Welcome to the 41st edition of Value Investor Digest

This edition features a question on Brexit from a Member of the House of Lords to Warren Buffett at the Berkshire Hathaway Shareholders Meeting, a CapX article on how well GDP figures capture the benefits of modern innovations, a Hosking Post on the innovation cycle, an interview with Ryanair’s Michael O’Leary about the situation with the Boeing 737 Max and the state of the European Airline industry, a Charlie Munger interview with Jason Zweig, the latest memo from Howard Marks titled “This Time It’s Different”, an institutional investor article on a “Buffett-Bear” and details of Michael Burry’s latest additions to his portfolio.

Conference Calendar:

Value Invest New York 2019 – 3rd December 2019: VID discount (expires July 10th)
London Value Investor Conference – 12th May 2020: Save the date to your calendar
London Quality-Growth Investor Conference – Date TBC

Lord Gadhia to Buffett: “What’s your advice on solving the UK’s Brexit dilemma?”

A Member of the House of Lords who is a Berkshire Hathaway shareholder asked a question at the annual meeting this year. Buffett responded by saying he was: “hoping for a deal in the UK and/or in Europe (sic) no matter how Brexit comes out”. Charlie Munger also commented that “All my ancestors came from Northern Europe so I’m very partial to the place. On the other hand if you asked me how I would vote on Brexit if I lived in Britain I don’t even know. It just strikes me as a horrible problem and I’m glad it’s theirs, not mine.” but that if Berkshire had a deal that could be done in the UK he would “go in in a minute [because] those are my kind of people – I understand them.”

CapX: Are We Doing Better Than We Think?

This article questions how effective GDP is as a measure of the value of modern innovations versus those of the past: “The great inventions of the past, such as the steam engine and electricity, changed lives and raised growth. Their modern counterparts seem to be changing lives – the media and most of us can hardly stop talking about them – but not GDP. One explanation is that the GDP data are right and our impressions are wrong. The US economist Robert Gordon believes that the impact of today’s innovations on human welfare are trivial compared to the great innovations, such as indoor plumbing and antibiotics, of the past. A more optimistic explanation is that technology is raising welfare, but in ways that are not captured by conventional measures of economic activity. On this argument GDP underestimates the full benefit to consumers of today’s technology.”

Hosking Post: The End of the Beginning or the Beginning of the End?

In this latest Hosking Post Django Davidson talks about the innovation cycle: “It is a pattern where investment returns are front loaded early in the cycle, ahead of a period of technological maturity where society emerges as the ultimate beneficiary – disruptive innovation triumphs, but late arrival investors often lose out. A simple observation lies at the heart of this: human psychology is hardwired to extrapolate current trends…we see the management of today’s Unicorn Industry explicitly invoke the Amazon business template of losses-today-for-market-dominance-tomorrow in order to sell expensive new equity in the private markets or, increasingly, via IPO.”

Michael O’Leary: We’ve Got Long-Johns on at Ryanair

Michael O’Leary was interviewed on CNBC about the state of the European airline industry and the likelihood of more airline failures across the industry: “Fares in Europe are terrible which is great for our business…more airlines will disappear…You can never have enough competition – anything that’s good for the consumer – it is a bit like, as Buffett says, you wait until the tide goes out and you see who is wearing speedos and who is naked, we’ve got long-johns on at Ryanair.”

Charlie Munger Interviewed by Jason Zweig & Nicole Friedman

You need a WSJ susbription for the link above, although Morningstar also covered the whole transcript of the interview with Charlie Munger across several links, below. “Warren and I have reached exactly the same conclusion: At the top, you need a certain kind of a mind that automatically makes sense about investments and money…’The money mind’ he [Warren] calls it. And what I have discovered in a long lifetime is that people have it or they don’t, and if they don’t have it, you can’t create it…It’s almost an inherited knack…But, you know, once you realize that some people have the knack and other people don’t and that people with very high IQs, many of them lack the knack – so you can’t solve your problem if you want correct thinking by just hiring the bright people, because they do many dumb things.”

Morningstar links: Part 1Part 2Part 3Part 4Part 5Part 6

Howard Marks Memo: This Time It’s Different

We regularly cover Howard’s memo’s in Value Investor Digest and this is a very good one – he talks about 9 reason’s we are told why this time is different. One of which was “the avoidable recession”: “The questions I get most often these days are ‘Is the U.S. heading for a recession?’ and “’When will it start?’ My answer to the first is a simple ‘yes.’…When people ask about the coming recession, what they mostly mean is ‘Might it be a long way off?’ Well, the longest U.S. recovery on record lasted ten years, and the current one is in the twelfth month of its tenth year. There’s no reason a recovery can’t go beyond ten years; no gate will come down on June 30, foreclosing further progress. And it’s important to note that since this has been the most sluggish U.S. recovery since World War II, it hasn’t been characterized by excesses to the upside, meaning there needn’t be a recessionary correction on the usual schedule.”

A Buffett-Bear: Institutional Investor Article

Meyer Shields is an insurance industry specialist with Keefe, Bruyette & Woods and publishes hard hitting research reports and “slams Berkshire’s increasingly skimpy financial disclosures for its individual business and insurance lines compared to that of rivals.”This Institutional Investor article focuses on Meyer’s lack of an invitation to be on the panel to ask questions at the Bekrshire Hathaway annual meeting. With so many admirers in the investment community it is interesting to read about a “Buffett-Bear”.

Gurufocus: Michael Burry Stock Picks

This is the first look at Michael Burry’s portfolio for 2 years and details some of his stock holdings including JD.com, GreenSky and PetIQ. They also included a quote from his letter: “As much as the Fund is a value fund, it is an opportunistic fund. And as much as I enthusiastically explore the value of each business behind every stock, I seek the pockets of the market that are the most inefficient, the most temporarily imbalanced in terms of price. Whatever extra return this Fund will earn will be borne of buying absurdly cheap rather than selling dearly smitten. I certainly have proven no ability to pick tops, and I do not anticipate such a feat in the future. Rather, fully aware that wonderful businesses make wonderful investments only at wonderful prices, I will continue to seek out the bargains amid the refuse.”