Wednesday, December 07, 2005

Improvements ain't all that!

How's that for a title? Well, that's something I've always ranted and raved on for years and years. My contention has always been...this world we live in is zero-sum. You can't improve anything without taking something away. So, improvement is dependent upon which person you talk to.

Corporate farms have enabled us to consume our milk, eggs, bacon, hamburgers, steaks, etc. all at a price that is easy to stomach since we never have to step foot onto a farm or ranch. Especially considering John F. Kennedy's quote, "The farmer is the only business man who buys at retail, sells at wholesale and pays the freight both ways."

But, this improvement on farming came at a cost...to the cottage farmer. Gene Logsdon brilliantly highlights these costs in his classic book, The Contrary Farmer.

So, what's my point? Not much...just trying to find a nice little segue into the following article I found over on DeepWealth. Read here. It's an extract from Charlie Munger's speech on what technology improvements can do to a company...person...a commodity. Favorite part?
And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

That's such an obvious concept - that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy.The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.

The great part about that statement is just how true it is. I have witnessed this effect time and time again in regard to technological improvements made in business. The crazy part...besides myself?

Most people never hit the conclusion that Buffett came to so quickly. Is it really worth doing if I have to invest all this capital only to keep up? Now, I'm not saying we should halt all progress...Close the mill...so to speak. Just trying to make the point that improving our lives...our businesses...the world, comes at a cost.

High-speed Internet? How's that family you never see?

Great investing tools...clean reliable stock data feeds...real-time scan streamers? How's the hunt for those market inefficiencies coming? And at what cost? Only to keep up?

Nice car? Yeah? How's that 45 minute commute?

Nice house? How's that mortgage?

My dad used to mention how it took him 25 to 30 hits to find oil back in the day...now it takes only 2 or 3. But, the cost is the same if not higher.

So, what to do...what to do? To me, I've always thought you should take into account all costs of the improvement (both real and lost) and figure out if there's a way to break off from the pack and create value in a different area and with that capital from the so-called "improvement".

How does this relate to trading? Hmmm...Let's see...if everyone is focusing on short-term returns and investing more and more capital into trading technologies to generate those returns...then how are you ever going to get ahead? Cause let's admit it...the margins are pretty crummy anyway. Technology is only going to reduce those margins further. So, maybe we need to do as Gene Logsdon suggests and break away from the pack....if everyone is going short-term...go long-term baby! Maybe Buffett said it best...

"Someone's sitting in the shade today because someone planted a tree a long time ago."

Just maybe we need to look into the tree business. That is after all one of the top search hits on this site. :)

Later Trades,

MT

2 comments:

Anonymous said...

Could you please tell me if you used "what to do...what to do? To me" as a quotation? It was a house-track with the line in charts about the time you wrote the article - if you still can remember the name of the track or the artist it would be so awesome! please!D

Michael Taylor said...

sorry. "what to do...what to do" is just something i say from time to time. don't know the song you are referring to. good luck in your search.

mt