- We're All Going to Die, But This is Getting Silly
The panic over a virus with symptoms is so mild most carriers of the virus don't know they are carriers is getting silly. We're all going to die some day--and probably climate change will kill more human beings than anything else aside from a normal life span--but in the meantime, we "crack on," as the Brits say. For our inaugural column on the new platform we've chosen for JeffMatthewsIsNotMakingThisUp we've been waiting for something worth saying, and this seems as worthwhile as any. So stop reading, start looking, and take advantage of the panic. They don't come around very often. JM
- Who Is This Guy and What Have They Done with Jamie Dimon?
The WeWork debacle is in the red-meat stage. Now that the emperor—Adam Neumann—has been shown to have been wearing no clothes for quite some time, the press is on it. The Wall Street Journal’s latest bit of piling on goes after SoftBank and its formerly could-do-no wrong $100 billion “Vision Fund”: SoftBank Fund Dials Down Risk; Staff Struggles With Chaotic Culture. But let’s be honest. Did anyone doubt it was chaotic at that joint? The worst prospective client a money manager ever gets a call from is the lathered-up guy who says, “I want to put some money to work.” That is code for, “I missed the bull market and I want you to make money for me now, and here it is, I want results.” Softbank had $100 billion to “put to work.” It was never going to be done rationally. But our job here is not to join the scrum. Our job is to perhaps put the pack animals on a different scent—the scent of a CEO we here at NotMakingThisUp have always had enormous respect for: Jamie Dimon, CEO of JP Morgan, whom Mr. Neumann, the aforementioned clothes-less emperor evidently counts as among his “allies,” if the Wall Street Journal’s reporting is to be believed. Worse, JP Morgan, it seems, not only invested in WeWork (in the C-round, at a not-insanely-ridiculous valuation), but lent money to the visionary-cum-clothes-less emperor Mr. Neumann against his own WeWork shares at a quite-insane-enough-thank-you-very-much valuation. Naturally, Jamie was quite anxious to see the money returned, and his bankers were working on a rescue package until SoftBank agreed to throw more good money after bad and took control of an office-rental company pretending to be a magical mystery dream factory. Jamie Dimon, for you home-gamers, was one of only a literal handful of financial CEOs who kept his head screwed on straight in the years leading up to the 2008 financial crisis, and was savvy enough to see opportunities when they presented themselves during those perilous times. After the AIG bailout, for example, when all the world was freaking out and nobody seemed to think the Feds would recover their investment in AIG, Jamie Dimon said, and your editor remembers him saying it quite crisply to the skeptical analysts on one of his company’s earnings calls that dark autumn, “That’s a good deal. I’d do that deal.” Alas, such clarity of thought appears to have been clouded over by a decade-long bull market and the prospect of ginormous fees from an imaginary unicorn. No, this is not rear-view-mirror thinking on your editor’s part. The real world—including more than a few of Jamie Dimon’s quite legitimate commercial real estate customers—has been full of skepticism towards the WeWork model, and they’ve said as much. Why, my Sentieo workstation [think: much less costly than Bloomberg, but more useful] came up with a couple dozen skeptical—sometimes quite pointedly so—observations about WeWork on quarterly earnings calls as far back as November 2017. This one, from Empire State Realty Trust back in September 2018, sums it up: “I think, from our perspective, we don’t have WeWork as a tenant in our portfolio. Our view, as Tony has articulated, is we don’t like the proposition of providing a long-term lease to someone who’s, in turn, entering into short-term agreements. And then…very often, not creditworthy entities, not that the enterprise business is different. But we don’t see it as a good credit.” Thus, WeWork violates Banking 101: instead of borrowing short-term and lending long-term, it borrows long-term, sells short-term. A banker with the brains of Jamie Dimon would have seen this with his eyes closed. So, what have they done with Jamie Dimon and who is that guy masquerading in his place?
