4 ms·

> I don't understand your terminology I think you do :) Probably you disagree with the characterization. I don't see why rent capture generally has such a neg

by dxbydt 14y ago

> I don't understand your terminology I think you do :) Probably you disagree with the characterization. I don't see why rent capture generally has such a negative connotation outside of finance circles. Its a perfectly legitimate strategy. And who has a larger moat than BNSF or Vestas or SunPower ? Even if you were a Zuckerberg you couldn't build these things in decades. Takes forever just to buy the land, spec out these things & get the specs approved by regulatory bodies. So if you could buy these concerns outright, you would. You would buy, whether it was making solar power or your underwear. ( He owns the largest underwear maker Fruit of the Loom ). Given the asymmetric info advantage he has, he's sold millions of puts expiring in 2019 & is sitting on top of billions in premium ( while simultaneously telling the American public that derivatives are instruments of the devil :) Got to park those assets someplace, otherwise fiat risks accumulate. His stock purchases for 2012 are quite ho-hum...utilities, banks, big media ( http://static.cdn-seekingalpha.com/uploads/2012/12/4/saupload_Berkshire-13F-Q3-2012-Update_1.jpg http://static.cdn-seekingalpha.com/uploads/2012/12/4/sauploa... )

rauljara 14y ago
Whether or not Tycho understands your terminology or not, I don't, and I bet a whole bunch of people don't. You use a lot of jargon (not in the negative sense of the word, but in the sense meaning highly specialized vocabulary). Could you actually answer tycho's request?
- dxbydt 14y ago
  I hate to dumb down stuff that even wikipedia takes 2000+ words to summarize. But simplistically, Buffet is sitting on a mountain of cash. If interest rates go the wrong way, he is exposed to fiat risk. So his best bet is to trade that fiat risk for non-fiat income producing assets. He does that by outright purchases of very large companies whose competitive advantage is so huge they'd be impossible to defeat, and yet you can't get by without them. I mean, what are you going to do if you want 1000s of giant walmart containers sitting in LA moved to the midwest, and you don't like BNSF's pricing ? You are essentially fucked. So you play ball with BNSF. That's your moat right there. You can't build a railroad, not in today's climate. Its not like a gmail or an oracle in that you think those companies suck, so you switch to hushmail and mongodb. You basically have an out, so there's arguably no real moat in technology. But with large scale infrastructure projects, once you own a piece of them, you can just sit back & collect rent & everybody has no recourse other than to pay up.
  - jjguy 14y ago
    "If you can't explain it to a six year old, you don't understand it well enough yourself." -- Einstein In other words, express your command of a subject by how simple you make it appear, not by demonstrating how impressive and complicated the subject is. I remind myself of this concept routinely, and struggle to reflect it in my writing and peer communications.
  - eliasmacpherson 14y ago
    Thanks for the dumbed down explanation. I had a very clear idea of what you meant from your first post, however, the extra clarity gives me confidence that I understood it correctly. Your first comment also dumbed down the exact same material - but in a different way. In the present day, among computer users and maybe people interested in finance, I have noticed the use of terser expressions, dense walls of text and shorter words to approximate the meaning of longer concepts (e.g. "moat", "sticky") to avoid recreating 2000+ word wikipedia articles. Your first comment and the earlier commenter suggesting 'coca cola' having 'invented' santa claus (the user didn't mean the dictionary definition of invented), where two people are using language that has moved on from the dictionary definition, reminds me in some way of this essay by George Orwell. https://www.mtholyoke.edu/acad/intrel/orwell46.htm https://www.mtholyoke.edu/acad/intrel/orwell46.htm I prefer the present-day contracting "meaning concentrating" style of abuse of language rather than the olden-day expanding "meaning dilution" style of abuse, however both make for uncertain reading!
Tycho 14y ago
No honestly I just wasn't sure I fully understood what you were saying. I wouldn't ask you an insincere question.
_delirium 14y ago
> I don't see why rent capture generally has such a negative connotation outside of finance circles. Well, it violates a lot of views of how the market "should" operate, on both the left and the right. On the right, some simplified versions of free-market views assume relatively perfect, efficient markets will normally develop absent government distortion, so they're suspicious of areas where rent is being extracted as probably due to some kind of intervention preventing a proper free market from operating. And on the left, many see rent-extraction as a paradigmatic example of the power of capital relative to labor (the ability of passive rent-extractors to in effect collect a "tax" from active economic activity).
- chii 14y ago
  people who do not own "rent producing assets" have a bias towards those who do, because a "rent producing asset" is something that gives the owner money, without the owner producing value, other than making the asset available. It is basically a facet of jealousy if you ask me...
supercanuck 14y ago
I don't agree that Rent Capture is the correct terminology, because Buffett isn't using political or social engineering (so to speak), in order to capture the market. He is simply finding companies with very high switching barriers that have occurred naturally in the market. We usually associate "Rent Capture" with activities like limiting the amount of taxi licenses in a given city which helps incumbents but drives out competitors.
joeag 14y ago
I don't see SunPower as being like the others. It's very, very hard to build a new set of railroad tracks so a railroad is pretty much of a monopoly. Anyone can (and does) build solar plants. It just takes capital and patience. Also railroads (and utilities) have immense lobbying capabilities and so are able to get very sweet, ever increasing rates (although for railroads they do of course have to compete with other modes of transport, but I'm sure with rising fuel prices they have huge advantages compared to over the road). SunPower however, as a developer, has to SELL to utilities and have NO pricing power nor real competitive advantage. They also typically sell on long term fixed price contracts in order to obtain financing and because that's typically all the utilities offer. I would be interested to know if Buffet has some kind of swap or other financial product that trades the long term fixed price stability of the investment (although low yielding) for something that provides more yield but is more variable.

