Saturday, July 5, 2008

Warren and Me.

There is an interesting interview in the Wall Street Journal with an 'old school' hedge fund manager, Ted Forstmann, who is famous for predicting the junk-bond fiasco of the '80's. Actually, he's really quoting Warren Buffett:

"He jumps between thoughts, examples and anecdotes in a pure stream of consciousness. One such aside is about Warren Buffett and the rule of the three "I"s.

"Buffett once told me there are three 'I's in every cycle. The 'innovator,' that's the first 'I.' After the innovator comes the 'imitator.' And after the imitator in the cycle comes the idiot. Which makes way for an innovator again." So when Mr. Forstmann says we're at the end of an era, it's another way of saying that he's afraid that the idiots have made their entrance.

"We're in the third 'I' for sure...."

This shows one of those interesting parallels between what I notice in a small store, and macro events.

Every fad, or if you'll allow me, every bubble I've seen, has gone through the same three stages. Only I called them, the "Golden Age" when everyone is excited and genuinely interested and honorable; and the "Greed Time" when outsiders see the money changing hands and jump into it; and the "Ragamuffin Time," when the first group has left in disgust, and the second group preys on the latecomers until it's all gone. I try to get out when I see the third stage, and warn as many people as I can. (Not that they believe me....)

If you're selling to these people, it's important that you recognize the symptoms, and try to guess what stage you're in. Just as there is the old saying about by the time it hits the cover of Time Magazine, it's over -- I've noticed that we enter the second stage when you start hearing about people stealing, or getting into fights, or being banned from schools because of the fad.

Gee...Warren Buffett and I think alike. He about billions of dollars, and me about pogs and pokemon.... heh.


Duncan McGeary said...

I know, I know. I was going to just do one entry a day, but I can't seem to hold to it.

Duncan McGeary said...

If you think I'm flattering myself, I see it as anything but. I noticed this with Mike Richardson, of Dark Horse, I didn't think he was all that much smarter than me; but he thought 'strategically' and I thought 'tactically.'

Which is a flattering (to me) way of saying, he thought in bigger terms than I did. He had an ambition I just didn't have, and a willingness to take big risks.

And more power to him.