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Buffett’s Letter to Berkshire Hathaway Shareholders on 2008

I got my masters degree in accounting and information systems. While going to school I started an investment club and learned about a man named Warren Buffett.

Warren Buffett is humble, full of folksy humor, and trades places with Bill Gates as the richest man in the world, depending on the year you’re counting. His annual letters to his shareholders are a delight to read. This year’s is full of wisdom about the current financial crisis. Moreover, within a few minutes of reading you will be able to get some key insights that can help as you evaluate the plans being hatched in Washington and how to prevent this particular type of crisis from happening again. 

If you’re not that into finance, I recommend reading:

 

  1. The introduction starting on page 2 and ending on page 3
  2. The “Finance and Financial Products” section starting on page 10 and running through page 12

Once you’ve read those, if you want to laugh and see Buffet’s humor, skip to page 21 where Buffett talks about the annual meeting of shareholders. Tell me you wouldn’t want to attend.

The Berkshire Hathaway homepage

This year’s letter to shareholders (you will click on 2008 because he’s discussing the results of that year)

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    Since when did young adult fiction become the cure for cancer?

    Meghan Cox Gurdon wrote an opinion piece for the Wall Stree Journal called “Darkness Too Visible” in which she complained that it was hard to find young adult fiction these days that isn’t filled with coarse, dark material–profanity, pederasty, mutilation, etc. She claims that “contemporary fiction for teens is rife with explicit abuse, violence and depravity” and wonders “why is this considered a good idea?” She concludes by saying:

    So it may be that the book industry’s ever-more-appalling offerings for adolescent readers spring from a desperate desire to keep books relevant for the young. Still, everyone does not share the same objectives. The book business exists to sell books; parents exist to rear children, and oughtn’t be daunted by cries of censorship. No family is obliged to acquiesce when publishers use the vehicle of fundamental free-expression principles to try to bulldoze coarseness or misery into their children’s lives.

    This, of course, sent hordes of folks into a frenzy of posts sneering at Gurdon’s so-called prissy sensibilities, decrying censorship, and extolling the virtues of young adult literature and dark material in particular. For example, Mary Elizabeth Williams in a Salon piece called “Has young adult fiction become too dark?” rolls her eyes, then deigns to wade into what’s she thinks is an obviously juvenile argument to apparently show Gourdon how “stupid” she really is. Williams concludes:

    One of the terrific side effects of an obviously click-baiting piece of editorial twaddle like Gurdon’s is that it reminds people how many fellow passionate readers there are in the world. That incendiary WSJ piece promptly sparked a tear-jerkingly beautiful twitter #YA saves trend full of heartfelt reactions and links to outstandingly reasoned, article responses from well-read adults and teens on the value within so much of YA literature and its downright lifesaving effects.

    Williams suggests fiction doesn’t have the power to lead people into bad behaviors. After all, she assures us, “an entire generation of women managed to devour the ‘Flowers in the Attic’ series without having sex with their brothers.” No, according to Williams (and all the #YAsaves folks), YA fiction only saves lives. And she provides a link to prove it.

    But Williams misses the mark. Completely. This isn’t about whether fiction has power to influence us in good and bad ways. There’s a huge body of research on media effects which clearly proves fiction’s power for both. Nor is it about the theraputic uses of dark material.

    The heart of the matter revolves around a rather mundane thing–customer service and marketing.

    Gurdon and those parents she describes in her article want a certain type of entertainment. For years, YA fiction has provided that type of entertainment. But things have changed, and the YA label isn’t reliable to them any more. It’s like someone who has purchased steel cut oatmeal for years is now suddenly bringing the bags home to find them filled with sardines or, horrors, Twinkies.

    We can argue the merits of sardines and Twinkies. And a hundred other foods. We can argue the merits of certain types of stories for certain types of readers. And my metaphor above–maybe you think using Twinkies is unfair; maybe you would have wanted me to use something like Triscuts or Wheat Thins. But that’s all beside the point.

    The real problem here is that the publishers have ignored a significant segment of the market who want to buy books but can’t find the types they’re interested in. Either the covers and blurb material don’t help them find what they’re looking for, sometimes misleading them, or the publishers have simply made the mistake of not thinking about this segment of the reading market.

