Malcolm, partner since 2008 (Elora, ON)
This week in charts
Correlation
Canadian GDP
Global equity comparisons
Leveraged buyout transactions
Returns by generation
Nothing Beats Having a Great Partner (from the 2022 Berkshire Hathaway shareholder letter)
Charlie and I think pretty much alike. But what it takes me a page to explain, he sums up in a sentence. His version, moreover, is always more clearly reasoned and also more artfully – some might add bluntly – stated.
Here are a few of his thoughts, many lifted from a very recent podcast:
- The world is full of foolish gamblers, and they will not do as well as the patient investor.
- If you don’t see the world the way it is, it’s like judging something through a distorted lens.
- All I want to know is where I’m going to die, so I’ll never go there. And a related thought:
Early on, write your desired obituary – and then behave accordingly.
- If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results.
- Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage.
- You can learn a lot from dead people. Read of the deceased you admire and detest.
- Don’t bail away in a sinking boat if you can swim to one that is seaworthy.
- A great company keeps working after you are not; a mediocre company won’t do that.
- Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.
- Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying.
- There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.
- You don’t, however, need to own a lot of things in order to get rich.
- You have to keep learning if you want to become a great investor. When the world changes, you must change.
- Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never.
- Finally, I will add two short sentences by Charlie that have been his decision-clinchers for decades: “Warren, think more about it. You’re smart and I’m right.”
And so it goes. I never have a phone call with Charlie without learning something. And, while he makes me think, he also makes me laugh.
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I will add to Charlie’s list a rule of my own: Find a very smart high-grade partner – preferably slightly older than you – and then listen very carefully to what he says.
The Myth of the Inevitable Rise of a Petroyuan
The inevitability of a petroyuan has become a popular take in the financial blogosphere: China flexing its muscles as an emerging power, elbowing one of the most visible and enduring signs of the 75-year US hegemony in the Middle East.
If you believe in conspiracy theories, the introduction of a petroyuan, and the ensuing collapse of the petrodollar, would be a first domino, potentially weakening the whole US financial system. Very serious stuff. A redrawing of the global economic map. The backdrop to crisis and wars.
Ask quietly in government circles in Riyadh, Abu Dhabi, Kuwait City or Doha about the petroyuan, and the response — even in the weeks following Xi’s visit to Riyadh — is unanimous: the petrodollar is here to stay. On a recent trip to the region, I didn’t hear a single official talking seriously about making preparations to introduce a new currency to the mix. The answers sound a lot like this: What’s in it for us? The greenback is freely convertible, the yuan isn’t; the dollar is liquid, the yuan isn’t. That’s the polite version; the more candid answers sounded even more emphatic about the absurdity of turning to a managed currency produced by an opaque and unpredictable financial machine.
As in every conspiracy, there’s a grain of truth in the petroyuan tale, however. Xi did encourage the region to embrace the yuan for oil trade. But rather than pricing oil in yuan, as many had expected, Xi simply asked Middle East producers to accept payments in yuan.
Ironically, the only new petrocurrency to emerge of late has been the dirham of the United Arab Emirates. India is using it to settle some oil transactions with Russia, bypassing US sanctions. But for the past 25 years, the dirham has been pegged to the US dollar — another indication that the petrodollar remains the only petrocurrency that really matters.
This “Climate-Friendly” Fuel Comes With an Astronomical Cancer Risk
The Environmental Protection Agency recently gave a Chevron refinery the green light to create fuel from discarded plastics as part of a “climate-friendly” initiative to boost alternatives to petroleum. But, according to agency records obtained by ProPublica and The Guardian, the production of one of the fuels could emit air pollution that is so toxic, 1 out of 4 people exposed to it over a lifetime could get cancer.
That risk is 250,000 times greater than the level usually considered acceptable by the EPA division that approves new chemicals. Chevron hasn’t started making this jet fuel yet, the EPA said. When the company does, the cancer burden will disproportionately fall on people who have low incomes and are Black because of the population that lives within 3 miles of the refinery in Pascagoula, Mississippi.
Aside from the chemical that carries a 25% lifetime risk of cancer from smokestack emissions, another of the Chevron fuels ushered in through the program is expected to cause 1.2 cancers in 10,000 people — also far higher than the agency allows for the general population. The EPA division that screens new chemicals typically limits cancer risk from a single air pollutant to 1 case of cancer in a million people. The agency also calculated that air pollution from one of the fuels is expected to cause 7.1 cancers in every 1,000 workers — more than 70 times the level EPA’s new chemicals division usually considers acceptable for workers.
In addition to the chemicals released through the creation of fuels from plastics, the people living near the Chevron refinery are exposed to an array of other cancer-causing pollutants, as ProPublica reported in 2021. In that series, which mapped excess cancer risk from lifetime exposure to air pollution across the U.S., the highest chance was 1 cancer in 53 people, in Port Arthur, Texas.
The 1-in-4 lifetime cancer risk from breathing the emissions from the Chevron jet fuel is higher even than the lifetime risk of lung cancer for current smokers.
Asked why it didn’t require tests to clarify the risks, a spokesperson wrote that the “EPA does not believe these additional test results would change the risks identified nor the unreasonable risks finding.”
Whatever you call it, the creation of fuel from plastic is in some ways worse for the climate than simply making it directly from fossil fuels. Over 99% of all plastic is derived from fossil fuels, including coal, oil and gas. To produce fuel from plastics, additional fossil fuels are used to generate the heat that converts them into petrochemicals that can be used as fuel.