by dxbydt 14y ago

rauljara 14y ago

Whether or not Tycho understands your terminology or not, I don't, and I bet a whole bunch of people don't. You use a lot of jargon (not in the negative sense of the word, but in the sense meaning highly specialized vocabulary). Could you actually answer tycho's request?

dxbydt 14y ago
I hate to dumb down stuff that even wikipedia takes 2000+ words to summarize. But simplistically, Buffet is sitting on a mountain of cash. If interest rates go the wrong way, he is exposed to fiat risk. So his best bet is to trade that fiat risk for non-fiat income producing assets. He does that by outright purchases of very large companies whose competitive advantage is so huge they'd be impossible to defeat, and yet you can't get by without them. I mean, what are you going to do if you want 1000s of giant walmart containers sitting in LA moved to the midwest, and you don't like BNSF's pricing ? You are essentially fucked. So you play ball with BNSF. That's your moat right there. You can't build a railroad, not in today's climate. Its not like a gmail or an oracle in that you think those companies suck, so you switch to hushmail and mongodb. You basically have an out, so there's arguably no real moat in technology. But with large scale infrastructure projects, once you own a piece of them, you can just sit back & collect rent & everybody has no recourse other than to pay up.
- jjguy 14y ago
  "If you can't explain it to a six year old, you don't understand it well enough yourself." -- Einstein In other words, express your command of a subject by how simple you make it appear, not by demonstrating how impressive and complicated the subject is. I remind myself of this concept routinely, and struggle to reflect it in my writing and peer communications.
- eliasmacpherson 14y ago
  Thanks for the dumbed down explanation. I had a very clear idea of what you meant from your first post, however, the extra clarity gives me confidence that I understood it correctly. Your first comment also dumbed down the exact same material - but in a different way. In the present day, among computer users and maybe people interested in finance, I have noticed the use of terser expressions, dense walls of text and shorter words to approximate the meaning of longer concepts (e.g. "moat", "sticky") to avoid recreating 2000+ word wikipedia articles. Your first comment and the earlier commenter suggesting 'coca cola' having 'invented' santa claus (the user didn't mean the dictionary definition of invented), where two people are using language that has moved on from the dictionary definition, reminds me in some way of this essay by George Orwell. https://www.mtholyoke.edu/acad/intrel/orwell46.htm https://www.mtholyoke.edu/acad/intrel/orwell46.htm I prefer the present-day contracting "meaning concentrating" style of abuse of language rather than the olden-day expanding "meaning dilution" style of abuse, however both make for uncertain reading!

Tycho 14y ago

No honestly I just wasn't sure I fully understood what you were saying. I wouldn't ask you an insincere question.

_delirium 14y ago

> I don't see why rent capture generally has such a negative connotation outside of finance circles. Well, it violates a lot of views of how the market "should" operate, on both the left and the right. On the right, some simplified versions of free-market views assume relatively perfect, efficient markets will normally develop absent government distortion, so they're suspicious of areas where rent is being extracted as probably due to some kind of intervention preventing a proper free market from operating. And on the left, many see rent-extraction as a paradigmatic example of the power of capital relative to labor (the ability of passive rent-extractors to in effect collect a "tax" from active economic activity).

chii 14y ago
people who do not own "rent producing assets" have a bias towards those who do, because a "rent producing asset" is something that gives the owner money, without the owner producing value, other than making the asset available. It is basically a facet of jealousy if you ask me...

supercanuck 14y ago

I don't agree that Rent Capture is the correct terminology, because Buffett isn't using political or social engineering (so to speak), in order to capture the market. He is simply finding companies with very high switching barriers that have occurred naturally in the market. We usually associate "Rent Capture" with activities like limiting the amount of taxi licenses in a given city which helps incumbents but drives out competitors.

joeag 14y ago

I don't see SunPower as being like the others. It's very, very hard to build a new set of railroad tracks so a railroad is pretty much of a monopoly. Anyone can (and does) build solar plants. It just takes capital and patience. Also railroads (and utilities) have immense lobbying capabilities and so are able to get very sweet, ever increasing rates (although for railroads they do of course have to compete with other modes of transport, but I'm sure with rising fuel prices they have huge advantages compared to over the road). SunPower however, as a developer, has to SELL to utilities and have NO pricing power nor real competitive advantage. They also typically sell on long term fixed price contracts in order to obtain financing and because that's typically all the utilities offer. I would be interested to know if Buffet has some kind of swap or other financial product that trades the long term fixed price stability of the investment (although low yielding) for something that provides more yield but is more variable.