#194 Four investment lessons from Berkshire Hathaway's fiscal year 2017 Shareholder Letter with additional insights from Howard Marks and Seth Klarman. More information, including show notes, can be found here. Episode Summary Every year, Berkshire Hathaway releases a letter written for their shareholders filled with information on their performance, portfolios, and investments. On this episode of Money For the Rest of Us, David digs into the 2017 letter and discusses four investment lessons Warren Buffet shares. It’s filled with great insights that any independent investor shouldn’t miss, so be sure to check out this informative episode. Investment Lesson #1 – Use debt prudently Buffett writes in this letter, “Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. ‘Risk’ is the possibility that this objective won’t be attained.” On this episode of Money For the Rest of Us, David encourages his listeners to utilize debt in such a way that maximizes future opportunities while also managing the risk that comes with taking on debt. He discusses the idea of “float” money, how one investor could have avoided losing half of his portfolio, how to manage margin calls, and why you have to be confident in your decisions as an independent investor. Investment Lesson #2 – Keep your eyes open and focus on a few fundamentals It takes patience, but independent investors can focus on the leading edge of the present and invest in ways that major corporations may not be able to do. One must simply be aware of the opportunities that are occurring right now as well as focus on a few fundamentals: valuations, economic trends, portfolio drivers, asset classes, etc. David quotes Buffet on this episode and explains that “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.” Investment Lesson #3 – Stick with easy decisions and avoid excessive trading Unfortunately, trying to outsmart the market can lead to short-term gains but longer-term mediocrity in investing. David outlines a bet that Warren Buffett made with Protégé Partners and how Buffett learned that sticking with the big, easy decisions often pays off more than getting caught up in the minutia of constantly buying and selling. By making infrequent, larger decisions an independent investor can make better progress in their portfolio. Investment Lesson #4 – Be willing to be early and look foolish Investing is never a guaranteed game. All investors have a fear of looking foolish after making a decision, but Buffett explains that “A willingness to look unimaginative for a sustained period – or even to look foolish – is essential.” David talks about the importance of gaining experience, not becoming caught up in the crowd mentality, and understanding that the “dust never settles” when it comes to finances. There will always be risks to take, and timing can be unpredictable. But with considerable risk comes comfortable reward. For more great information on the 2017 Berkshire Hathaway Shareholder Letter, be sure to listen to this episode of Money For the Rest of Us. Episode Chronology [0:46] David introduces the topic for this episode, Four Investment Lessons from Warren Buffett [2:15] Lesson #1 – Use debt prudently [12:46] Lesson #2 – Keep your eyes open and focus on a few fundamentals [17:17] Lesson #3 – Stick with easy decisions and avoid excessive trading [24:00] Lesson #4 – Be willing to be early and look foolish See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

#192 In this episode we explore scarcity. Artificial scarcity created by laws and real scarcity created by our evolving lifestyles and economy. We'll see that most physical products, with drinking water being an exception, are becoming less scarce while trust and attention are becoming more scarce. More information, including show notes, can be found here. Episode Summary – Is Anything Scarce Anymore? Scarce goods and services have been a topic of debate since the original intellectual property (IP) laws were created. Products are getting cheaper to produce, but high-quality services are still in demand. On this episode of Money For the Rest of Us, David tackles the issue of scarcity with clear explanations and timely resources that are sure to help you understand this complex idea. You don’t want to miss his insights, so be sure to listen to this episode. The history of economics, scarcity, and why intellectual property laws are outdated David explains on this episode that the original purpose for IP laws was to ensure people would continue to create quality ideas and content. While these laws worked in theory, they created a level of artificial scarcity. Mark Lemley of Stanford Law, explains that “IP rights are designed to artificially replicate scarcity where it would not otherwise exist. In its simplest form, IP law takes public goods that would otherwise be available to all and artificially restricts their distribution. It makes ideas scarce because then we can bring them into the economy and charge for them, and economics knows how to deal with scarce things.” While certain protections should be given to creators, scarcity needs to occur in an organic way in order for it to be effective. David illuminates this concept through the lens of TED talks and conferences. TED is able to publish all of their talks online – with full audio, video, and transcripts – because tickets to the physical conference cost hundreds or thousands of dollars. How free content can still be turned into a money-making venture David features Cory Doctorow’s work on scarcity on this episode, and quotes him as saying “Although it’s hard to turn fame into money in the arts, it’s impossible to turn obscurity into money in the arts.” Essentially, even if a creator produces exceptional content, no one will know about it if they’re 100% obscure and protected. Technically speaking, this aversion to positive externalities permits the creator to live in fear of someone benefiting from their work for free. Without digital and word-of-mouth exposure, you won’t make money – period. Thus, the free content you produce and distribute can drive interested parties towards your other content, such as books or fee-for-service courses. There will always be paying customers for quality work, even if you have to get them to the door with free content. What elements are actually scarce in the 21st-century marketplace? While physical goods and products aren’t as scarce as they once were, scarcity is still widely prevalent in intangible elements such as trust, attention, and time. David features Seth Godin’s work on this episode of Money For the Rest of Us as he explains, “Trust is scarce because it’s not a simple instinct and it’s incredibly fragile, disappearing often in the face of greed, shortcuts or ignorance. And attention is scarce because it doesn’t scale. We can’t do more than one thing at a time, and the number of organizations and ideas that are competing for our attention grows daily.” The connections between automation, scarcity, and value in today’s society It’s much easier to automate a vehicle assembly line than it is teaching a child to read. This simple idea of product versus service connects to the broader idea of scarcity because even though it’s much easier to produce goods efficiently and cheaply, most services could never attain that level of automation. David explains that for each episode of Money For the Rest of Us, he spends 8 to 10 hours in pre-production, recording, and post-production work. For as long as he’s been podcasting, this timeframe has not considerably shrunk. This is because quality services and products that require human creativity cannot be automated. Scarcity is found in these areas, and it’s not going anywhere. The solution to true scarcity is simple: create something unique, it will earn attention and trust organically, and that’s how you grow your customer base and build a business in the 21st century. Episode Chronology [0:11] David introduces the topic for this episode, “Is anything scarce anymore?” [3:30] The history of economics and scarcity viewed through a TED talk lens [6:01] How “free stuff” can still be turned into a money-making venture [8:07] What elements are actually scarce in today’s market [10:43] Why there’s always an audience that’s willing to pay for quality content [13:20] How automation is determining scarcity and value in today’s society [21:08] The true scarce physical item – drinking water [22:30] The delicate dance between trust and attention [24:19] Net neutrality as it relates to scarcity See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.