- Fact-Checking William D. Cohan; Or, Paul Is Not Dead
TV personality, author and commentator William D. Cohan is grumpy about a lot of things. There’s the Duke lacrosse scandal, for one, about which he’s just publish a “shocking, thought-provoking new book”—according to the description on his own web page. And for another there’s Wall Street, from whence he came, and about which he’s written plenty of grumpy, conspiracy-minded books. Hence it’s no surprise to find Cohan invited to speak at the Sun Valley Writer’s Conference, whose attendees tend to be wealthy, Wall Street-leery arts supporters from L.A. It’s even less surprising that one of the talks he gave to those same attendees was entitled “Who Has the Real Power Now on Wall Street?”—actually, less of a talk and more of a very grumpy, very conspiratorial dish about what he perceives to be the current state of Wall Street—and that said Wall Street-leery audience was with him from the get-go. Kicking off with the quite legitimate observation that the Dodd-Frank law was not understood by Mr. Dodd or Mr. Frank, Cohan explained that Dodd-Frank did nothing but give more power to the six major banks at the heart of the 2008-9 financial crisis (now five, since Bank of America rescued Merrill Lynch), although he failed to explain why (it’s the fact that big banks can spend the big regulatory bucks while smaller banks have a harder time doing so: hence, regulation favors the large and hurts the small, yielding consolidation). No matter the reason Dodd-Frank failed its mission, the crowd nodded approval at Cohan’s dark conclusion and murmured its disapproval of the Big Bad Banks. Bolstered by this friendly reception, Cohan then proclaimed that government regulators don’t help address the weaknesses in the Dodd-Frank regulations because “the SEC is a tool of Wall Street.” After all, he pointed out, U.S. Presidents appoint Wall Street people to the job of overseeing Wall Street. Since they will eventually go back to Wall Street, they aren’t going to do anything to kill the golden goose. Thus, he noted, Mary Shapiro left FINRA to run the SEC with a $9 million bonus from her work at FINRA, at which the crowd gasped and murmured its disapproval of money-grubbing Mary Shapiro. At this point, Cohan could have said anything he wanted—he could have said Paul McCartney really was dead; John Lennon really had mumbled “I buried Paul” at the end of Strawberry Fields Forever; and the Abbey Road cover photograph was, in fact, an allegory of a burial ceremony because Paul was barefoot—and the crowd would have gasped and nodded and murmured their approval. Instead what he said was something far sillier than “Paul is Dead.” He said that thanks to their status as bank holding companies regulated by the Federal Reserve, “the investment banks are now a cartel.” In fact he said they are even more of a cartel than OPEC, because they split up turf, noting darkly that “Goldman Sachs and Morgan Stanley don’t compete all that much,” which might be news to some of the traders and bankers we know at those firms. No matter, the Bank Cartel is alive and well, according to Cohan, because he’s “been assured by bankers on Wall Street” that they are going to “raise prices on their clients.” The crowd tisked and shook their heads and nodded knowingly: I knew it! Now, Mr. Cohan is not just a TV Personality. He is an author, and he has written books about Wall Street, where he did, after all, once work. And being an author, it apparently occurred to him that he ought to offer some proof for his “cartel” theory besides unsubstantiated hearsay. So he did: “Wall Street is booming in every way,” he said, declaring, as if stating an indisputable fact, “Profits have never been higher. ” Quote, as they say, unquote. Now, having just listened to supposed-cartel-co-conspirator BankAmerica CEO Brian Moynihan point out that his company has just completed its 15th consecutive quarter of reducing employment by 3,000 human beings or more, the phrase “booming in every way” wouldn’t necessarily spring to the mind of anyone remotely paying attention to the current environment on Wall Street. However it’s the “profits have never been higher” that seemed flat-out wrong. Since this was a speech, and there were no fact-checkers around as would be the case if this had been a manuscript for publication, we here at NotMakingThisUp decided to check the facts ourselves to see if Mr. Cohan was, in fact, not Making That Up. The results, from our trusty Bloomberg, are in the table below, which shows the most recent earnings data from the five money-centers that remain intact from the crisis days compared to their peak quarterly numbers, almost entirely from the 2006-2007 fat years (Wells Fargo is not included because it is a substantially different entity thanks to the Wachovia acquisition): If that is a cartel, it is not doing a very good job of jacking up prices for its clients. Return on equity for the “booming-in-every-way” cartel is down 50% from peak levels; return on assets is down 40% from peak, and