General Motors (GM) - All About Mary Barra

We have been following General Motors ever since it popped up on Berkshires 13-F filings. It is a Ted Weschler pick, where Berkshire bought 10 million shares in 2012 and has steadily increased the position over time to about 72 million or so. They are the fifth largest shareholder.

 One of us likes what Mary Barra, GM’s CEO, has been doing over there quite a bit (though we didn’t survey anyone else around here). She has sold off the Company’s endlessly unprofitable European division, focused on core lines and cost control, while also making significant inroads into autonomous driving (GM Cruise) and EVs. She also handled the ignition switch fiasco quite effectively. This is all worth talking about in a longer post on another day, but in the meantime we wanted to highlight a talk Marry gave at Stanford in 2017. It provides good insight into how she thinks about GM but also careers and life. She’s worth listening to.

Mary Barra, Chairman and CEO of General Motors, discusses how she not only wants results, but results with integrity. Read more leadership insights from the Stanford GSB View From The Top talk on Monday, May 4, 2017: http://stanford.io/22fGCxZ

Notes:

-On blending tech high return world with low return slow world of autos - what are you most worried about? I’m confident we have good answers but will we get it to market fast enough. So constantly reemphasizing the speed, but yet – sometimes in an organization, especially an engineering organization will take you so literally that you have to make sure you are talking about safety. We want results but we want them with integrity. It’s about talking about behaviors but you put the two types of people together (traditional engineering and tech) and it can be really powerful.

-Career, should you have breadth or depth? – can you comment on the increasing push at the graduate and undergraduate level to focus (your career), to add value day one, etc? -  it depends on the role. If you are the chief engineer of a vehicle that’s generally 15 years (of focusing) because the cycles of learning to integrate the systems of the vehicle. Integrating the powertrain group, electrical group, body group – they’re all coming together and (the chief) has to make those trade-offs. There’s certain areas where we need tremendous depth and this is one of them. And then there are areas where we need someone to say I understand this but understand the (horizontal). You need to make the trade-offs either (vertically or horizontally) and (as a company) we need both. As a mom (one child in college and one in high school) – how could you know at 16 what you want to do for the rest of your life? I’m not sure at age 55 what I want to do for the rest of my life. So I think there’s a need even in engineering to broaden your knowledge. I think it makes you a better engineer. It’s different once in your career. One of the most valued people when I was running the manufacturing engineering group was my welding expert. He has spent his career doing this and grew into the role – which is the kind of depth I am talking about. But he probably made that decision in his 30s and 40s not in high school or as an undergraduate. Even if you are sure you know what you want to do you should broaden and if you don’t know that’s okay. I came to GM thinking I was checking a box and I didn’t know what I didn’t know.

-Discusses Lyft. No one knows where auto companies will be in ten years. She thinks fleet first adoption of autonomous vehicles is the most likely case. Given you can (as a company) own the vehicles and limit locations driven, speed, and other factors while the technology is getting up to speed.

-EV – thinks about EV and fuel cells as obvious migration. Where will volumes come from? China is first and top of mind due to their push to regulate it – 10% requirement to be fully EV or plugin . Want to be the first OEM with EVs that are profitable and affordable.

Atlantic Power Corp (TSX:ATP) – Who’s Feeling Good About Batteries? Tidbits About Grid Power

We recently came across this recent video of Bill Gates talking about energy breakthroughs required to actually solve GHG emissions problems, as opposed to “feel good” renewable products such as the current wind/solar craze combined with battery storage. 

It reminded us of an interesting discussion in Atlantic Power’s Q4 2017 conference call transcript (where they own a portfolio of power projects). We have been following the company for about a year, not least in part because of the thought-provoking tidbits such as the below (emphasis is ours). Since the new management team as come in, they have focused on (and talk about) improving cash flow (rather than “adjusted EBITDA”), reducing costs (successfully), deleveraging, and looking for counter-cyclical transactions. …..

