Monday, April 07, 2008
SPACE CYNICISM
Here's a post from the Space Cynic blog that quotes Warren Buffet about investing in airlines as a cautionary tale for those who would invest in alt.space companies:"Cynic" is right: Shoot down Orville Wright? Yes, airlines are pains in the neck as investments. So, by the way, are restaurants, by and large. If all you care about is making money then, by all means, play arithmetic games on Wall Street and stay the heck away from actually doing anything real in the real world. Your fickle money is the last thing that's wanted by visionaries who want to build something useful. You'll have to care about more than how many score-counters you have in your bank account if you want to be counted as someone who has actually contributed something to human life.The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But then we got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.
A better illustration I could not imagine of mistaking an instrument -- capitalism -- for a goal -- human progress and happiness. Fortunately, there are people who know what money is for. But Warren Buffet isn't one of them.
GB, THHotA
posted by Greg 9:10 AM