    The fix is easy. (1) Produce more books for these folks. (2) Label your books in a way that makes it easy for the consumer to find what they want. They’re not asking for censorship. They’re asking for a nutrition label that lets them know what they’re getting. Publishers can do what the movie and gaming industries have done with rating systems that prominently display on the cover. Or use some other method. This isn’t a moral issue, it’s simply a matter of helping the right customers find your good or service. It’s a matter of good marketing and branding.

    And I would think, with the upheavals in the book industry today, that publishers and booksellers would want to do whatever they could to boost sales. Surely it doesn’t help to turn customers away because your package is confusing them.

    In the meantime, the battle will rage and this simple practical core of the issue will be lost in the fires and clouds of smoke produced by the arguments extolling and excoriating the virtues and vices of fiction.

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  • The Rocket Science of Overspending

    In July, I blogged some spending 101 for Congress and the President, including contigency planning for alien invasions.  I thought I made some good points.  However, through the whole spending debate that occured this last spring nobody in the media or elsewhere was able to make clear what is going on with the US government. Nobody except Dave Ramsey. He explained it on Fox and then on his website. If you take the big federal numbers and translate them to a size we can understand, here’s the situation:

    – Joe and Susie (the Federal government) make $55,000 a year
    – They spend $96,000 a year
    – At the same time, they have $366,000 in credit card debt

    Look at those numbers again. Every year those clowns in Washington are adding $41,000 a year to that massive debt total. Soon enough, our overspending will kill our ability to do anything else except pay the interest on that debt.  150 years after America abolishes slavery, we decide that debt slavery really is a good idea. Yea! Give us shackles! Give us shackles!

    No wonder our credit score as a nation (our bond rating) was reduced.

    So what did the government do this last Spring? They agreed to find some way to cut spending from $96,000 to $78,000. Meaning they’re still adding $28,000 dollars a year to the government’s massive credit card debt total. Which we have to pay!

    If the US Government was a family, they would be making $55,000 a year, they spend $96,500 a year, & are $366,000 in credit card debt. What’s the first step to get out of debt? Stop overspending! But that means a family that is used to spending $96,500 a year has to learn how to live on $55,000. That’s a tough pill to swallow. It works the same way for the government. You can’t borrow your way out of debt, whether you’re a typical American family or the entire U.S. government. At some point, you’ve got to say, “Enough is enough!” and make the hard cuts necessary to win over the long haul. – Dave Ramsey

    The answer is NOT to print more money.

    If you do that, you reduce the value of each dollar. It’s called inflation. As Ron Paul rightly points out, it acts effectively as a tax. Or as I like to put it–a PAY CUT. How many of you would like to get a nice fat 10% or 20% pay cut this year? Furthermore, instead of fixing the problem, the overspending continues, which means more pay cuts in the future. More fun!

    No, the thing we have to do is STOP SPENDING MORE THAN WE MAKE.  Here’s what has to happen.

    1. We must write into law that Congress balance its budget every year–they must not be able to spend more than they take in except in rare emergencies. This means they might need to build up a rainy-day fund.
    2. We must cut our spending. Now. I linked to an idea Ron Paul has for this in my 101 post where we just go back to 2007 levels of spending.
    3. We must work to increase our revenues. Not through hiking taxes to monstrous levels, but by providing optiomal regulatory conditions for economic growth. See my 101 post. 
    4. We need to make sure the taxes are visible, so the American people can easily see what’s going on. Congress has mandated that lenders provide clients an APR so they can clearly see the rate they will pay on a mortgage. Why shouldn’t we mandate that the IRS send out an ATR–annual tax rate (or maybe Annual Grab Rate or Annual Tax Burden or you come up with the name)–which includes all Federal taxes translated into one total rate?  
    5. We need to give everyone the opportunity to pay for the soldiers that defend them and the roads they drive on, even if it’s just $50-100 a year for the very poor.
    6. We must send people to the White House and Congress who are willing to do what it takes RIGHT NOW.

