It's better to be bored by markets
On Elon Musk's lust for Twitter, boring businesses, and the intrinsic value of valuation
The high drama surrounding Elon Musk's attempt to take over Twitter has brought unusual popular attention to the business world. Ordinarily cordoned off as "business news" covered by "financial media", questions of valuations and ownership rarely intrude into the mainstream consciousness. Events involving certain high-flying, attention-hungry magnates pose an unusual exception.
■ It was about 12 years ago that Berkshire Hathaway laid out $26 billion in cash and stock to buy out the BNSF railroad. It was a huge deal -- Warren Buffett was basically betting a quarter of his own company on it.
■ Later this month, Berkshire will hold an annual meeting in Omaha, where shareholders will be reminded that the company brings in operating earnings of about that same volume as the entire BNSF purchase every year. (Last year's operating earnings were $27 billion.)
■ Berkshire recently announced the purchase of Alleghany, an insurance company, for $11 billion. It's safe to say the event went almost unnoticed outside of true hard-core financial news-watchers. It most certainly did not get proportional attention to Musk's Twitter-takeover offer, which is larger -- but only four times larger.
■ Even more enormous (and less renowned) than such Berkshire buyouts have been the company's share repurchases. Berkshire has repurchased more than $51 billion in shares since just 2019. If Warren Buffett had moved his company to buy out Twitter for that much, it would have made headlines. But consolidating ownership of itself by an even larger number barely raised anyone's attention at all.
■ Just for comparison, put the Alleghany purchase and the share repurchases together, and that would be a deal the size of buying the entire Ford Motor Co. (market capitalization: $62 billion). Boring? Only by nature of what the company does. In scale, it's quite exciting.
■ For as much as the crypto-bros and others want to sell you on their get-rich-quick schemes, they're just trying to get people hooked on emotions and speculation. It's morally unsound. Peter Thiel can rage against a "sociopathic grandpa from Omaha" for downplaying Bitcoin, but Thiel isn't really making a case for cryptocurrency on the merits.
■ Meanwhile, Berkshire continues growing, reinvesting in huge projects for renewable energy (to the tune of $37 billion at last count), and sending billions of dollars in corporate taxes to the US Treasury, while paying the salaries of more than 371,000 people.
■ People need to know the distinction between speculation and valuation. Valuation is a matter of determining what something is truly worth, no matter what its price tag. Speculation is a matter of grabbing something at one price (without regard to its intrinsic value) and looking eagerly to sell it for a higher price -- often as quickly as possible. Speculation can be fun for an adrenaline rush, but it's a trashy way to characterize a market economy.
■ Capitalism does great things when it's patient, thoughtful, and focused on the long term. Command economies cannot measure up! But the skill of market valuation (which is the cornerstone of how Buffett has built Berkshire) is wildly under-appreciated. We ought to try fixing that. Other activities may be better for capturing headlines, but patient, strategic attention to business-building is vastly better for a civilization.