28. Businesses that don’t have economic moats yet but are developing them can be better investments than businesses that already do.
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29. Social hierarchies come natural to humans, so entities that sell perceived access to higher tiers of those hierarchies will always be in demand. Social signaling never dies and neither will lux goods and services.
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30. The economy is creating more wealthy people and more poor people. The middle gets eaten by the economic meat grinder. The same is true for businesses. Midline is usually the worst place to be. High end and low end are key to the American Carnage portfolio.
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31. You can run your own John Malone home game. Dividend stocks are for tax deferred accounts and geezers who want an extra $20 per month in income to supplement their SSI. Compounders are for taxable, just gotta hold them til you die so your heirs get a cost basis step-up.
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32. LTV/CAC analysis can really screw you up if you don’t consider cohorts and scale of spend. Often, your earliest adopters are your biggest fans. If you don’t have an internal growth engine, there’s a good chance you’ll run into diseconomies of scale in customer acquisition.
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33. Real estate leases serve as a hedge against Wholesale Transfer Pricing. Advertising may be the new rent, but the rent is month-to-month so if you don’t expect to get squeezed it’s your own fault.
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34. Insurance tends to be an awful business, but a fun way to check the trend in reserving adequacy is converting calendar year loss development triangles into accident year ones. Insurance has goofy accounting so sometimes you can gain insight from the granularity.
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35. Insurance float is one of the worst kinds of float because what you can do with it is heavily regulated. If someone is starting an insurer for float, run away. There’s a good chance they’re either living decades in the past, planning a scheme, or lacking in creativity.
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Replying to @wokecm
Well Berkshire has much higher quality insurers than average, with combined ratios that are usually quite a bit better than the industry. GEICO in particular seems competitively advantaged and was the “disrupter” of its day by replacing agents with direct response marketing.
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It also owns substantial assets outside of the insurers that may give it more creative flexibility in the types of and size of risks they insure. In that way, the whole may be worth more than the sum of the parts. But that last part is mostly conjecture on my end.
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Replying to @LAForeverHall
Oh, I meant your point about regulation. How does Buffett allocate more to equities than other insurers? Is reinsurance less regulated?
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