    I mentioned Ron Paul a number of times above. He’s not my choice for president. But he has added a number of good things to this discussion. Here are the Ramsey links:

    EDIT: Mark Holt makes an excellent point in the comments. Inflation isn’t just a pay cut. It’s a savings cut, a retirement cut, a 401k cut, a house value cut, an everything cut. Using that backdoor method, the DC Connivers institute a tax of everything, something they’d never be able to pass out in the open.

     

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  • Good Stuff: For All Eternity

    This year I was introduced to a little gem of a book that has had a significant and pleasant impact on Nellie’s and my marriage.

    We heard about it from my newlywed daughter and her husband. Now you’d think that two people who, in just a few months, will have been married for twenty-nine years would know all the ropes of this marriage thing. You’d think they wouldn’t come across any real new ideas. But this little book proved that idea wrong.

    This book is For All Eternity by Dr. John L. Lund. At the time of its writing Lund had over forty years of experience as a counselor, college professor, and marriage educator. His focus is in interpersonal communication, and part of his background was working with John Gottman, one of the best marriage researchers of the last few decades.

    In this book, Lund shares what he’s learned with lots of humor and stories. Some of it will be familiar to you, but some of it will be refreshing and new. For example, one belief we frequently cherish is the idea that if someone really loves us, they will know our wants and needs. Their love will somehow endow them with superpowers so that we will never have to communicate our wants. Our loving spouses, if they have any love in them, will be able to discern our wants from the most subtle signs. A nod, a sigh, the wiggle of a nose. And if that doesn’t do it, then surely we will never need to drop more than the merest hint.

    Yeah, wrong.

    Lund explains why the whole notion of “If you have to ask, it doesn’t count” is not only unrealistic, it’s damaging. And that’s just one insight. There are many more. I will let you discover them. But I can tell you that I have found this book so useful and delightful that it will now be one of the two standard books I buy and give as gifts to those who are newly married. I wish I’d had these insights right from the beginning, but better late than never. I’m so happy to have them now.

    A little note. For those who are not members of the Mormon church, Lund is directing his teaching at that crowd. So you will find a sprinkling of quotes in here from church leaders that support what he’s learned in his practice and research. Don’t let that stop you. Mormon or non-Mormon, if you want to improve your marriage, you don’t want to miss this book.

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  • So that’s where Tolkien got “Orc”

    Tolkien was a master of words with sounds that connote meaning. But I often find that a lot of his work was not produced from thin air. Case in point: I was looking today at the word “ogre.” Check out this etymology from the OED.

    French ogre (late 12th cent. in Old French in sense ‘fierce pagan’, c1300 in sense ‘man-eating giant’, attested again from 1613; also hogre (1704 in the passage translated in quot. 1713 at main sense)), further etymology uncertain and disputed.

    French ogre is perh. < classical Latin Orcus, the name of the god of the infernal regions, Hades, Pluto (further etymology uncertain), with metathesis of r (perh. influenced by words such as bougre BOUGRE n.), or perh. < post-classical Latin Ugri, Ungri, Ongri, applied by early writers to the Hungarians or Magyars (see UGRIAN n.). Cf. (< classical Latin Orcus) Middle French orque hell (16th cent.; prob. a later reborrowing), and also Italian orco demon, monster (13th cent.), Spanish huerco devil, personification of death or hell (1330-1900), Sardinian orcu demon, and early modern Dutch orck unruly person (Dutch regional ork). Spanish ogro (1787-1900) is a borrowing from French ogre.

    In folklore and mythology: a man-eating monster, usually represented as a hideous giant. In extended use: a person resembling or suggestive of an ogre; a cruel, irascible, or fearsome-looking person.

    But Tolkien’s not the only one using his brains. Here’s one from Robert Jordan.

    sangrayle, -grayll(e, seynt graal, 7-9 sangreal, 9 sangreall. [a. OF. Saint Graal ‘Holy Grail’: see SAINT a. and GRAIL.
      The pseudo-etymological form sang roial (confusing the word with SANG-ROYAL 2) appears in AF. of the 15th c.: see Godefr. Compl. s.v. SANC. Another spurious etymology formerly common appears in the following quot.:
      1685 STILLINGFL. Orig. Brit. i. 13 Others think that the word was Sangreal, being some of Christ’s real blood..said to be somewhere found by King Arthur.]