earnings (in billions of net after-tax dollars, adjusted for non-recurring items), are nearly 30% below peak. Not even close to “Never been higher.” And while we are at it, we should probably also point out that John Lennon actually said “cranberry sauce,” not “I buried Paul,” at the end of “Strawberry Fields Forever;” that Paul went barefoot during the Abbey Road cover shoot because it was a warm day outside the EMI studio at St. John’s Wood, not because the cover photograph was an allegory of a burial ceremony; and that Paul is actually still alive and well, and recently turned 73. Just in case Mr. Cohan tells you otherwise. Jeff Matthews Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2015) Available now at Amazon.com © 2015 NotMakingThisUp, LLC
- The Score Today: Apple 280, Microsoft 38
Some people like to think Bill Gates will be the successor to Warren Buffett as CEO of Berkshire Hathaway, if and when Warren Buffett ever leaves that post. [Buffett will never “leave” in the conventional sense of retiring; he’ll work until his mind, or his body, or both, give out and no sooner—ed.] We take the other side of that trade in “Warren Buffett’s Successor: Who It Is and Why It Matters,” just released via Kindle. [It’s a short book: you can read it during the half-hour’s worth of commercial breaks that occur in the last 3 minutes of the average NBA game—ed.] The reasons Gates will not succeed Buffett, despite being one of Buffett’s best friends as well as a longtime Berkshire board member, are numerous and compelling, and we won’t repeat them here. [Thank goodness—ed.] But there’s a very good reason Bill Gates is not going to succeed Warren Buffett at Berkshire Hathaway that is not in the book, and it has to do with the increasingly visible disintegration of the so-called “Wintel” duopoly that spelled mega profits for many years at Gates’ baby. That disintegration is occurring—slowly but surely—even as you read this virtual column, and it is visible in stores across America. Just today we visited a prosperous mall in a prosperous city in America—a mall filled with post-Christmas holiday shoppers taking advantage of the post-Christmas sales that make this one of the busiest shopping days of the year. And at a little after noon, we counted a grand total of 38 shoppers at the Microsoft store…and 280 customers at the Apple store. Both retail spaces have about the same footprint, and both occupy good, highly visible, high-traffic locations. Also, we used the same method at each, counting everyone not wearing a corporate t-shirt as a customer—men, women, toddlers and even babies in strollers. Granted, it was a bit harder to count at the Apple store than the Microsoft store, because there were shoppers coming and going at the Apple store…while at the Microsoft store there weren’t many people coming or going, and there was only one person actually buying something at the counter. But the ratio wouldn’t change much if we missed a couple or double-counted a couple here and there: Apple had roughly 7-times the customer appeal of Microsoft on one of the busiest shopping days of the year. It was almost painful to walk out of the Microsoft store without buying something, because the employees were doing their best to be friendly and engaging. [He is not being ironic here—ed] “So what?” Microsoftians will say [grumpily—ed]. “Microsoft is a business software company. They make way more money on server software and office software than on Windows for consumers.” And that’s all quite true. More than half Microsoft’s revenues are business/server/tools sales, and whatever Apple is doing to Microsoft’s consumer franchise won’t show up in those businesses for years, maybe decades to come. But it’s still worth pointing out, as we’ve been doing over the years [here, here and here—ed.], that whatever Steve Ballmer has been doing at Microsoft since he took over the day-to-day business from Bill Gates in 2000—including iPhone “funeral processions” and other silly marketing tricks—it has not stopped Apple from winning a very competitive game in the free market. Indeed, by our count, Apple was winning that consumer game by about 280 to 38 over Microsoft today. And what with Google going after the business apps market, Amazon Web Services becoming the go-to cloud for today’s startups, and the iPad making its way into every “C-Suite” in the corporate world, we’ll bet the scoring only gets tougher for Microsoft from here. Which is one more reason Bill Gates isn’t going to run Berkshire Hathaway any time soon: he has 441 million shares of Microsoft at risk, and some time in the not-to-distant future we bet he’ll be CEO of Microsoft for the second time before he’s CEO of Berkshire Hathaway for the first. Jeff Matthews Author “Warren Buffett’s Successor: Who It Is And Why It Matters” (eBooks on Investing, 2013) $2.99 Kindle Version at Amazon.com © 2012 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. And if you think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the entertainment of the reader, and the author.
