I agree - it seems like a LiveView equivalent for Rails should be doable in principle. Check out these two projects, they're sorta heading in that direction:
Fie: https://fie.eranpeer.co/
AnyCable: https://anycable.io/
If you watch Chris Mccord's videos (the creator of Phoenix and LiveView), it was an attempt to build a similar system for Rails that drove him to create Phoenix. The Ruby/Rails concurrency model mean that he was patching over so many cracks to try and get it to work, and it never quite did.
Controversial take: Buffett is actually not a great investor in the way people think. Via the float in his insurance companies, he receives a 0% infinite maturity loan to plow into the market. That financial leverage gives him the ability to beat the market year after year - not his own stockpicking prowess.
If you were to start with $1B, then get an extra $2B that you never had to pay back, you too would do quite well holding Coca-Cola and other safe companies with moats. Your returns would be 3x everyone else's.
Buffett himself has tried to explain the impact of float on Berkshire Hathaway but it never seems to sink in with people.
I think by "actually not a great investor in the way people think", what you're saying is that he isn't a particularly outstanding stock picker. To the extent that that's the way in which people think he's a great investor, it's because lots of (most?) people think investing is just stock picking. But what makes him a great investor is exactly what you outlined. He found a great strategy - insurance float for leverage - and has executed it well for decades.
It seems weird to me to say, "he's not a great investor, he just found a great investment strategy and executed it really well!" What makes someone a great investor if not that?
He's also a good marketer. I have a mostly unsubstantiated theory that Buffet's celebrity 1) allows him to negotiate better deals than other investors and 2) moves the market after he's invested. Re: 2) if Warren buys something, other people will pile on and drive up the price, which helps drive his returns.
He's mentioned the effect that Berkshire's brand reputation has on investment returns in his annual reports. It's substantial, but not in the way you theorize.
Basically, Berkshire's reputation for 1.) being financially stable through good times and bad 2.) keeping existing management and place and 3.) being able to allocate capital from cash-rich but growth-poor businesses to growth-rich but cash-poor businesses makes them a "preferred buyer" for many strong private companies that are seeking to get liquidity for themselves or family members but don't want to kiss their baby goodbye forever. That a.) opens up dealflow to Berkshire that would never think of selling to other private equity firms and b.) gives them a good price on the deal, since the owners are not seeking to generate a competitive marketplace of bidders that might drive up the price.
Although Berkshire does invest in regular public companies on the open market, that hasn't driven the majority of their returns in decades. Instead, their modus operandi is usually to buy 80% (there was some tax reason why it was 80%) of highly profitable private businesses, and then use the cash generated by those profits to buy more highly profitable private businesses. They only invest in the public markets when there are no attractive private opportunities available, and in some cases they take formerly public companies (eg. BNSF) private. The subsequent share price matters little with this strategy, because the investments are illiquid and just spin off lots of cash from profits.
> 2) if Warren buys something, other people will pile on and drive up the price, which helps drive his returns.
While this is technically true, in the long-run the price of a firm will reflect reality as it exists, not as its perceived. And since Warren doesn't buy, then instantly sell when the price goes up, but rather holds for a long time. I don't believe we can attribute his returns to this phenomena.
As a side note, the reason the price goes up is because he built a reputation of being able to pick undervalued stocks, therefore his purchase is a signal.
Probably to some degree but you have to remember that to get to that point where that's even the case you have to do something right for a long time before that and during that period those particular benefits are non existent because the brand and celebrity hasn't been established yet.
That would be weird, but "he's not a great investor" is taken out of context from "he's not a great investor in the way people think". The way it would be said is "he's not a great investor in the way people think [stock picking], he's a great investor because he found this other strategy that works well."
What about he's "not a great investor in the way people think" leads you to believe "he's not a great investor"?
Buffett has been an amazing stock picker and used leverage.
In order to control for leverage, you typically look at volatility-adjusted measures of performance such as the Sharpe Ratio, not just absolute returns.
Berkshire's Sharpe Ratio from 1976-2011 was .76, vs. the S&P 500's .39. Even without the leverage, that's twice as good as the market.
