Monthly archives of “July 2020

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The Pricing Power Lollapalooza

There are many sources of pricing power—brand names, network effects, cost advantages, unique technology. One of the most volatile is when a product has limited supply elasticity, is an essential input into a product with growing demand, and is a small proportion of the total price of that product.

– Byrne Hobart

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Dopey Ideas

Steve used to say to me, and he used to say this a lot. Hey Jony, here’s a dopey idea. And sometimes they were. Really dopey. Sometimes they were truly dreadful. But sometimes they took the air from the room. And they left us both completely silent. Bold, crazy, magnificent ideas. Or quiet, simple ones. Which in their subtlety, their detail, they were utterly profound.

– Jony Ive

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The Dilemmas Created By Unknown Unknowns

I tried so hard to learn the lessons of 1998 in particular, which were: Don’t be unprepared for something out of the blue that’s really bad.

To some extent, we were prepared this time. However, you can never be prepared enough. We had a lot of macro protection in terms of credit default protection on bonds where we were just betting that credit spreads would widen. That’s been incredibly helpful. But we’ve gotten really tired of buying market puts, or anything like that, because they inevitably are expensive and expire worthless.

So as an investor, you have terrible trade-offs. Do you overpay for insurance — or do you go uninsured? That’s just one of those dilemmas for which there are really no perfect answers.

– Seth Klarman