- A Tale of Two Retailers
We present below excerpts from analyst presentations by two retailers. The first is an old, well-known department store chain, and the presentation was made last September, when its long-time CEO spent an hour or so ruminating about the transformation of his company. The second is more recent—like, this past Friday. And it’s by JC Penney, or “JCP” as its new-age executives insist on calling it—a misguided nod to the company’s stock ticker, which seems to be the one thing those executives understand about the company and its now-muddied 110-year old relationship with the American consumer…a relationship that won’t be getting any better any time soon so long as its executives insist on referring to a stock ticker that 98% of Penney’s customers wouldn’t recognize if you tattooed it on their foreheads. After all, did Steve Jobs walk around talk about the great things “AAPL” was creating? Does Coke run ads saying, “Enjoy a KO Today”? Do Wal-Mart greeters say, “Welcome to WMT” to the overburdened mothers and their screaming toddlers as they begin the hair-pulling search for the day’s bargains? No they do not. But Penney executives would. Worse still, the company runs newspaper ads with no identification except “JCP” on the page. And TV ads with only a “JCP” logo on the screen. It’s no wonder the company’s sales collapsed 21% last quarter. But if you’re expecting ex-Apple retail genius Ron Johnson to bend a little on the “JCP” thing, well that’s not going to happen, if last Friday’s earnings call was any indication—but we’re getting ahead of ourselves. The point here is to contrast Penney’s Friday morning transcript detailing its current “transformation” with last year’s presentation from another, larger department store—we’ll call it “XYZ” for now—describing its own “transformation.” If you can guess what company “XYZ” is, well, you just might be cynical enough to work on Wall Street. Who We Are XYZ: I think, overall, we feel good about our position in the marketplace…I would say that our transformation over the last five to seven years—I came [here] at a time when the turnaround had been complete and we identified the fact that we needed to be an attraction that people came to us for merchandise, but they also had to have an experience that was memorable. —9/7/11. JCP: We are going to become an entirely new class of department store that doesn’t exist today. We are going to create a new category that we call the specialty department store and we think it is going to be profound and let me tell you about it… —8/10/12 Our Customer Experience XYZ: So we focused very much on engaging our associates and having them be the best ambassadors. I’m pleased to say that our customer service scores have been outstanding and lead recent American Express poll three years in a row, lead for department stores. I think that is a real testimonial to the effectiveness of our sales associates. —9/7/11. JCP: But where we are most excited is how we are going to use RFID to transform the customer experience… So next spring we will be rolling out personal check out. So in addition to being able to check out from any employee anywhere, any time, you will be able to check out by yourself in our stores. And we think customers are going to like it and it is going to help our conversion and the customer experience. —8/10/12 Our Technology XYZ: We maintain a $650 million capital expenditure commitment this year primarily on digital infrastructure as well as remodels, two new stores, and fixture rollouts for our attractions and new initiatives… —9/7/11. JCP: From a technology perspective…we have overspent on technology as a company. Part of that is because we have an extraordinarily complex and an abundant number of applications to run the business. Mike shared last January we have 492 unique applications, 88% of them are customized, meaning we have done all this hard work internally to make them unique to us and the challenge of that is 95% of the money we spend every year, $400 million was spent to maintain and support outdated applications, which meant we only got to spend about 5% on strategic go forward initiatives. If you think about that, that is $20 million a year out of $400 million going to something new to improve the customer experience or ability to manage the business and the balance going to maintain outdated legacy systems. That is a problem. —8/10/12 Our Promotional Policy XYZ: Well, our pricing and promotion is set in a year in advance, so we don’t react on a week-to-week basis, but I will say that we are well priced; as I said, we’re the lowest priced anchor in the mall and we compete head-to-head in the off-mall. —9/7/11. JCP: In 2011 our Company ran 590 unique promotions and the average item had 20 to 30 prices — different prices during the year. And so I figured going to three types of prices would be a lot simpler. A great everyday price, some items at a month-long better value and then clearance, which we called best price. —8/10/12 Our Home Business XYZ: We’ve done very well in luggage, in housewares, in the soft home side. We have a very well developed window covering business. I think one-third of all windows in the United States have [our] window coverings. That’s a tremendous advantage when people are building homes and remodeling. —9/7/11. JCP: And on the home thing, just so you know, there is going to be a material change in home. —8/10/12 Our Online Business XYZ: I’ve said many times we’d been better off if we started from scratch the dot-com than trying to change the locomotive’s engine while we’re running down the track. So I believe we’ve done a good job of understanding the issue, but it has not been easy, and has not been accretive to our monthly comps. Having said that, we’ve invested