Message from Michael - Buffett and Broadband - March 1, 2011

Message From Michael                                 

                                                                                                                        March 1, 2011                                                                                                                                                                                                                                                                                                                                                                                  

      THE WOODSTOCK FOR CAPITALISM

      BROADENING THE BROADBAND BOUNDARIES

      THE CURE IS WORSE THAN THE DISEASE

 

      THE WOODSTOCK FOR CAPITALISM.  It occurs every year in Omaha, Nebraska, and it’s for shareholders who own a certain stock which sells for a whopping $95,453 for a single share.  The event is the Berkshire-Hathaway annual stockholders meeting, presided over by the Oracle of Omaha, Warren Buffett.  In his just released annual letter to shareholders, Buffett runs his usual gamut of commentary, explaining everything from why University Business School’s use of net income and the Black-Scholes accounting method is wrong, to the fact that the third best investment in his life was the purchase of his home… the two best were the wedding rings he bought for he and his wife… or to his often-used analogy that investing money is more important than having money, just like, “a girl in a convertible is worth five in a phone book.” 

Yes, it is time for my annual paean to the good sense encapsulated in Buffett’s annual letter.  But how can you not admire some one who tells his managers they can afford to lose money, even a lot of money, “but we can’t afford to lose reputation – even a shred of reputation.”  Or that they should act not just on a basis of what is legal, but that they should act on the basis that they would be happy to see what they did, “written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”  Or who runs the Multi-Multi-Billion dollar operation with a staff of 20 people in an office that, rent and equipment combined, costs less than half a Million.  Or who not just allows but invites 48 business school students every year to spend a day with him.  Or who tells his fellow Billionaires that they could save money, coming to the annual meeting in Omaha, by flying into Kansas City and driving, rather than flying directly into Omaha.  All while his company earned a compounded annual gain more than double (20.2%) than of the Standard and Poor’s (9.4%) over the last 50 years.  And despite the fact that he and his partner, Charlie Munger, have a combined age of 167 years.

Buffett’s Berkshire-Hathaway group owns everything from Geico insurance where they “enthusiastically” spent $900 Million on advertising last year alone, to the recently acquired Burlington Northern Santa Fe Railroad where a ton of freight is carried 500 miles on a single gallon of diesel fuel, thus reducing greenhouse emissions and the need for imported oil; to electronic components distributor TTI and H.H. Brown Shoes, as well as RV and Boat manufacturers, farm equipment makers, along with lollipop makers, Jet Airplane rentals and everything in between.  But the most important part may be (and I say, may, because I don’t know) are the various insurance companies that provided him $66 Billion in “float” – money used to meet insurance claims but which is used to earn money in short term investments.  As for us non-Billionaires, Buffett tells the story about a letter his grandfather wrote to his Aunt Alice which included $1,000 in cash because his grandfather thought it important that they have cash to “put your hands on” if needed.  He warned them not to invest it, but to have it on hand; and if they used any part, use only a little and replace it quickly.  Buffett says he has followed the same advice with his company, except that he has $20 Billion he can put his hands on quickly.

As a footnote, I have been writing about Warren Buffett’s annual shareholder letter for several years.  This year, for the first time, I noticed that many more mainstream media operations, including The Wall Street Journal and National Public Radio have had extensive coverage of his letter.  Also, as a footnote, we will have our annual review of various media companies’ annual reports in an upcoming Message.

      BROADENING THE BROADBAND BOUNDARIES.  Here’s a factoid that says volumes about our changing world:  In a little more than a decade, starting in August, 2000, Broadband Internet connections has gone from a measly 4.4% of American households to where now more than a third (68.2%) of American homes have a Broadband connection.  My math is not as good as it used to be, but I think that’s something close to a 1700% increase, or something like that.  The recently released “Digital Nation” report released by the National Telecommunications and Information Administration of the U.S. Commerce Department contains that factoid, along with many others attesting to the value of Broadband usage.  For example, domestic IT jobs increased 26% in the decade 1998-2008 – 4X the national employment growth rate.  Global online transactions accounts for $10 Trillion in business.  The report says a tiny 2.9% of Americans are still using dial-up for their Internet connection.  But here’s the factoid that we techno-geeks sometimes overlook:  The report says more than a quarter of Americans (28.3%) do not use the Internet anywhere… no how, no way… home, school, or business.  And it’s not because they can’t, although that’s a factor; it’s mainly because they won’t.  Most of those folks just say they are not interested or don’t need it.  And here’s the factoid from the report that I don’t understand:  According to one graph in the report (and, yes, I may be one of the few who actually looks at these) -- While nearly three-quarters (71.1%) of American households have Internet connections (broadband and dial-up combined), less than two-thirds (61.8%) have a computer.  To use an  old TV line – that don’t compute.  Also, just to put the ‘cut the wire’ dispute in perspective, nearly every home in America (96%) has a telephone.

Decidedly less surprising, the report documents a continuing demographic disparity in Broadband adoption, with higher income, higher education, suburban, white and younger households having greater Broadband access.  However, on the plus side, the report notes that the gap is narrowing.  For example, Broadband adoption in the $15K to $25K income range grew 21% in the past year while adoption in the $100K to $150K income group grew only one percent.  Similarly the gap among ethnic groups is shrinking as well, albeit somewhat slowly.  Yet another graph shows that Broadband adoption is highest among households with a married couple with children under 18.  Here’s the part of the graph I found oddly interesting.  Homes with a single male head of household and a child under 18 are more likely (68.3%) than similar female head of households (63.1%) to have a Broadband connection.  On the flip side of that equation, men and women are equally likely (62.3% and 62%) to have a Broadband connection.

      THE CURE IS WORSE THAN THE DISEASE.  You’ve no doubt heard that phrase.  Well, in the new media world, there is flip side to that phrase.  The curation is better than the algorithm.  Whew, I know, I know… that’s a stretch.  Here’s the point:  For the past decade, the magic word in new media, IT and technology discussions has been ‘algorithm.’  If you want to do an online search, Google had an algorithm with 200-plus parameters that provided you three million more answers than you wanted.  Now that you have finally gotten used to the concept of algorithms, there is a new buzz word making the rounds.  It’s curation.  The traditional definition is the selecting, organizing, caring and presenting of objects in a collection.  And that traditional definition still applies, but now it is being applied to content.  All kinds of content – video and text, information and news.   There have been curation algorithms.  But now there is social curation (gathering information from the various social networks), and making an astounding comeback – human curation.  What in the old days we called editors.  Part of the reason is the recent gaming of Google, and other search engine, algorithms.  Part of that is the sheer volume of material out there.  A recent Pew Research report found that most people (70%) are overwhelmed by the sheer volume of information out there.  They need some one to filter the relevant content.  And part of the reason is the growing influence of brand marketing and content farms which generate material, but often it is material of questionable value.  Anyway, as you graze, surf, or browse the Internet, and visit your social networking sites, watch for the word “curation.”  You’re going to see more of it.       

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