Omaha Breakfast Event 2: Discussion about self-driving cars
I love meeting my readers through informal get-togethers.
I am visiting the Chicago area on June 7th. We will be hosting a reader get-together in Lincolnshire at 4pm.
If you are able to join us, please let us know by filling out this form. We will provide details for the mid-afternoon coffee and casual Q&A session once you register. As a reminder, this is not a marketing event.
Today, I will share the videos from the second Q&A session in Omaha. For those who prefer to read, I will also include a lightly edited full transcript.
For those who don't have the time to read 15 pages or watch an hour-long video, I'll include my favorite excerpts from each session.
Omaha Breakfast Event 2: Discussion about self-driving cars
Question 4: Discussion about self-driving cars
The problem with self-driving is that while getting to 99% is difficult, it's relatively easy. It's the last percent, one percent or even less, that becomes really difficult. It's all the edge cases. Because you have to deal with situations where humans look at it and for us, it's an easy decision, but for the computer it’s confusing.
I read about different cases where a Tesla car would stop in the middle of the road and they couldn't figure out why, and then they realized that there was a billboard of a lawyer holding a stop sign. That was one case. Another one was a guy, for a reason that I still don't understand, who was walking on the side of the highway, with a stop sign. So it's these kinds of silly cases, right? How do you train a computer for all these weird situations?
So what they did, Tesla – and I'm talking about Tesla, is study videos. I'm sure other companies have something similar, but not as much of it. Tesla has a whole bunch of cameras. They do a lot of video recording. Then they have researchers in the labs; so when you get home, the video from your car gets uploaded over Wi-Fi to Tesla.
And then they study cases where the car suddenly stops or the edge cases, and then they start marking it. This tells the car that when you see a guy on the side of the road with a stop sign, maybe don't stop. It’s this kind of stuff.
So that's what they did before. And then, with version 12, they flipped it upside down. They said, instead of us trying to train the computer, what we're going to do is identify the best Tesla drivers. And they can objectively do this. Then, what we're going to do is take that video from their driving and tell the computer to do nothing else but “behave like them.” Behave like Tesla's best drivers. We're not gonna tell the computer “this is a stop sign, so stop”; and we're not going to tell the computer “this is a green light, go, and if it’s a red light, stop.” Just behave like them; that's how we're going to train them. And that has led to much better software, much better than previous versions.
However, it's still not perfect and there are a couple more issues. Number one, you have a legal issue. Who is responsible for a car crash? Tesla or the driver? We don't have a legal framework for that. If you want to get an Uber-like service from Tesla, as long as you go less than 40 miles an hour and the weather's perfect, you’re fine. There's a lot of limitations.
I have two Teslas. I've been using self-driving. When it rains, it doesn't work. When it snows, it doesn't work. It still gets me to the wrong places at times. When I drove from Denver to Aspen, it was absolutely incredible on the highway. My son and I did this and it was absolutely incredible. It's a big improvement.
So, where it's gonna work, it’s fine, in very restricted areas. Waymo works well in San Francisco in very limited areas. Another issue is this; I read a lot of books about Uber when I was doing research, and the most important KPI Uber is looking for is when you push a button, how much time does it take for the car to show up?
Okay, here you have a very interesting dilemma. If tomorrow Tesla launches a service, they need to basically be instantly at scale. I think Uber has three or four million drivers in the United States, or maybe that's global; I forget the number. So creating this network is incredibly difficult.
The only way they're going to do this is if they plug Tesla into the Uber network. So what's most likely going to happen is that Tesla and Uber are going to work together, despite what Elon is saying, because it can't work otherwise. Unless they go in only very dense places, (like San Francisco) they're going to need a huge investment. If you go through this very carefully, you realize that you have legal issues, you have technological issues, you have psychological issues. Some people are going to be absolutely fine in a self-driving car, and some people won't be.
