Compassion, Credit, Credibility and Context

The other day I have heard Warren Buffet speak on one of the financial news channel. He was asked to give advice to people in this difficult time and one of the things he advised was to get rid of and avoid credit card debt, and laughingly he joked that even he can’t afford such expensive debt. That might seem funny but the more I reflected on it the more I thought that it reflects a fundamental lack of compassion and understanding for the circumstances and context that force people to resort to such high cost financing.

Intellectually for a value investor without any cash flow problems, who is following the teachings of Benjamin Graham the idea of paying interest that is many multiples higher than US treasury yields is naturally preposterous. For a company not to use high debt to finance ongoing operations is a sound advice.  However invoking that frame of reference is grossly irresponsible when talking about the cash strapped individual who is reaching for credit card debt. The idea of a distress entity is more relevant than a blue chip going concern. Thus Michael Milken and not Benjamin Graham should be the conceptual reference. Yes, junk bonds.

Now such distress individual will have totally different risk profile than a value investor. Most obvious difference is that from capital preservation versus self preservation. Again the difference is profound, as somebody who is aiming for market returns while balancing the risk of a downside will not take same risks as somebody trying to hold on to his place in life, trying to feed his kids and keep his apartment. To me the psychological risk profile of the credit card balance holder is very similar to the bank CEO who stretches the balance sheet to leverage the returns and maximize his upside with disregard for the downside.  Although the latter does it out of pure greed where as the former does it out of survival instinct. Results are the same, resulting with putting someone else’s capital at risk, but contexts are different.

However irresponsible it is to criticize someone’s survival instinct mistaking it for stupidity, it does not change the result of increased capital at risk. That is partially why I have difficulty with the credit card reforms. Although I fully grasp the need to protect the consumer from the tricks and traps of the credit card companies, I can’t help but see the line of credit as a corporate revolver type loan that is only drown in full in time of a distress!!!  Yes, it turns to junk at that point. So for cash rich Buffet to give a blanket advice against such instrument is plain silly!!!

What’s the point of all this? I believe even celebrated oracles like Warren Buffet, or perhaps particularly such celebrities, should try to refrain from giving blanket advice at risk of sounding really silly and out of context! 

Social Responsibility vs Profitability and Leadership

On February 8^th CBS run a story about the “CEO Of the People” A Japan airlines CEO putting him on pedestal to be admired by other CEO’s. I have all the respect in the world for Haruka Nishimatsu and his management style and philosophy. However I believe that such simplistic populist reporting in slightly irresponsible.

Although in today’s unusual environment where everyone is closer to bankruptcy it may seem difficult to tell the difference between banks and airlines, but the John Thain reference marks an untenable comparison! For the global airline industry there is a persistent shortfall between the actual return on invested capital and the level of return expected by investors (i.e. the cost of capital). Some individual airlines generated high returns, but on average the sector is unable to deliver a sufficient return for investors. “No-frills” airlines on average fare not much better. Banks historically do rather well on profitability matrix.

To take a leader, however personable, charismatic and humanistic, from such lousy industry as aviation (with respect to my aviation friends) and put on a general pedestal without caveats and context is in my humble opinion irresponsible reporting.  Perhaps we could start a debate about leadership values and corporate values and what role should profit play in an ever more connected, enlightened, and consciously aware society. Perhaps we can start a debate about adding more dimensions, including social dimensions to profitability, which would be worthy debate. However the CBS News report did not move beyond the simplistic, populist, one-dimensional praise and apples and oranges comparisons and that is a shame!    

People are people through other people

I have not written any blog entry for quite some time. Although I have attended many lectures and heard many captivating ideas worth sharing. The lingering question on my mind was, why. Probably because blogging on the fringes without much of a feedback loop is very individualistic activity and I am more of a social animal. I believe human beings need to belong to something, to some form of community, and an individualistic blog is not a substitute for communal interaction. I have read recently a book by Victor Frankl titled Man’s Search for Meaning. Victor states he goes beyond Freud and stipulates that man is not just after actualizing bundle of erotic emotions but strives to derive meaning in life form love or work. Victor survived a few concentration camps during WWII by hanging on to the meaning his love for his wife gave him and his drive to complete his unfinished work, his book gave him. It is very logical but I could not bear a simple pairing of marriage and work on parity without qualification. I also thought there was something missing in the list. What does it mean to derive meaning form something? It means you identify yourself with something, It means you find a place you belong. Marriage or work, are just the most common representations of such places. Sometimes you derive meaning form one relationship and sometimes when things are not working well you derive meaning form belonging to a work group, or community organization, a circle of friends, or any other group whose explicit or implicit mandate aligns with your passions. That is why sometimes after a break up or loss of work people are advised to get lost in other activities, and that works! A void of belonging is filled with something else to belong to. If your girlfriend ignores you if boyfriend does not call back if work is not fulfilling, fudge them and belong to something that completes you. You can derive meaning form belonging to a motorcycle club, a pottery class or church quire. Does not matter, whatever makes you you. As long you are alive, you have to belong to something. Long time ago Archbishop Desmond Tutu said: People are people through other people….that is to say we self actualize by reflecting others, capturing the currents of thought expressed by others and reverberating them with our idiosyncratic twist. That’s humanity! Simply put that is belonging. And Belonging is where we derive meaning of life.

What do you belong to?