Rooted in Thought Newsletter

At Banyan Capital Management we constantly strive to learn more about the companies and mutual funds we own, economics, history, business management, and investing in general. About every four to six weeks we send to our clients and friends, via our newsletter Rooted in Thought, several hand-picked links to online articles or videos that we feel are interesting, educational or provocative.

Volume 5 – Number 4

Howard Marks On Risk Assessment

Howard Marks has long been one of the more thoughtful voices in the investment community.  In this brief video the subject of the discussion is risk.  He has also authored a more extensive essay on the sub­ject that is the best I have seen.  If you are interested in seeing the more comprehensive treatment of this subject, please let me know.

Climate Science Is Not Settled

This discussion of climate science is rare in that it is thoughtful and not given to hyperbole.

Lawrence A. Cunningham, Berkshire Beyond Buffett: The En­during Value of Values

Larry Cunningham’s newest book is sure to be dissected by Buffett watchers of all stripes.  In this 44 min­ute video filmed on Google’s campus, the author provides about 20 minutes of prepared remarks then Q&A. 

Former Fed Chief At Odds With How Central Bank Now Makes Policy

There is no shortage of skeptics with regard to the course of action the Federal Reserve Bank has charted at the moment.  That is partly because the current environment is unlike anything we have seen before.  When your critic is former Fed Chairman Paul Volcker, one should at least pay attention.  I’m willing to bet every member at the current Fed has read this article.

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Volume 5 – Number 3

Berkshire Hathaway Shareholder Meeting 2014

Many feel, myself among them, that Warren Buffett and Charlie Munger are a national treasure.  No mat­ter how smart you think they are, they’re smarter.  I’m quite pleased that four clients elected to join me this spring at the Berkshire meeting.  All four of them have said they want to come again next year.  If you are a Banyan client, please let me know if you have an interest in attending next years event.  Warning: Once you go the first time, you may feel compelled to go back.  Credit and thanks for these detailed notes of Berkshire Hathaway’s annual meeting goes to Peter Boodell.

Saturday Night Live (SNL) Global Century Investments

This hilarious spoof was used in the Berkshire company film during the 2014 shareholder meeting.

The University of Texas Graduates Are Urged To Find Courage

Naval Adm. William H. McRaven, ninth commander of U.S. Special Operations Command recalls life lessons from his training as a Navy Seal during his recent commencement speech at The University of Texas.  Although these lessons are not new, the way he states them makes it worth while to hear these concepts again.

Deborah Gruenfeld, “Acting with Power”

Stanford social psychologist Deborah Gruenfeld in this video explains how we can exude more confi­dence and competence in our presentations.

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Volume 4 – Number 1

How to Improve Your Child’s Financial Literacy

We’d like to inform you of a great educational opportunity for any young person. Warren Buffett, the Chairman and CEO of Berkshire Hathaway and one of the world’s wealthiest individuals, has leant his voice-acting talents and his sage wisdom to an online animated series called the Secret Millionaires Club. Buffett stars as a mentor to a group of entrepreneurial kids whose adventures lead them to encounter financial and business problems to solve. Each episode teaches a different lesson such as the importance of location to the success of a business, the value of saving money, and the value of one’s personal reputation.

Because financial literacy is usually not part of the school curriculum for young children, we think these online videos are a great tool for parents to help fill this gap in a child’s education. We strongly feel that even a marginal improvement in financial literacy of young children (we think age 7–14 is the target audience for this series) will reduce the odds of financial hardship and increase the odds of financial security later in their adult lives.

All 26 episodes are available for free on the Secret Millionaires Club website. Furthermore, parents can download activities associated with each of the episodes that will help their children better understand and process the lessons of the episode. We don’t think educating a child on this subject could have been made any easier for parents or grandparents!

All episodes are just three and a half minutes long and we think an investment of time in this activity is one that bears no risk and has enormous upside. We encourage you to view some or all of these episodes with any young children who are a part of your life. If you don’t have children or grandchildren, but know someone who does, please forward this message to them.