heavily because we believe it is a strength and that we have a history of being able to ship items to a customer’s home effectively and the customer looks to us for that. —9/7/11. JCP: Yes, we have not been performing well online. It is one of our big opportunities. Steve Seabolt is here in the front row. Steve took over the online store in May, we have uncovered a lot of issues — basic issues. We don’t set up our items on time. We had items in our shops that weren’t set up online. Our navigation is kind of kludgy at times. —8/10/12 Our Cost Structure XYZ: Our expense program, overall, is really designed to get us to as competitive as possible of a cost structure. Our margins have been – are historically high, so we just need to make sure that our cost structure is competitive to get back to double-digit operating profit. —9/7/11. JCP: Expenses — we have talked a lot about this at $900 million. So in 2011 we had $5.1 billion of expense. Our anticipation is that number will be down by over $900 million in 2013. And where is that coming from? About $400 million of it is coming from our stores. It’s about $350 million coming out of our home office and about $150 million coming out of our marketing. —8/10/12 Our Workforce Scheduling System XYZ: Our workforce utilization, our jTime – what we call jTime, which is matching schedules to when the customer is in the store, that’s, again, we’ve taken out cost. But at the same time, our customer service scores have gone up because we have better staffing when the customers actually are in the store and save the expense when obviously there is less traffic. —9/7/11. JCP: So I think in many ways our employees are so far ahead of us and they are so tired of having to go find a piece of paper to figure out when they should work… —8/10/12 Our Store Merchandising System XYZ: We have a very sophisticated process that allows us to merchandise every store differently even if they’re in the same market or in the next community. —9/7/11. JCP: So we will have as many distinct shopping choices in our 130,000 square feet as you will find in a 1 million square-foot mall, except you won’t have to go from check out every time you leave a store, this will be a whole unique environment… —8/10/12 Those readers with good memories, or long experience with JC Penney, or long experience with this virtual column, are probably already ahead of the game and know that both XYZ and JCP are one and the same: JC Penney. Or “JCP.” Take your pick. Either way, will the new JC Penney “transformation” work any better than the previous one? If it does, Ron Johnson really is a genius. If it doesn’t, well, at least he tried a whole lot harder than the last crew. Jeff Matthews Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2012) Available now at Amazon.com © 2012 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. And if you think Mr. Matthews is kidding about that, he is not. The content herein is intended solely for the entertainment of the reader, and the author.
- The Question We’d Like to Hear for H-P Today
Now that HP has come clean and fessed up to the almost-literally-mind-boggling waste of shareholder money on the now-being-reported-to-the-Serious-Fraud-Office Autonomy acquisition, there is one question we’d like to hear asked by one, just one, of Wall Street’s Finest. We’ll report back some time after the call, but our hopes aren’t very high. JM
- Sgt. Pepper! Joe Cocker! Jimmy Page! Oh, and Warren and Charlie…
The best part of this year’s Berkshire meeting—except seeing Charlie Munger in good form, which we’ll get to in a bit—was the movie. Not the movie itself, but the end of the movie, when the sing-along tribute to Berkshire’s managers, which always used to be set to the tune of “My Favorite Things,” turned out to use “Sgt. Pepper” instead. That’s some good taste there. But, actually, the best part of the Beatles-themed piece of the movie came as it died out and, miraculously, the “Sgt. Pepper Reprise”—the best two minutes of The Beatles ever recorded, in your editor’s opinion—began to play during the credits. (Yes, we know—Dear Prudence…Across the Universe…Revolution…Oh! Darling…Something…Everybody’s Got Something To Hide…The End—are up there, but it all depends on what mood you’re in, right? And the mood we were in was, “Hey, this is seriously good taste.”) But that was before the absolute best part of the entire meeting actually occurred, which was when the Sgt. Pepper Reprise died out and the house lights stayed dim and suddenly that willowy organ introduction—Can they really be playing this?—to Joe Cocker’s full-throated ¾-time version of “With a Little Help From My Friends” began to coil above the sound of 20,000 or so Berkshire shareholders shifting in their seats waiting for Warren and Charlie to hit the stage, which they did as The Grease Band came in over the organ with a bang, young Jimmy Page leading the charge on electric guitar… It doesn’t get any better than that. And it didn’t. Not that it wasn’t a good meeting. It was a very good meeting. It just was kind of all downhill from there—at least when it comes to the energy of the thing. Substance-wise, Warren and Charlie sat for the usual five-plus hours of thoughtful questions (for the most part) and thoughtful answers (with a bit of deft tap-dancing on Warren’s part, particularly when the enormously touchy subject of 3G—the Brazilian takeover artists whose Berkshire-financed slashing-and-burning at Heinz has turned a sleepy-but-modestly-profitable ketchup company with declining sales into a hugely profitable ketchup-and-potentially-mustard company with declining sales—came up). Naturally, Carol Loomis did the bringing up, because a) Carol is a terrific journalist, and b) Carol has no fear, while she also knows that