Bathtubs October 4, 2011March 25, 2017 Rough day in the market. And while more rough days may lie ahead, what Warren Buffett counseled Friday, as related yesterday, was not to let the turmoil lead you to sell in panic if the underlying asset you own is sound. For example – and this is my example, not his – our dredging company, GLDD, announced $180 million in new orders yesterday. And the stock fell a little along with the rest of the market. GLDD sells at about 12.5 times earnings, which means that if it were a savings account, you’d be paying $12.50 for each dollar of interest – an 8% yield, which is pretty good these days. Only a quarter of the earnings are paid out in cash dividends, with the rest reinvested, but that’s not necessarily a bad thing. Over time, earnings might grow – both to keep pace with inflation (what savings account does that?) and perhaps even in real terms. The dividend might even rise over time. Is there risk in a stock like this? Certainly. For starters, if enough people want to sell it and no one wants to buy it, the price at which it changes hands could drop virtually to zero. But you’ll still own what you did before: a share in a solid dredging company. And as the stock price dropped, it’s little 8-cent dividend, currently just 2% of the share price, would come to represent an ever higher return on the share price. So why would it drop virtually to zero? There’s the risk our waterways will somehow stop needing to be dredged or that our beaches will somehow stop needing to be nourished. Or that the government entities that tend to fund such projects will go broke. And as with any company, there’s the risk the company will be badly managed (which could lead to losses and the end of that little dividend). So don’t put all your money into GLDD. My point is simply that the sun will come out tomorrow, silt will continue to be deposited in waterways upon which commerce depends, and people owning beachfront homes and businesses will likely spend whatever it takes to maintain their beaches. So, with any luck, ‘this too shall pass.’ Same with our speculative drug stocks. (Or our ridiculous Borealis, which seems to be getting ever closer to actually, possibly, conceivably, making a motor airlines will lease.) It’s possible the government will start negotiating drug prices, and be so heavy-handed that even if our little speculations DO prove to have effective new drugs, they will earn disappointing profits. Then again, people are likely to continue getting sick and continue to want to pay whatever they have to to get well – and nothing about what’s going on in Europe and in the financial markets is likely to affect that. So if you haven’t had ‘money you could truly afford to lose,’ you should feel great – you didn’t lose a dime yesterday! And if you do own some speculations – or even something pretty solid like GLDD – the fact that your shares have gotten hammered is not in and of itself a reason to sell them. SOLYNDRA AGAIN As reported here by the New York Times, emails show serious misgivings within the Administration about the Solyndra loan guarantee – though no undue influence by campaign contributors. Here’s the thing: businesses make poor judgments, venture capitalists make poor judgments, nonprofits make poor judgments, investors make poor judgments, and yes, government bureaucrats make poor judgments. No all the time, but all too frequently. Look at New Coke. Look at the Edsel. Look at IBM giving Microsoft ownership of its PC operating system. Look at Boeing three years late with the 787. Look at Enron. Look at Lehman Brothers or much of the rest of Wall Street. Look at the myriad of high-priced acquisitions that bomb. Look at our entire auto industry that, for lack of foresight, ceded the lead in energy efficient technologies to the Japanese. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But no one would suggest we try to shrink private enterprise to the point it can be drowned in a bathtub. Look at the nonprofits that spend 35% of your contribution on the cost of the fundraiser itself (the dinner, the invitations, the flowers, the sound system, the party planner) and then a chunk of the remaining 65% on administrative salaries and overhead and then whatever is left on well-intentioned projects that may produce negligible results. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But no one would suggest we try to shrink the nonprofit world to the point it can be drowned in a bathtub. (And few would suggest we ban fundraising dinners or revoke the government subsidies that nonprofits enjoy via their exemption from sales tax and the deductibility of contributions.) And, yes, look at the phenomenal waste incurred invading Iraq unnecessarily (for starters) and toppling Sadam Hussein in perhaps the most expensive way imaginable (Qaddafi was removed in Libya for perhaps a trillion dollars less, and Al-Awlaki for less still). Look at the billions upon billions of unaccounted for cash. And at enormous expenditures on weapons systems the military doesn’t even want. And $16 muffins (even if they turn out to be $14.73-a-head per diems for all refreshments at a conference). And bridges to nowhere. And people scamming Medicare and Medicaid – as, in the private sector, they scam private insurers with staged accidents, phony whiplash claims, and arson. Where fraud is involved, there should be investigations, prosecutions, and incarcerations. Where incompetence or negligence are involved, there should be dismissals. But here it’s different: millions do believe that government itself is the problem. They seize on anything it screws up to make the case. They say they would like to see it shrunk to the point it can be drowned in a bathtub. Why have millions come to this view? In part at least it’s because billionaires who want to pay less tax and be free of safety and environmental regulations . . . free of paying a minimum wage . . . free of having to disclose the ingredients in their products or restrained in their deceptive lending practices . . . have funded a decades-long campaign to persuade them of it. It is entirely their right to fund these campaigns to try to lower their taxes and operate free from regulation. And only an idiot fails to appreciate that taxes and regulation, if too extreme, can be counterproductive. But were not the Clinton years (to take a recent real-world example) superior to the Bush years that preceded or followed? Even, emphatically, for the rich, but also – importantly – for everyone else? Despite the Clinton tax hikes, minimum wage hikes, and regulation? Is it really a mistake to try to compete with the Chinese, who are dumping $30 billion of taxpayer money, into subsidizing alternative energy technology? Was it a mistake to fund DARPA, which gave us the Internet? To fund NASA, which produced so many spin-off technologies? To fund the GI Bill or, now, Pell grants? Why are our opponents so sure it was a mistake to hire a Nobel Prize winning physicist to lead the energy department and to help encourage private ventures – even knowing that many of them would fail? Why would they prefer a pick like George W. Bush’s first Energy Secretary who, as a Senator, had voted to abolish the Energy Department? And that gets to what I think is the bottom line. The ‘solution’ to inefficiencies and disappointments in government, in business, and in the nonprofit world is NOT to try to shrink any one of them to the point that it can be drowned in a bathtub. The solution is continually to try to attract the best people and encourage them to make their best efforts to do a great job. Not just by paying a fortune to the guy who presided over the launch of New Coke, or by paying the guy who brought Merrill Lynch to its knees a $160 million severance package – though certainly our captains of industry work hard and should be paid well (although I would argue, not that well). But also by valuing the work of everyone else, including well-intentioned public servants, even though they will not do everything perfectly, either. In the case of Solyndra, our public servants made a bad bet, just as venture capitalists and mutual fund managers do every day. Just as you and I will have done if Borealis never does get those damn planes running around the tarmac like golf carts. If the government was defrauded by Solyndra, the fraud should be prosecuted. But note that this would be fraud on the part of the private sector. I would argue that would be no reason to shrink the private sector or the government to the size either can be drowned in a bathtub. And no reason to give billionaires the lowest tax rates in modern history when we are running a huge deficit. Or to delay repairing our infrastructure and investing in our future. Or to eliminate the agency tasked with protecting our environment. And yet that is what the billionaires hope they can use the Solyndra failure to help engineer: a Republican takeover of the White House and Congress, which in turn would likely give them a 25-year lock on the Supreme Court, which would lead to more decisions like Bush v. Gore and Citizens United, which would make it easier to tilt the election process further in the favor of the billionaires by (for example) upholding election laws designed to make it harder for poor people and young people to vote . . . and tighter and tighter gets the vise. This bathtub, by the way, is the colorful image coined by Grover Norquist (whom I met once when he endorsed the tort reform plan I put on the California ballot). ‘I don’t want to abolish government,’ he famously quipped; ‘I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.’ It’s an extreme, short-sighted vision, and one all but a few Republicans in the House and Senate have signed onto.