    1. = GRAIL.

    a1450 Le Morte Arth. 10 The knights of the table Round, The sangrayle when they had sought. c1450 Merlin ii. 32 Thi boke shalbe cleped the boke of the seynt Graal. 1470-85 MALORY Arthur II. xi. 88 Soone after the aduentures of the Sangrayll shalle come among yow and be encheued. 1808 SCOTT Marm. I. Introd. Epist. 268 He took the Sangreal’s holy quest. 1871 G. MEREDITH H. Richmond II. 145 They bear the veiled sun like a sangreal aloft to the wavy marble flooring of stainless cloud.

    Zing!

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  • | |

    Speculative Fiction, Gateway Drugs, and Literacy

    You can read the transcript of my remarks at the American Librarian Association (ALA) conference in Chicago on July 11 below as well as the supporting information.

    IS SF/Fantasy Key to Teen Literacy?

    Intro

    I am so happy to be here. And I’m happy share some good news. David McCollough, the Pulitzer prize winning historian shared this fact in his commencement speech at the University of Utah this spring. “There are yet “more public libraries in America than there are McDonalds.” [Cheering]

    We have not yet been assimilated!

    Of course, this is due in a large part to you, the librarians who care for the collections and take care of the patrons. Which is why I think you deserve a big round of applause. Give yourselves a hand. [Applause]

    Fiction is a literal drug

    I want to start my remarks with two quotes.

    Ray Bradbury was recently interviewed in a NY Times article  He said, “I don’t believe in colleges and universities.” This is what he said, “I don’t believe in colleges and universities. I believe in libraries.” He said this because when he graduated from High School he didn’t have enough money to go to college. So he went to the library three days a week for ten years.

    The next quote is from the great poet Dylan Thomas–“Do not go gentle into that good night, rage, rage against the dying of the light”–that guy. He said,  “My education was the liberty I had to read indiscriminately and all the time, with my eyes hanging out.”

    If you look at Bradbury and Thomas, they read, not because there was some grade involved, not because someone went after them with a stick—they read from hunger. From thirst. They read with wild abandon because they found in reading something they couldn’t find elsewhere.

    I want to suggest one thing they found was a drug. [Laughter] I’m not speaking in metaphor. I’m talking about real physical response. As real and physical as the response you get when you or I take aspirin, brandy, or crack. Well, I hope we’re not taking crack. [Laughter] 

    When we think about drugs we think about pills, smoke, injections. But those are simply one set of delivery mechanisms for chemicals that trigger a physical response. There are other delivery mechanisms. Other triggers. One of them is fiction.

    Now I don’t have time today to detail how this works. But I will write it up on my website for those who are interested. The key thing to remember is that fiction, the kind of fiction we love, the kind that keeps us up at night sitting on the edge of the tub or locked in a closet with a light, the kind of fiction goes beyond cognition, beyond data and facts. We find it so pleasurable precisely because it triggers and guides a physical response.

    So how does all of this apply to science fiction and fantasy? Here’s the deal. And here’s where we come to our topic. Science fiction and fantasy is, for our youth, one of the most powerful gateways drugs into the fictive experience. Of course, there are ideas in science fiction and fantasy that ripple out to the society. But even if there weren’t, the happy side-effect of an addiction to this drug is improved literacy. And we all know how much that impacts.

    Numbas

    Now I know those of you who work with young adult circulation have seen this. But I thought it might be interesting to get some actual numbers so we can start to gauge the scope of the science fiction and  fantasy effect.

    My interest in this began when I saw the results of the latest NEA survey. They have this graph showing reading rates in all age groups dropping horribly since 1982. By 2002 the graph is taking a nose dive.  Then in 2008 everything turns around. And among the young adults (18-24), we see the biggest increase—9%.

    I saw they had a genre preference question in this survey. Of course, I wondered about science fiction and fantasy. So I contacted the NEA and dug into the details. It appears that 34% of the 18-24 group say they like to read science fiction and fantasy. That’s a big number. That’s 1 in 3.