Buffett can rationalize anything. And rationalize 3G he did, saying “I don’t think you can ever find a statement that Charlie and I have made…where we’ve said more people than are needed should be working at our companies.” That’s not the point, of course: the point is that if 3G ran Berkshire it would very likely have substantially fewer than 300,000+ employees in short order, no matter how often Buffett points to the 25 FTEs at corporate headquarters as proof that Berkshire doesn’t have any fat. (Buffett later, and ludicrously, claimed that if Berkshire operated as a normal bloated American company it would have a huge corporate headquarters staff which 3G would be entitled to slash if it ran Berkshire—thus ignoring the corporate headquarters functions scattered throughout all the various Berkshire companies, which naturally have their own CFOs and Treasurers and controllers and legal et al.) But we came to praise Buffett and Munger, not to criticize them, particularly Charlie, who got in his usual wonderfully concise, pointed observations after Buffett had frequently wandered around the metaphorical map on various topics ( and Charlie participated in literally every question asked during the first half of the session). For example: On why Clayton Homes (criticized in a recent Seattle Times “expose”) has some customers who default: “If we made the default rate zero we wouldn’t be lending to people who need it.” On what investment formula Buffett and Munger could provide to evaluate companies: “We don’t have a one-size-fits-all system.” On his and Buffett’s less-than-healthy diets: “The way I look at it, if I die earlier I’ll just avoid a few months of drooling in the nursing home.” On why Van Tuyl has been wildly successful in the notoriously nepotistic car business: “Van Tuyl has a system of meritocracy where the right people get the power and the ownership.” On why Berkshire changed over time as it did: “We were always dissatisfied with what we knew…we wanted to learn more.” On how to succeed without a business degree: “Play the hand you’ve got.” And on what he and Buffett look for in business partners: “The trustworthiness is more important than the brains.” And that’s just the first half of the meeting, because we left at the lunch break, never to go back. Readers who wish can call up Charlie’s bon mots on Twitter and on the “live-blogs” of any of half a dozen financial news outlets that covered the event, but we’re not going to pretend to have been when and where we weren’t. Why now? Maybe it was seeing the NetJets pilots and attendants, dressed to the nines in their uniforms and walking quietly and respectfully in a very long oval outside the CenturyLink Center the entire meeting, so different in seriousness and demeanor from past “Hey look at us!”-type protests at the Berkshire meeting; maybe it was Buffett’s inability to admit publicly, “Well, yes, it’s true, the 3G guys are more Mr. Potter than my George Bailey, but so what?”; maybe it’s the fact that Business Insider—Henry Blodgett’s quite wonderful online vision of what would happen if People Magazine covered the business world (with occasional great scoops thrown in the mix)—published a reporter’s visit to Warren Buffett’s Favorite Steakhouse (here), complete with photos of the actual type of steak Warren likes to order… We don’t know, but after hearing Joe Cocker (1944-2014, sadly) singing his guts out on the heels of Ringo and The Boys slamming it, the whole thing just seemed like enough. And so, enough. Jeff Matthews Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2015) Available now at Amazon.com © 2015 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
- Major Major Major Major: A Book Love Story
The laziest column being written in the Mainstream Press these days has to be the “Even Though I Own a Kindle/iPad/Nook I Still Like Print Books Better” lament. Generally written by an aging Baby Boomer, the columns always start with a nod to the convenience of eBooks and the wonder of having thousands of different eBooks at hand with the tap of a button at all times (“I’m with it, I’m hip,” you can hear Dr. Evil insisting). Having established “street cred” the columnist then moves on to lament the loss of the tactile nature of a paper book being held in one’s hands; the inability to dog-ear pages and underline sacred passages; and, most of all, to reclaim the time and “space” (a revoltingly overused word in these things) the reader occupied when he or she first discovered a particular book, because digital books don’t possess the nostalgic combination of visual and olfactory clues that paper books provide. “It was ’63 and I was reading On The Road…” is how the last sentence usually begins. Teeth-grinding and unpersuasive they may be, but these columns are so prevalent that a conspiracy theorist might suspect a concerted rear-guard effort by the doomed printing industry to create a counter-trend among us Baby Boomers’ children and grand-children such that old-fashioned books appear cooler/hipper/trendier/more worthwhile than the electronic kind. And while I do read the print version of the Wall Street Journal cover-to-cover for the serendipity of finding interesting stories that can be overlooked on the Journal’s iPad app, and have, in fact, published an actual old-fashioned print book, the “Why I Still Love Print Books” stuff strikes me as more like the grumpy manifestation of a certain demographic seeing their lives flash before their eyes than anything else. After all, the digitization of words is, to our times, what Gutenberg’s printing press was in his times: a radical reduction in the cost of shared knowledge. That’s because the printed book business has to be—and this is from experience, not casual observation—the least efficient form