The Wit And Wisdom Of Investor Letters

Investor letters are not generally highly renowned for their incredible readability. That’s never been a real problem since shareholders aren’t looking to be entertained when they read the annual missive from the CEOs whose firms they own a share of; they are looking to be informed.

And, hopefully, encouraged that they have placed their money in a sound vehicle for generating even more money.

And while most CEOs are content to write extensively — if not excitingly — about why the future will be brilliant, their choices have been excellent and any and all setbacks will be temporary and transitory, there are a proud few who bring just a bit more ambition to the plate for the annual missive.

Warren Buffett, for example, took this year’s letter as an opportunity to marvel at the advances the world has made in his lifetime and to share his level of readiness to get on Tinder.

“My parents, when young, could not envision a television set, nor did I, in my 50s, think I needed a personal computer. Both products, once people saw what they could do, quickly revolutionized their lives. I now spend 10 hours a week playing bridge online,” he said. “And, as I write this letter, ‘search’ is invaluable to me. (I’m not ready for Tinder, however.)”

Buffet’s revelation this year, apart from being colorful, was even inspirational to some — namely, Continental Advisors Managing Partner and Cofounder Paul Purcell, who noted that the fact that the Sage of Omaha even mentioned Tinder (even in jest) and later Airbnb was indicative of just how far the innovation economy has come and how much further it still has to push forward to.

“Mr. Buffett is correct. Innovation is the engine of America,” Purcell noted.

Warren Buffett, of course, can, more or less, be counted on to be interesting in his annual remarks. They don’t start calling you the Sage or the Oracle if one does not have the dual habits of being quotable and wise.

But, as it turns out, 2016 has been a pretty good year for CEOs and other leaders bringing the color to the commentary. From Jeff Bezos going full cheerleader for Prime, to Jamie Dimon enjoying his annual lament on the various forces trying to destroy banking in America, to Richard Cordray doing some impressive tap dancing in front of Congress about all the wonderful ways consumers have been helped this year, there has been a whole lot of interesting and quotable quotes circling in cyberspace.

For example…


There Is One Rational Choice: Amazon Prime

It is not an uncommon thing for CEOs to have faith in their products. In fact, a CEO who thinks their goods or services are anything less than the best the market has to offer is probably not long destined for their job.

Still, there is confidence, and then, there is accusing any consumer who does not avail themselves of your signature product of being essentially irrational.

Amazon CEO Jeff Bezos has achieved that level of confidence.

Or, perhaps more fairly, he is fairly certain that the firm is on the way there when it comes to Amazon Prime.

“We want Prime to be such a good value, you’d be irresponsible not to be a member,” Bezos wrote to shareholders.

Bezos then backed up the wonders of Prime with some wonderful figures — namely, 30 million items eligible for two-day delivery and the expansion of its on-demand Prime Now service to 30 cities globally.

And, while blowing that horn, Bezos also noted that Amazon-backed original series in its Prime Video library have garnered 120 critical nominations, 60 of which went on to win. And the awards are likely to just keep on coming, the extremely confident CEO noted, since eternal critical darlings Woody Allen, Jeremy Clarkson and David E. Kelley are all coming to the Prime media platform.

Bezos also noted that Prime’s rather staggering growth rate indicates that investors probably already enjoyed many of these lovely Amazon services.

“But, if you’re not, please be responsible, join Prime,” Bezos noted.

Bezos did not mention if Amazon has a plan to go door to door in 2017 to personally enlist unsubscribed Americans into Amazon Prime, but if it shows up in next year’s letter, no one will be surprised.


‘Just Say No’ To Killing Your Friendly Neighborhood Big Bank

Whether one is an avid political watcher or the type likely to only catch the news on the presidential primary when standing in line someplace where CNN is already playing, there are two candidates with two policy positions that almost every American is aware of.

Donald Trump wants to fight illegal immigration by building an enormous wall, and Bernie Sanders wants to fight economic inequality by breaking up “too-big-to-fail” banks.

PYMNTS has no official opinion on either stance past observing that, in both cases, the solution proposed seems to misunderstand the nature of the actual problem.

Jamie Dimon, on the other hand, clearly has a definitive opinion and clearly rather wishes that big banks — like the one he is CEO of at JPMC — were not quite so widely considered the economic system’s go-to villain.

“In today’s heated public dialogue, to frame issues as a winner-take-all fight between opposing interests: big versus small, Main Street versus Wall Street” is a tempting view, he wrote, but not one that actually adheres nicely with the contours of reality.

Dimon went on to discuss, at some length, the “mission-critical” services that big banks can supply are the types of things “regional and community banks simply cannot do.”

“The U.S. financial services industry does not conform to simple narratives. It is a complex ecosystem that depends on diverse business models coexisting because there is no other way to effectively serve America’s vast array of customers and clients.”

Moreover, Dimon warned that regulating the biggest banks in the United States out of existence won’t solve any real problems — just move the issue to Chinese shores, where big banks will still be able to operate.

“I do not want any American to look back in 20 years and try to figure out how and why America’s banks lost the leadership position in financial services. If not us, it will be someone else and, likely, a Chinese bank.”

Dimon’s letter to investors has been a reliable catalog of his various (negative) opinions of the regulatory winds that have been blowing through Washington since the financial crisis. Last year, he wrote that the next crisis is sure to be “more volatile” because of new regulations and that consumer credit costs and flat-out denials were on the rise because of regulations that forced banks’ hands.

In recent years, Dimon has also used his annual investor letter to warn of the risks that shadow banking and alternative lending pose to mainstream and heavily regulated banks such as his.

Specifically, in 2014 he noted that alt lenders were “coming to eat our lunch.”

On that point, however, the jury is out. But JPMC and its OnDeck partnership indicates the bank’s interest in keeping their frenemies close.

The CFPB’s Progress Report Is In

Okay, Richard Cordray is technically not a CEO checking in with his investor bosses.  He’s a Director – and the government bureau he heads is literally accountable to no one so he doesn’t really have a boss or bosses except perhaps the sitting President.

But it is incumbent on said CFPB Director to meet with Congress semi-annually to report on his agency’s progress. Given the level of heckling he took in the hot seat this year, we’re thinking that he might want to switch these updates into written only formats going forward.

Cordray came to this hearing with a raft of stats and a defense of the CFPB’s methodologies. Republican Senators came with a lot of questions and a heavy measure of sarcasm.

Cordray told Senators that he is not there to be a “happy talker” and that though there are signs that the credit market is improving he does not want to tout a glass as “half full when there’s just a few drops in it.”  The resurgent credit is a good thing – but a thing that needs to be nurtured and controlled – with regulation.

That argument didn’t so much fly with Republicans who argued regulation can choke off innovation and organic growth before it really takes root beyond “green shoots.”

So then the argument broke out.

The CFPB head noted his agency’s mandate and mission to curtail egregious lending in autos  and that  $300 million has been recovered.  Senators argued back that the CFPB had used incredibly suspect methods to manufacture evidence of racial bias – and then strong armed companies like Ally into settlements through tactics only slightly removed from blackmail.

Payday lending – shockingly was a someone less contentious conversation – aided by Cordray’s admission that FinTech is likely to have a role in developing regulatory structures.

The landscape presents some “real opportunities” for FinTech players, Cordray noted,  even against lending practices that could prove to be “tricky.”

So what did we learn this week?

Well if you’re investing in Amazon – you got an invitation to be a responsible consumer and pay Amazon money to be part of their loyalty program. If you are JPMC investor, you’re now paying more attention than ever to the 2016 Presidential campaign. And that it seems difficult to have a session in which the CFPB and Congress does not immediately start yelling at each other.