co/PsxZoh8GJV

[Vane @0vVane]

@SJosephBurns backtests also assume perfect fills with zero slippage, so half people blame on psychology is really just execution costs the model never priced in

[Vane @0vVane]

@LarkDavis people who hold both end up sizing based on which one they're emotionally attached to, not on actual risk. a "functional portfolio" still needs allocation discipline, not just variety