of production ever created outside Soviet Russia. Here’s how print book publishing works in the real world: 1. A book publisher bets on a bunch of books in the form of advances to various authors whose book proposals have passed muster: the bigger the advance, the more confident the publisher is in the ultimate payoff—the distorting effects of which will be felt at the time of publication, for reasons that will be made clear later on here; 2. The authors set about writing their books, with the help of editors, meeting or missing various deadlines along the way; 3. Meantime, the book covers must be printed because the publisher has to line up production slots ahead of time, so even though the books are not finished, and in some cases are not even mostly written, blurbs praising the books must be obtained (think about that next time you read a blurb on a brand new book); 4. All during this phase, the publisher’s sales force is running around trying to interest various book sellers in its books based mainly on the authors’ reputations and short summaries of what the books will say, none of which matters anyway because none of the book sellers can take risks on a book whose author they never heard of; 5. The books continue to take shape through a series of edits and corrections, none of which will prevent mistakes or typos from getting into the final printed copies because of the back-and-forth nature of the work; 6. The book is finished, but a year or more has gone by, and publishers discover that the world has changed: stuff has happened, national moods have changed…and while you would think publishers would adjust marketing plans based on which books now seem more timely than they did a year ago, the fact is publishers hate to do that because they are mainly interested in recouping the advances they already paid to the authors (the larger the advance, the more marketing the book will get, no matter what); thus the books will be published and marketed based mainly on the basis of how much of a sunk cost each book represents; 7. The books are printed, the covers are added, and the finished product is boxed and shipped to stores based on orders that have no bearing on the likely demand for the books given the swings in national moods, current events etc.; 8. Oh, and the books, which have been printed after a maddening series of corrections and edits, nearly always have typos and errors in the final copy anyway. That’s just the way it works. It’s amazing great books by then-unknown authors (classics like Catch-22 and A Confederacy of Dunces, to name just two that almost never saw the light of day) ever make it into the hands of a single reader. Now, this is not a criticism of the individuals involved in the book publishing industry. For one thing, they universally love language, and they know good writing when they see it. And they really, really love books—printed books. They care about what the cover looks like, how the text appears on the page, and what the final product feels like in their hands. But their business model is the functional equivalent of going down to the track and placing bets on a bunch of horses that won’t race for a year, in track conditions that nobody can imagine yet. (In fact, it’s more like placing bets on horses that haven’t even been born, because most advances are paid before the books have actually been written.) So along comes the eBook model, which not only democratizes the demand for books by making them available to anybody with an Internet connection, but also democratizes the supply by lowering the cost of production and speed to market. In fact, an eBook (a good one, on a meaningful topic—not one of those “Death of a Legend” hurry-up books that get churned out after some Hollywood star gets killed by a drug overdose) can be conceived, written, edited and published—mistake free, because it costs nothing to correct the text—in one tenth of the time, start to finish, of an equivalent print book, merely by reducing the friction of the printed book process. So, yes, I’ve kept the old blue paperback English Lit 101 copy of Catch-22, which I re-read every few years just to get to the Major Major Major Major bit (“I have named the boy ‘Caleb,’ in accordance with your wishes…”) not to mention a cool, thin, beautiful Great Gatsby and a fat, funny Confederacy of Dunces, plus my first Thurbers and all those Dave Barry collections. But I have ‘em all on the iPad, too, just in case I want to read one of them, wherever I happen to be. I love books, period. Jeff Matthews Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett” (eBooks on Investing, 2011) Available now at Amazon.com © 2011 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author. NOTE ON COMMENTS: We abide by one rule on the comment pages here, and that is NO “Yahoo Message Board-Type Language.” So whatever you write and whether or not you agree or disagree with something, spell it correctly and keep it clean, and no personal stuff. And if you think we won’t enforce that, well, we have over 300 comments that never appeared because they were sloppy, obscene, or personal. —The Management
- HarperCollins & Friends: In the Footsteps of Dinosaurs