    Of course, I wanted another data pont, so I went to BookScan and asked for data on book sales. Because the wonderful people there love librarians and Tor Books, they said of course. We looked at juvenile fiction sales from 2004-2008. What we saw was that science fiction and fantasy grew 144% during that period. All the other genres only grew 23%. We also saw that science fiction and fantasy currently make up almost 30% of the juvenile fiction market. So about 1/3.

    Now there are some problems with the BookScan data. Yes, it only cover 60-70% of the market. It’s not in Wal-mart, grocery stories, and a few other places. But what’s more problematic for this issue is that they don’t break up the juvenile sales by age. It includes everything for folks one month old to age eighteen. So I’ve got books like Go Dog, Go in the dataset along with Twilight and Go Dog, Go isn’t categorized as fantasy. [Laughter] My suspicion is that if we narrow it down to the middle grade and YA group, we’ll see more science fiction and fantasy.

    So I needed someone who did break it up by age. Well, who does that? You do. Libraries do. Besides, a lot of youth don’t have the $ to buy lots of books. So I went to some libraries in Utah and Ohio and got their YA fiction circulation stats. Here’s what I found: 60-80% of the YA fiction circulation is science fiction and fantasy. This does not include graphic novels or magna. It’s text fiction.

    Folks, this is a big drug. I don’t know what part science fiction and fantasy played in the rise in reading rates, that would require a larger and more rigorous study. But I can tell you this: We want to see the impact of science fiction and fantasy on our society? We’re seeing it right now.

    My Story

    This large effect makes sense because science fiction and fantasy deliver experiences that are intersting to and matter to youth. It’s chock full of and encounter with the strange, weird, and wonderful; adventure and danger; doing something meaningful; being someone special, someone desireable, someone wanted in the group. All that coming of age stuff. So no wonder it’s a huge gateway drug.

    I know that it was in my case. I wasn’t a reader. I don’t think I read more than twenty or twenty-four book from kindergater to sixth grade. I look at the little fellows in my local school today and they read that many titles in the first six months of the first grade. But I didn’t. I wasn’t a reader. I do remember loving the look and feel of these small chubby books. [Laughter]

    I would take them them up to the librarian to check them out. She’d look down at me. “Are you going to read all that?” she’d ask. “Yes,” I’d say. Of course, it was lie. [Laughter] It was a huge lie because I would take them home and put them up on my dresser and just look at them.  Just loving the look and feel. And then when it was time to check them in, I’d take them back and give them to the librarian. “Did you read all that?”

    “Yes,” I’d say. And that’s how I became an author–lying to librarians. [Laughter] 

    Now in sixth grade my sister, we were in the car, I had four sisters and we had one TV, and so you had to reserve the time for your programs. So my sister says, “I have to watch The Hobbit for school.” Now I don’t know anything about The Hobbit. It sounded like a romance. [Laughter] I protested. No, way–we’re not going to watch some dumb kissing thing.

    “No,” she said. “It’s got dragons.”

    “You’re lying,” I said.

    I was convinced I was doomed. But it didn’t matter. We watched it. It had dragons. And I loved the experience so much I wanted another hit. Shortly thereafter my mother and father went on a business trip. I went over to my buddy’s house. So the first day we come up out of the basement to go to school and I said, “Oh, I’m feeling sick.” So my buddy went off to school and I went back down into the basement and played hookie for two days and read The Hobbit.

    It was amazing. More amazing than the movie. I had to have that experience again. And so I read Ursula LeGuin, Patricia McKillip, Donaldson, Terry Brooks. I kept reading because it delivered a cognitive-physical experience I loved. Of course, I didn’t put it that way back then. It was more along the lines of, duuuude. [Laughter]

    Now I got a BA in English and a Masters in Accounting. Those degress required a lot of reading. But I didn’t develop the requisite literacy skills in school. I developed them in science fiction and fantasy.