Elon Musk is a very complex individual. There is genius and Archie Bunker at the same time. That's what you get. So right now Elon Musk is facing a problem. Tesla sales have peaked. Why have they peaked? For different reasons. They peaked not because of Tesla, but because of the size of the battery. It's a 300-mile battery or a 350-mile battery from Tesla, and that applies to all electric cars. This is as much market share as they're going to take. Because people have range anxiety.
People like me already have those cars. People who live in an apartment cannot have an electric car. Therefore, Elon Musk has a problem. His car company is priced as a software company.
Right now he's trying to justify this valuation while his sales are declining. And what does Elon do? Elon does what he usually does. He comes up with great stories. A lot of times the stories come through for him. A lot of times they're 5 or 10 years late. And so right now he's telling and selling everyone on self-driving. My point is, at some point in the future, we're going to have self-driving, but it's going to be very gradual in coming. The Uber network is going to have both self-driving and drivers.
So it's going to be a very, very gradual introduction and it's going to take a long time. I look at this and I say, “I'm hoping Uber stock will get crushed and I'll buy more of it.” So anyway, I spent a lot of time thinking about it, and I realized it's far, far away.
Question 11: How do you deal with prospective clients who have a short-term time horizon?
IMA is very different in this regard, in that we kind of do reverse marketing. And what I mean by that is, I write articles, people read them, and in my articles I talk about what we do. Then, when people get interested in our services, they download and read our brochure.
In the brochure, we tell them exactly what we do and don't do. They reach out to us, and we ask, have you read the brochure? If they haven't read it, we say, we would love to talk to you after you read the brochure.
Then we tell them, to be our client you need to have three things. Number one, you need to have a long-term time horizon. Number two, you need to buy into our philosophy. And number three, three or four times a year, you're going to get an email from us that's going to have a PDF attached to it. It's going to be 20 to 30 pages long. It's my letter to clients and we ask you to read it. If you're not willing to do any of those three things, we may not be a good fit for each other.
And so it's a reverse selection. We basically just don't take clients who don't buy into it. I say this, but sometimes clients want to sneak in. We discovered that occasionally someone who said they had a long-term time horizon actually didn’t. I wrote a very good letter to a client like this; I was proud of it. It was a Dear John letter, basically.
This person had become a client in July, and in September he was writing to us and saying, well, the S&P was up 8%, you were up 3%. What's your excuse? I was like, I don't know what to tell you. So I wrote him a letter explaining that he might have joined the wrong tribe, and that client left.
Question 17: Are you looking to invest in Israel?
Israel is one of the emerging markets that I would love to invest in. I have many reasons for that. There is a rule of law; let's start with that. There is a rule of law, and I think this is a country that, once it gets through this difficult time, is going to be incredibly successful.
By the way, there's a lot of bias in what I'm about to say. I'm very proud. I'm Jewish. I'm very proud of this. And Israel is very dear to me. But also, there is something that's very objective. I think Israeli culture is primed for great R&D.
I don't know if you guys know the story of how Intel came out with its microprocessor for laptops, and I think that tells you everything you need to know about Israel. So, for a long time, Intel only focused on one thing, the speed of the processor. They did not care about power consumption. Now, Intel has an R&D division in Israel, and the Israeli R&D units figured out that, actually, power consumption is important. Because in portable devices, power consumption determines how big the device is.
So they went to Cupertino and said, listen, we came up with this microprocessor. Yes, it's not as fast as a Pentium, but it consumes a lot less power. And Intel said, get lost. If this was an R&D unit somewhere in the United States, they might have said, “well, they told us to get lost, so we’ll get lost.” No, no, no, Israelis, they don't have these issues. They said “no, this is a really good idea.” They kept coming back, coming back, and coming back. And it took them a lot of coming back for Intel to wake up and see that side of the argument.