“I’ve got this wonderful idea: we’re going to chop down some trees up in Canada and we’re going to ship them to a paper mill…and then we’ll ship that down to some newspaper and we’ll have a whole bunch of people staying up all night writing things….” —Warren Buffett, explaining the death of newspapers, May 4, 2009 Buffett was talking about the newspaper business, but he may as well have been describing the book publishing business, too. Having had some experience in dealing with book publishers (i.e. “Pilgrimage to Warren Buffett’s Omaha,” McGraw Hill, 2008), your editor can confirm that the book publishing business is doing its best to follow the newspaper publishing business into the La Brea Tar Pits, as quickly as possible. Now, for the record, book publisher are full of very intelligent people who work hard doing the best they can to publish quality printed material. And they’re nice people to be around, too—at least, for a writer—because they really like books. They obsess not only about the words inside each book, but they take enormous pains to get the cover artwork and the jacket design and even the physical look and feel of each book just right. And they do all that not only for the U.S. versions of their catalogue: when the Japanese edition of “Pilgrimage” came out this past summer, our publisher raved about the finished product. “It looks gorgeous,” she said. And indeed it did—although certainly nothing like the English version of our journey to the heart of Berkshire Hathaway. Instead of pictures of Warren Buffett on the cover, and the use of bold colors along the borders to attract the eye (as in the photo to the right of this virtual column), the Japanese book cover was pure white and somewhat compact. Inside were thick rich pages covered with beautiful, black-typed ideographic characters printed in columns running right to left. It even had—and we are not making this up—a silk-tasseled book marker worked into the binder. It was like holding the Beatles’ White Album for the first time. And we mean the White Album, not the CD version of the Beatles classic. “Gorgeous” though it was, the book seemed like something out of the 60s: thick, costly and a relic of the past. After all, the world is awash in “gorgeous” printed material. Last year alone, 275,000 new books were published in the United States alone. (That’s 5,288 a week, for those of you who think you might want to write a book some day.) Meanwhile, simple economics are compelling the book world to move online, and those simple economics are as compelling as they were for the newspaper world a few years back. To explain them, we’ll paraphrase Buffett’s remarks about the newspaper model thusly: “I have a great idea: physical books! “All we have to do is pick a topic today for a book that we hope will still be timely a year and a half from now, when it’s actually published. Of course, we’ll have to pay the author in advance for work that might or might not be any good, and also hope the author gets it done in time… “Meanwhile we’ll design a book cover that might or might not be attractive when the book comes out; cut down a bunch of trees, turn them into paper, line up a printer for the cover, line up a printer for the book, estimate how many copies we might possibly sell if everything goes just right, print that many copies of the book, and ship them in big heavy trucks to distributors and booksellers while hoping that somebody influential reviews the book. “Then we’ll pray enough people buy the book so that there aren’t any books we need to take back.” You might think—given the hit-and-miss, but mostly miss, nature of this so-called business model—that a rational book publisher would gravitate swiftly to the online business model in order to eliminate the monstrous waste that goes on at every stage of the book publishing business—i.e. printing and shipping millions of books each year that are highly likely to be irrelevant by the date they reach the stores, and having to take them back. But you would be wrong. The book publishers are fighting the online delivery of books. Here’s how HarperCollins’ CEO Brian Murray has reacted, according to the Wall Street Journal: Mr. Murray said that if new hardcover titles continue to be sold as $9.99 e-books, the eventual outcome will be fewer literary choices for customers, because publishers won’t be able to take as many chances on new writers. Mr. Murray is pursuing the absolutely correct—but fatally flawed—understanding that a $9.99 e-book will not cover the cost of a manufacturing and distribution system built around $30 hardcover books, i.e. his system. What he does not grasp is this: if he doesn’t offer the books at that price, any number of virtual book publishers will rise up and take chances on precisely those authors Mr. Murray thinks will not be chanced on any more, and his model will disappear as swiftly as that which produced the original White Album. Alas, Mr. Murray is not alone among his La Brea Tar Pit-marching brethren: Simon & Schuster and the Hachette Book Group also recently announced they would delay offering e-books in an effort to avoid cannibalizing new hardcover editions. But the ground is shifting beneath their feet, and the book publishers find themselves stuck in something that seems to grip them tighter the more they struggle. Ahead they can see the newspaper companies, encased in the black bubbly, gasping for air and barely able to breathe. The tar pits beckon, but HarperCollins & Friends march on. Jeff Matthews I Am Not Making This Up © 2009 NotMakingThisUp, LLC The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
- Pilgrimage Over, Stay Tuned
Well, it’s over, more or less. I say “more or less” because, given the fact that I am not flying NetJets this year, we need to wait for certain missing airline attendants to make their way to Eppley Field so that United Airlines can begin boarding First Class, Business Class, Premier Executive, Star Gold (not Gold Star), Star Silver (not Silver Star), Civil War Buff Class, Model Train Enthusiast Class, Crosby Stills Nash & Young Class, New Riders of the Purple Sage Class, and the rest of us lowly travelers, before starting for home and writing up what happened. Please stay tuned. Jeff Matthews I Am Not Making Most of This Up © 2009 NotMakingThisUp, LLC The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.