    And so when I started to write I was naturally drawn to fantasy. Having experienced this wonderful thing, I wanted to produce that and share it with others. So this novel that’s coming out has the gosh-wow I still love. It’s set in a world were humans are ranched by beings of immense power. There’s a young man and young woman in terrible trouble. So it has monsters, magic, and mayhem. But I also found fantasy big enough to let me explore other things that have become more important to me as I’ve aged. Like family, sacrifice, and redemption. And I hope people enjoy all that. But ultimately, I hope this book does for someone else what The Hobbit did for me and opens a door to a wonderful addiction. And, of course, as a powerful side-effect, improves the literacy of some rascal or rascaless. [Laughter]

    Conclusion

    I want to end where we began with that Thomas quote.

    “My education was the liberty I had to read indiscriminately and all the time, with my eyes hanging out.”

    That kind of wild abandon will happen when the drug takes effect. And for many of our youth, probably at least one in three, that’s going to be when they ingest a few ounces of SF & Fantasy.

    Thank you.

    [Applause]

    Supporting Numbers

    How fiction is a drug

    Emotion is not a cognition, although cognition plays a part. It’s not just in your brain. It involves a physical response, which means it involves chemicals. 

    We sometimes forget that our bodies produce a staggering number of chemicals. Sometimes they produce in response to external stimuli—the sun triggers the creation of vitamin D, ingested sugar triggers the production of insulin, the sight of a ravening lion standing not five feet away with nothing between him and me produces, among other things, adrenaline.

    Lots of these reactions, we don’t notice. But there’s a whole group of these physical responses that we do. We lump them together and call them emotions.

    Jenefer Robinson in her wonderful book Deeper Than Reason, explains, “Emotions are our way of responding to events in the environment (either external or internal)” that matter to us. They are “physiological changes that register the event in a bodily way and get us ready to respond appropriately.” Fight, flight, pursue, woo, investigate. They focus our attention, get us ready to take action, and communicate all this to others.

    So while I might not feel the production of vitamin D, I do feel the fear of the lion. Fear is a wonderful thing—it keeps us alive. It raises our heart rate, pumps us full of drugs that prepare us to flee or fight. The emotion writes itself on our faces in order to, among other things, communicate the situation to those around us, warning others and calling for help. It is a physical response. Yes, there are cognitions involved, but there are also chemicals.

    The latest research on emotion shows that emotion is a process that involves three things. (1) An affective appraisal of our environment that signals something important to us—a threat or opportunity. (2) This triggers an immediate physical response (chemicals, galvanic skin response, accelerated heart rates, facial expressions, etc.). (3) At this point cognitive (conscious thought) appraisals kick in and help us monitor the situation and moderate the physical response.

    For example, I go out to the yard and step on this thing that slithers through the grass. The sensory signals immediately trigger a physical response to get me ready to flee or fight–heart rate, adrenaline, etc. Then I notice the snake is far too long. I look closer. It’s the garden hose. My physical response changes. I laugh, feel relief. Research has shown that when we read text, the same process occurs. We do indeed have the same types of physical responses. In some cases they’re more intense.

    Now here’s the thing. This physical response is triggered not just by threats and opportunities we perceive with our senses, things out there. It is also triggered by thought. Thoughts deliver a physical response just as surely as crack does. We have the research to prove it. In fact, sometimes thought delivers a more powerful physical response. Here’s but one example. Did you know that people with a phobia of snakes have a stronger reaction to reading a passage about snakes than they do to the actual critter?

    This is where fiction comes in. As I stated in my speech, fiction, the kind of fiction we love, the kind that keeps us up at night sitting on the edge of the tub or locked in a closet with a light, the kind that lingers in the fabric of our clothes and our hair long after we close the book, that kind of fiction goes beyond cognition, beyond data and facts. That kind of fiction triggers a physical response.

    It does this, and this is one difference from emotion triggered by our own thoughts or the sensory data we pick up from the world, because fiction, by its very nature, its very structure, is actually guiding our emotional response. Our physical response. This management of the response is in fact one of the things that we find so pleasurable about it.

    To find out more, please read:

    • The Science of Emotion by Randolph R. Cornelius
    • Deeper Than Reason: Emotion and its Role in Literature, Music, and Art by Jenefer Robinson

    You may then want to search out texts by Dolf Zillmann, Jennings Bryant, and Peter Vorderer.

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