I was unaware of this additional advantage he has.
Reading up on floats it seems they are the money his insurance companies receive from premiums that has yet to get paid out in claims. Essentially a reserve that can be invested. Since they have a large scale of customers, this float ends up being rather high.
I'm wondering how much trouble an insurance company of smaller scale would get into if they used their float in such a manner but then ended up needing that money due to some natural disaster. Is this type of risk betting money you technically don't own similar to the 2008 housing crisis or the often talked about 1930's issue with everyone wanting to take their money out of the market?
Yes, the tricky bit is not losing any advantage the float might bring via underwriting losses.
It requires understanding risks very well and being willing to stop selling insurance (and losing market share) if the market for insurance gets too competitive.
In addition to what sibling posters have said, insurers usually have their own insurance (called "reinsurance") that helps cover them in the event their claims exceed their cash on hand.
I would imagine, though, that reinsurers will price their premiums based on risk as well; e.g. if they know that one of their customers is parking too much of their float into risky investments, they might charge higher premiums.
Insurers typically don't insure for correlated risk (natural disasters, war etc) because no insurer actually has the reserves to pay it out.
Which is why water damage from a burst pipe will likely be insured but water damage from a flood is unlikely to be insured, even though from a homeowner's perspective they are effectively the same damage.
Even before the natural disaster they'd get shut down by the regulators for having insufficient reserves if their investments did badly. Or in the case of Arron Banks underwriter Eldon Insurance you hang out with rich Russians and fund Brexit and somehow it's all good again.
Ill take it even farther: Buffet isn't statistically different than average. He just found a strategy that happened to work, was stubborn enough to stick to it through bad times, and used copious amounts of leverage to juice returns.
A really interesting paper called "Buffet's Alpha" talks about this, and was able to replicate his performance by following a few simple rules. They found that he produced very little actual alpha. To his credit, he seems to have been observant enough to stumble into factors(value, quality, and low beta) before anyone else knew they existed, which is his real strength and contribution.
They work at AQR, a firm which is notable for being one of the only successful hedge funds to actually publish meaningful research.
The paper's conclusion is noteworthy:
> The efficient market counterargument is that Buffett was simply lucky. Our findings suggest
that Buffett’s success is neither luck nor magic
but is a reward for a successful implementation of value and quality exposures that have historically produced high returns. Second, we illustrated how Buffett’s record can be viewed as an expression of the practical implementability of academic factor returns after transaction costs and financing costs. We simulated how investors can try to take advan- tage of similar investment principles. Buffett’s success shows that the high returns of these academic factors are not simply “paper” returns; these returns can be realized in the real world after transaction costs and funding costs, at least by Warren Buffett. Furthermore, Buffett’s exposure to the BAB factor and his unique access to leverage are consistent with the idea that the BAB factor represents reward to the use of leverage.
Compared to the S&P 500 going back to 1996, Berkshire Hathaway is up 845% vs 257% for S&P 500. Is this not a statistically significant result? (Or is there another average I should be looking at?)
"He just found a strategy that happened to work, was stubborn enough to stick to it through bad times, and used copious amounts of leverage to juice returns."
I dunno. I find certain entrepreneurs often have life stories where they start making money around pre-teen or early teen years. I find those people to be at the tail ends of the distribution.
Sure, today. But he had greater returns before he set up the float. (He's said they were greater because it's easier to find small overlooked bargains than big overlooked bargains - and when you're BH size, only huge investments will move the needle).
He made clever investments like buying American Express when others sold. (Other investors believed they'd lost trust due to fraud involving salad oil; but Warren verified that consumers still trusted their CCs).
He had a head-start: although he protrays himself as folksy, his father was a US Representative.
It's leverage, but like any leverage (even low cost leverage) it could as easily of sank the parent insurance company if he lost that money in bad investments.
Spot on. I think a salary is also more or less like float, at least part of it. For that part, you are answerable to no one and can choose to invest it the way Buffett does. As much as people say that you can't pick stocks, you can, if you just stick to a very niche that you really understand, spend hours researching that niche, and invest for a really long term (> 10 years)