On Being Wrong

We’ve sent this video to you before, but we think it is so important that we are doing it again. “Wrongologist” Kathryn Schulz says most of us will do anything to avoid being wrong. But what if we’re wrong about that? In this video, Schulz makes a compelling case for not just admitting but embracing our fallibility. Read more

What 5 Counterintuitive Things Can Help You Make Better Choices?

Having lots of choices isn’t necessarily a good thing. Just think of the cumulative hours wasted in our lifetime trying to figure out which tube of toothpaste is the best deal. However, there several things we can do when faced with a deluge of options that can improve the odds of making a better choice as well as a choice that makes us happier. Read more

Updates on America’s Booming Energy Sector

America’s energy industry continues to be one of the strongest engines of growth for the U.S. economy, thanks to the advanced drilling technologies that have given energy companies access to oil and gas saturated shale rock formations from Texas to North Dakota to Pennsylvania. The news coming from the U.S. oil and gas industry continues to be incredibly positive and provides one of the best reasons to be optimistic about the future of America’s economy. Read more

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Volume 3 – Number 6

Oil is Not in Short Supply

“Oil is not in short supply” is the conclusion of a recent report authored by Leonardo Maugeri of the Harvard Kennedy School. What’s even more surprising is that Maugeri thinks “oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption”, which could lead to a steep drop in oil prices in the near future. Despite the contrarian view, Maugeri’s conclusions are based on what seems to be carefully reasoned analysis: Maugeri took a bottom-up approach and analyzed a majority of the individual oil exploration and development projects around the world, something which has not been done before.

In addition to the excellent overviews of the history of estimating oil supplies and the production revolution in U.S. shale and tight oil formations, there were numerous, fascinating data points. However, the report is long at over 70 pages. Thus, we present to you our summary of what we felt was most interesting.

First and most important is the U.S. has the ability to become the second largest producer of oil in the world (after Saudi Arabia) by 2020. This is primarily a result of price and technology aligning to allow companies to extract oil from tight oil formations in North Dakota, Montana and twenty other large shale formations across the country. With oil prices above $50 to $65 per barrel and technological innovations such as hydraulic fracturing and horizontal drilling, the U.S. has a huge amount of energy resources. The only factors that can limit this potential are the political and regulatory decisions that happen above the ground.

Secondly, there still exists a huge potential for other major producing countries around the world to improve their oil recovery rates (the recovery rate is simply the percent of oil that can be extracted from the estimated oil in the field) with investments in technology and better practices. For example, the current leading producers—the Russian Federation, Iran, Venezuela, Kuwait, and others—have a 20% recovery rate compared to a 35% worldwide average and rates of 45% for countries like the U.S., Canada, Norway, and the U.K.

Iraq in particular is a stark example of how politics can hold back huge potential. Since the dawn of the 20th century, only 2,300 wells have been drilled in Iraq compared to about one million in Texas. With a chronic state of underdevelopment (Iraq’s recovery rate is roughly 15%), Iraq likely has 200 billion barrels more of reserves than currently documented.

Thirdly, the history of estimating reserves in the U.S. is a fascinating subject. For example, the Kern River Field in California is instructive in how price and technology can extend the life of a property far into the future. First discovered in 1899, analysts thought only 10 percent could be recovered from the Kern River. In 1942, it was estimated the field still held 54 million barrels, a fraction of the 278 million already recovered. Then, over the next 44 years, it produced 736 million barrels, almost 14 times greater than the 1942 estimate. The Kern River is not an isolated example—this has happened with many other geographies and will continue to happen for decades to come.

Finally, the most important conclusion in Maugeri’s summary is that although the age of “cheap oil” is probably behind us, technology will allow humanity to continue to extract vast amounts of conventional and unconventional oil. Another conclusion is the possibility there will be major overproduction in the world after 2015 which could lead to a significant decline in oil prices should demand not grow at a rate of at least 1.6% yearly.

If you are interested in reading the full report, you can download it by clicking here.

The 11 Ways Consumers Are Hopeless at Math

If you’re a consumer, read up on these to better avoid making a mistake at the cash register. If you’re a business person, read up for ideas on how to increase sales! Read more

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  • It is not the ship so much as the skillful sailing that assures the prosperous voyage. — George William Curtis