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Daily Journal 2019 AGM Meeting Video and Notes

Some spent Valentine’s Day with their partner after winning them over with roses and chocolates. Others (understandably so) went to see our favorite 95 year-old Charlie Munger talk about business, investing, and life for 2 hours. This year, CNBC taped the Daily Journal AGM on February 14, 2019.

Below are some of our notes:

  • The Daily Journal’s newspaper business is earning approximately $1m pretax but will decline for the foreseeable future. The other side of the business is software that automate courts processes from different jurisdictions around the world. This software business is very difficult because it involves dealing with different bureaucracies and is very customer service centric, but can also be an enormous market. On the flip side, most big companies aren’t interested in it because it is so difficult to do. Main competitor is Tyler Technologies which is a large public company.

  • In the world of disruption this and innovation that, we thought this quote was notable: “The idea of taking on the whole world when the Chairman is 95, the Vice Chairman is 89, and the Chief Executive is 80 and uses a cane – it’s a very peculiar place.”

  • Munger discussed a large investment fund company, which created a new fund with every manager’s best idea. While it sounded great in theory, it turned out poorly, even though they tried it many times. Why did it fail? Why wouldn’t an intelligent group of people coming together with their best ideas result in success?

  • Munger does not answer, but he later gives a hint: if anyone asked Buffett every year for his best ideas, he might only have 1 or 2, and if you followed just those you would do very well.

    • Our thoughts: An individual’s best idea might not be the best overall idea, particularly since most fund managers specialize in certain industries that might not be attractive altogether (never mind office politics). Therefore, the best ideas get drowned out and watered down.

  • On education - “By the way, my definition of being properly educated is being right when the professor is wrong. Anyone can spit back what the professor tells you. The trick is to know when they are right and they are wrong.”

  • Active Investing VS Passive – “If everyone did index investing it won’t work but for another considerable period index investing is going to work better than active stock picking where you try to know a lot. Now a place like Berkshire Hathaway or even the Daily Journal we have done better than average. Why has that happened? And the answer is pretty simple; we tried to do less. We never had the illusion that we could just hire a bunch of bright young people and they would know more anybody about canned soup and aerospace and utilities and so on and so on. We never had that dream. We never thought we could get really useful information on all subjects, like Jim Cramer pretends to have. We always realized that if we worked very hard we could find a few things where we are right and that a few things were enough and that was a reasonable expectation. That is a very different way to approach the process. If you had asked Warren Buffett the same thing that this investment counsel had did, “give me your best idea this year”, you would have found it worked perfectly. He wouldn’t try to know a whole lot, he would give you one or two stocks. He had more limited ambitions.”

  • Investment management business - Munger thinks most fund managers get basically paid to do nothing vs ETFs. Fund managers might say their job is to save their clients from actively trading. Munger agrees they are probably still saving some people from the “hustling stock broker.” But it is very peculiar that the whole profession is paid to do that. Despite lots of IQ in there, they typically can’t outperform indexes.

  • Munger views the industry’s rationalization as a state of denial. No solution he can think of, but noted that admirable value investors just quit instead of staying in denial.

  • Told the story of an old woman in Omaha that sold her soap company in the 30s during Great Depression. She had a big mansion and $300k. She split most of the $300k into 5 stocks, of which 3 were GE, Dupont and Dow, and bought some muni bonds. She just figured electricity and chemicals were an up and coming thing, then just didn’t do anything after that. When she died in the 1950s, she had $1.5m (probably around ~10% CAGR since she was living off the muni bonds).

  • Peter Kaufman always says “If the crooks only knew how much money you could make by being honest, they would behave differently.” Warren says “Always take the high road because it’s never crowded.”

  • Daily Journal: Could have easily raised prices during Great Recession because of all the foreclosure notices. Should they have raised prices? No, not the right way to run a business especially if you’re already rich.

  • Similar to Vitreous Glass when their customers were struggling in from 2008 through the early 2010s.

  • Someone asked if you look at banks with $1b+ of assets up to the super-regional banks, there are around ~250, and asked are there 1-2 that might be good buys? Munger answered yes.

  • What made the Buffett/Munger partnership so successful? Two talented people working well together.

  • China’s stock market: Some very smart people are starting to wade in.