My point is that Israeli culture is very direct. They don't take no for an answer. There are many reasons for that, but one of them is that everybody has to serve in the army. And by the way, it's a very small country and everybody has to serve in the army, so you're going to have a general, a corporal, and a lieutenant, and just a normal soldier, all rubbing elbows, and whoever is the closest to the coffee pot is the person who is going to get up and get the coffee.
They don't really respect authority the way people do in other cultures and what that translates to. When you are doing R&D, there is a lot of frank communication. This is one example of Israeli strength in R&D.
I'm very passionate about this because we’ve been looking at defense companies in Israel. Let me tell you about Elbit; we don't own the stock, but we talked to Elbit's management. It’s an outstanding Israeli defense company and they talked about how they are so much better at actually designing and building defense products, because, think about it, most of the workforce actually served in the military.
They actually know how to use the product. I mean, they know how it's going to be used. Israel, because it's a small country, has different constraints. In America, we spend $900 billion on defense; and when one of our big companies designs a missile, they’re going to have input from numerous departments, and the missile is going to have a very long checklist of design and development items.
It has to be able to work at the equator, at the North Pole, it has to have heating and air conditioning, and therefore it's gonna take us 15 years to design a missile. By the way, that is a true number. It takes us 15 years to design a missile. Think about how much technology changes in those 15 years, right?
So in year seven, we realize, wow, technology has changed, we have to go back and redesign it, right? It took Israel four years to design the Iron Dome, because they said, “we have to design it very fast because we have a lot of folks around us who will not leave us in peace, and therefore we need to have very good missiles.” So it took just four years to design the Iron Dome system.
I'll give you one more example, – sorry, you asked a question that I have a lot of thoughts about!
Israel created this protection system against missiles that attack tanks. There is a little radar that sits on the side of the tank, and if a missile is flying toward the tank, it basically uses a shotgun-like technology to shoot it down. It works incredibly well.
And they use the cheapest radar, the cheapest “shotgun” – whatever the technology is – and it works extremely well. They sold the technology to Germany, and Germany tried to improve it. They've been working with it for the last six or eight years, and it's still not working. And so the Leopard tanks that went to Ukraine have the German technology that doesn’t work.
So, to answer your question, I would love to own something in Israel, and I will hopefully get an opportunity.
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I'd love to hear your thoughts, so please leave your comment and feedback here. Also, if you missed my previous video "Breakfast in Omaha Meeting 2024 – Session One", you can view it and leave a comment here.
Manfred
Today, I would like to share with you the Manfred Symphony by Pyotr Ilyich Tchaikovsky. If you had asked me a month ago how many symphonies Tchaikovsky composed, I would have answered with a straight face: six! Number Six was his final one, which he conducted days before his death.
However, I recently discovered that he had actually composed seven symphonies: The Manfred Symphony (also known as a tonal poem) was composed after the fourth symphony. Unlike his other symphonies, it is a program symphony based on the poem Manfred by Lord Byron, in which the music attempts to tell a literal story.
I love writing about Tchaikovsky for many reasons. I love his music; he is one of my favorite composers. His music is electrifying, powerful, full of incredible melodies, and super-packed with emotional content that deeply resonates with me.
But there is another reason I love writing about his music: Tchaikovsky wrote a lot of letters. Music was his life, his one and only love, and he wrote about it extensively to his friends and to his benefactor, Nadezhda von Meck, a wealthy woman who loved Tchaikovsky's music. Reading these letters is as close as one can get to reading the private diary and thus getting an intimate look at the creative process of this genius.
Through these letters, I appreciated the emotional roller coaster Tchaikovsky rode while composing his timeless music. As a creator, I found that energizing. No, I don't take joy from others’ suffering. But as a writer, I can relate to the emotional highs and lows experienced by Tchaikovsky.
Let me provide you with context on how the Manfred Symphony came about. The Russian music critic Vladimir Stasov suggested to both Russian nationalist composer Mily Balakirev and French composer Hector Berlioz that they write a symphony based on Lord Byron's Manfred. Berlioz had created and popularized the program symphony genre with his Symphonie Fantastique. Both composers declined the suggestion, but Balakirev proposed the project to Tchaikovsky. Initially, Tchaikovsky was hesitant, as he was enamored with Robert Schumann's overture on Manfred and did not believe he could compose something better.
