You are in the company
of
Roger Warren Evans
Roger Warren Evans
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You are in the company
of
Roger Warren Evans |
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item0041AE 718, 719 19 May 2003De Gaulle, Tony Blair De Gaulle was a very pragmatic politician. In 1958, on coming to power, he was faced with a dire housing situation. As in the UK, rent controls from WW1 had destroyed the motivation of the private landlord - there was no new building for rent going on, and France (unlike Britain) had no significant build-for sale, for owner-occupiers. L'Etat was carrying the full weight of providing the nation's housing - and the burden was too heavy. 
So single-handedly he kick-started the private rented sector. He invented a dedicated "special purpose vehicle", a form of company which - so long as it remained committed exclusively to the provision of private rented accommodation - enjoyed a remarkable clutch of fiscal privileges. The company paid no Corporation Tax. Shares in the company were exempt from Death Duties. Income Tax was not payable on dividend income, in the hands of the shareholders. And De Gaulle declared, in lofty manner (untrammelled by doctrines of parliamentary sovereignty) that these privileges would last "for twenty years." The result was an avalanche of new construction - even though Mongeneral has been blamed for some of the very ugly tower-blocks which scar the Paris suburbs, built under this scheme. We could do precisely that same thing. In the Autumn the Government will be launching a massive reform of company law, for the 2004 Session - and we should tack on the creation of a new form of company, heavily incentivised for investors and developers. That would solve the problem - within five years.
19 May 2003 I warm to Warren Buffett…
But I commend Buffett again this week - he may be a folksy ol' fraud, but he's my kind'a iconoclast. This week he blows the whistle on the concept of “cost of capital”. It is a deceptive nonsense, closely related to the equally useless notion "return on capital employed". Yet what does that mean? True, if you were to borrow all the capital you needed for a new enterprise, it might be sensible to think in such terms. But when does an investment decision ever take such a simple form? When is it ever, in practice, calculable with such precision? "Capital" is ordinarily an untidy mix - of retained capital, existing management capacity, some spare cash from the cash-flow, and borrowings - perhaps mixed up with some new equity capital, raised by the sale of a new tranche of shares, on the back of the new venture. In such circumstances, how on earth is the "capital sum" to be calculated? Any calculation would be exceedingly artificial. And if the base concept is fragile, what is the value of your carefully constructed theories about the "cost of capital"? The same incoherence strikes at the concept of return on capital employed. For if it is so difficult to calculate the outset "capital" figure, how is it possible to calculate a rate of "return on capital employed"? I once counted sixteen different meanings for the term, and I am sure I could do so again. Capitalist economic theory is littered with these spurious concepts. Warren Buffett says he just does a few quick back-of-envelope checks and then decides whether, and at what price, he wants to become the owner of any given business. Precise calculation is impossible - just a broad-brush value judgment, and an overall evaluation of the investment options open to you.
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When I last praised
Warren Buffett, I was reprimanded by one of our correspondents – Adam
Somerset of Aberaeron, whose impressions of the Buffett phenomenon were far
less complimentary. Americans are divided about his no-nonsense
down-at-the-farm investment advice, and his deep scepticism about
professional Wall Street financial analysts.