Major mortgage lenders let borrowers shift unpaid interest onto principal to cope with rising costs
At least two of Canada’s largest mortgage lenders allow borrowers to shift a portion of their interest costs onto the principal owed on their mortgages, helping them cope with the impact of soaring interest rates.
Both TD and CIBC have variable-rate mortgages that are similar to those of most of the other major lenders: The loans have constant monthly payments and the interest rate on the mortgage is connected to the Bank of Canada’s overnight lending rate.
With every interest-rate hike, the cost of borrowing increases and more of the borrower’s monthly mortgage payment is used to cover the interest expenses.
But with TD and CIBC variable-rate mortgages, borrowers may be allowed to go past the trigger rate and stick with payments that don’t even cover the full amount of the interest owed, up to a certain threshold. The unpaid portion of the interest is deferred and added to the mortgage principal and the borrower’s loan balance grows, or negatively amortizes.
Under federal banking rules, a portion of a borrower’s loan must always be amortizing. But Canada’s bank regulator, the Office of the Superintendent of Financial Institutions (OSFI), has also said that it “expects lenders’ risk management to be responsive to changing conditions, and practices to be adjusted accordingly.”
The federal mortgage insurer, Canada Mortgage and Housing Corp., allows the mortgage to grow up to 105 per cent of the variable-rate borrower’s original loan amount.
The fact that CMHC rules allow for balances on insured mortgages to grow past the original amount raises questions, said Ben Rabidoux, founder of market-research firm North Cove Advisors.
Mr. Rabidoux also sees another issue with policies that allow mortgage balances to grow: a likely outsized financial shock for homeowners when their mortgages come up for renewal.
At renewal, lenders must bring the mortgage back in line with the original amortization schedule. For example, consider a borrower who bought a home with a five-year mortgage amortized over 25 years. After five years, their lender will recalculate payments so that the remaining mortgage balance will be paid off in the remaining 20 years.
This week’s fun finds
The Puzzling Gap Between How Old You Are and How Old You Think You Are
But “How old do you feel?” is an altogether different question from “How old are you in your head?” The most inspired paper I read about subjective age, from 2006, asked this of its 1,470 participants—in a Danish population (Denmark being the kind of place where studies like these would happen)—and what the two authors discovered is that adults over 40 perceive themselves to be, on average, about 20 percent younger than their actual age. “We ran this thing, and the data were gorgeous,” says David C. Rubin (75 in real life, 60 in his head), one of the paper’s authors and a psychology and neuroscience professor at Duke University. “It was just all these beautiful, smooth curves.”
Why we’re possessed of this urge to subtract is another matter. Rubin and his co-author, Dorthe Berntsen, didn’t make it the focus of this particular paper, and the researchers who do often propose a crude, predictable answer—namely, that lots of people consider aging a catastrophe, which, while true, seems to tell only a fraction of the story. You could just as well make a different case: that viewing yourself as younger is a form of optimism, rather than denialism. It says that you envision many generative years ahead of you, that you will not be written off, that your future is not one long, dreary corridor of locked doors.
Rubin and Berntsen made a second intriguing discovery in their work on subjective age: People younger than 25 mainly said they felt older than they are, not younger—which, again, makes sense if you’ve had even a passing acquaintance with a 10-year-old, a teenager, a 21-year-old. They’re eager for more independence and to be taken more seriously; in their head, they’re ready for both, though their prefrontal cortex is basically a bunch of unripe bananas.
Fat, Sugar, Salt … You’ve Been Thinking About Food All Wrong
[Nutritionist Carlos] Monteiro created a new food classification system—called NOVA—that breaks things down into four categories. Least worrisome are minimally processed foods, such as fruits, vegetables, and unprocessed meats. Then come processed culinary ingredients (oils, butter, and sugar), and after that processed foods (tinned vegetables, smoked meats, freshly baked bread, and simple cheeses)—substances to be used carefully as part of a healthy diet. And then there are ultra-processed foods.
There are a bunch of reasons why a product might fall into the ultra-processed category. It might be made using “industrial processes” like extrusion, interesterification, carbonation, hydrogenation, molding, or prefrying. It could contain additives designed to make it hyper-palatable, or preservatives that help it stay stable at room temperature. Or it might contain high levels of fat, sugar, and salt in combinations that aren’t usually found in whole foods. What all the foods share, Monteiro says, is that they are designed to displace freshly prepared dishes and keep you coming back for more, and more, and more. “Every day from breakfast to dinner you are consuming something that was engineered to be overconsumed,” says Monteiro.
On the ultra-processed diet, people ate around 500 extra calories per day and put on about two pounds. When people were on the whole-food diet, they ate fewer calories and lost weight—this is despite the fact that the meals on offer had roughly the same nutrient compositions. To [researcher Kevin] Hall, this implied that there was something other than salt, sugar, and fat content that was causing people to eat excess calories and gain weight. “It suggested that there was something different about this NOVA categorization system,” he says. Maybe there is more to food than its constituent parts.
A big factor might be the effect that ultra-processed foods have on our brain. Alexandra DiFeliceantonio is an assistant professor at the Fralin Biomedical Research Institute at Virginia Tech Carilion who studies how junk food interacts with the brain’s reward systems. “We know a lot more about fat, sugars, and carbohydrates, and how those are signaled in the gut and to the brain. We know a lot less about the role of ultra-processing in altering any of those signals,” says DiFeliceantonio.
Her hypothesis is that since ultra-processed foods are rich in easily available calories, they induce a potent reward response in our brains that keeps us coming back for more.