In October 1884, he writes to Balakirev:
I set about Manfred rather reluctantly and, if I may be frank, felt that I was obliged to write it, because I promised you, and I made a firm promise... but very soon I became terribly infatuated with Manfred, and cannot remember ever having felt such pleasure in working, which stayed with me until the end.
We often look for inspiration to come to us, as if an external muse were paying us a visit. However, inspiration comes from within us. It comes through our act of sitting down and working, whether we are composing, like Tchaikovsky, or writing, as I do.
In July 1885 Tchaikovsky writes this:
I completed the rough sketches for a symphony, which annoys me a great deal, and I feel the need to rid myself of it as soon as possible.
I can relate to this feeling so much. I get impregnated with an idea, and I don't feel at ease until I let it out on paper. Creating is a nonlinear process; and thus, during this idea pregnancy, I am full of conflicting emotions fluctuating between frustration and joy. I am often not fun to be around during this time. Though the creative process of giving birth to a piece of writing is often painful, once I am done with it, I often experience joy and incredible creative satisfaction.
A month later, in August 1885, Tchaikovsky writes:
I set about making the sketches for this symphony, and became so carried away, as frequently happens, that I could not stop. The symphony has come out enormous, serious and difficult; it is absorbing all my time, and sometimes wearies me in the extreme; but an inner voice tells me that I am not laboring in vain, and that this will be, perhaps, the best of my symphonic compositions.
Nobody complains better than Tchaikovsky. He writes to Nadezhda Van Meck at about the same time:
I am working on a very difficult, complicated symphonic work (on the subject of Byron's Manfred), which happens to have such a tragic character, that occasionally I turn into something of a Manfred myself. That apart, I am having to squeeze out every last drop of effort from myself. I want so much to quickly bring this to an end, and am using up all my strength... as a result of this, I am absolutely exhausted.
He also tells his brother:
Never before have I expended such labor and exertion as on the symphony that I am now writing.
Just a few weeks later, Tchaikovsky is full of joy and incredibly proud of his work:
It is my opinion that my symphony will be the best of all my compositions in symphonic form... I am very proud of this work, and want those persons whose sympathy I most value in the world... to experience, when they hear it, a reverberation from the enthusiasm with which I wrote it.
As much as the creative process is a deeply personal endeavor, we creators want people to love what we make. Of course, this is very dangerous, because that is something that is not under our control. When the Manfred Symphony was performed in March 1886, it was met by a very cool reception from the audience.
But Tchaikovsky was very proud of this symphony. In March 1886 he writes:
I am very pleased with myself. I think that this is my best symphonic work. It was performed excellently, but it seemed to me that the public had little concept of it and received it rather coolly, although at the end I was given an ovation.
However, his love for this piece did not last long. In October 1888 he writes:
As for Manfred, without any wish to make a mere show of modesty, I would like to say that it is an abominable piece, and that I loathe it deeply, with the exception of the first movement alone… with the agreement of my publisher, I shall destroy completely the remaining three movements, which musically are very poor (the Finale is particularly loathsome), and out of a large, impossibly long symphony…
Though the first movement is my favorite too, thankfully this symphony was not destroyed by the publisher. It is Tchaikovsky’s longest symphony and requires a large orchestra and thus is not performed as often as his other, more popular symphonies.
Click here to listen.
Vitaliy Katsenelson is the CEO at IMA, a value investing firm in Denver. He has written two books on investing, which were published by John Wiley & Sons and have been translated into eight languages. Soul in the Game: The Art of a Meaningful Life (Harriman House, 2022) is his first non-investing book. You can get unpublished bonus chapters by forwarding your purchase receipt to bonus@soulinthegame.net.
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