Kochland by Christopher Leonard

[Jason]

For people like myself who like a good story about a business as opposed to technical book about business, this is proving to be very interesting read. Most profiles of the Koch brothers dig into how they spend their money, this delves into how they made it. Part business, part politics, part history, part corporate gossip, part sleuth, it totals into a compelling account of the most successful and despicable fucking douchebags in recent memory. I am enjoying it. It has movie written all over it.

[sarger17]

LOLOLOLOLOL

[TheWanderingScholar]

Okay. Nice conservation buddy.

[Jason]

Koch Industries makes their money in natural resources - oil, forestry, grain, livestock et. al. Everything from extraction, conversion, transportation, not to mention the creation of trading floors that revolutionized the exchange of these resources/commodities to the extent that Wall Street eventually emulated their methods. Their purchase of Purina was a disaster because they didn't conduct proper due diligence on pig contracts - they didn't realize their outstanding and on-going commitment to purchasing actual pigs which is well, allegorical to say the least. Because they weren't creating smartphones, or search engines, or social media platforms, they flew completely anonymously. I don't know exactly how the normal personal can make money from this area of the economy, but it is there, and people are making fortunes. I imagine it would be of interest to those looking beyond Facebook stock and real estate. As they say, between New York and Los Angeles, lies America, and these guys are monetizing it to no end without anyone knowing exactly who they are under a corporate structure that is impenetrable, like an invisible, raping Goliath that leaves not even a smidge of DNA behind.

[Smashter]

I really want to read this now. Thanks for highlighting it.

Are you liking them more or less as you learn their story? I feel like the "raping Goliath" part should answer my question, but you also called them "despicable fucking douchebags" which I take as a Jason term of endearment.

[tonyedgecombe]

As they say, between New York and Los Angeles, lies America, and these guys are monetizing it to no end without anyone knowing exactly who they are under a corporate structure that is impenetrable, like an invisible, raping Goliath that leaves not even a smidge of DNA behind.

Only one of them is now:

https://www.bbc.co.uk/news/world-us-canada-49438682

[Jason]

There is Brothers Karamazof/Godfather three-brothers dimension to the Koch story. Like all analogies, it doesn't align perfectly because there were actually four Koch brothers, the oldest Fred Jr., never having anything to do with the business, leaving Charles as the singular force behind Koch industries which gives it a Trumpian correlation both in name and substance. David, who just died, was the public face as Charles was not comfortable in that role. David's twin brother Bill sued Charles, they settled, at which point Bill was no longer involved in the company. Bottom line, if you are born into a dynastic family, either real or fictional, and your first name is some sort of derivation of Frederick, you're fucked.* That being said, compared to Fredo Corleone and Fred Trump, Jr. at least Fred Koch has lived to see his younger brother rise to such rarified yet dubious heights.

The companion book to Kochland is Dark Money by Pauline Mayer which came out earlier and documents how the Koch brothers through the Citizens United Supreme court decision were able to channel unlimited funds into elections ( see Scott Walker, Milwaukee).

Kochland opens up with an investigation into how the Koch were stealing money from Indian reservations by underreporting the oil they were carting off. There is a criminality lurking behind their liberatarianism. I suppose my reference to them as douchebags is an admixture of admiration and revulsion. The sheer scope and strategy behind their corporate and political strategies are breathtaking.

Edit: *If there was a Fred Kennedy, one can assume he would have been shot in the head while driving his car at which point he and his mistress who was giving him fellatio at the time would have careened off a bridge at the exact moment a small plane crashed into the river.

[jacob]

Bottom line, if you are born into a dynastic family, either real or fictional, and your first name is some sort of derivation of Frederick, you're fucked.

Uh oh ... : https://en.wikipedia.org/wiki/List_of_D ... 80%931863)

[Jean]

I happen to bé in Fredericia right now.

[Jason]

Uh oh ... : https://en.wikipedia.org/wiki/List_of_D ... 80%931863)

Are you saying you're a descendant of that shield? That gold chain Frederick I is flashing has to be worth mad Jacobs.

[theanimal]

I placed a hold on it at the library, I'm #12. I read through the free preview on Amazon and was hooked. Can't wait to get it.

Edit: For those who aren't aware, Charles Koch was on Tim Ferriss' podcast a couple months ago. https://tim.blog/2019/08/11/charles-koch/

[Jason]

Interesting chapter on derivative trading. By leveraging and expanding upon competitive advantages - namely information - due to their core business activities, the profit from their commodities trading eventually exceeded the profits from the actual sale of those commodities. Simply put, Koch Industries began making more money on trading oil contracts than on the sale of oil because of its expertise and experience in oil markets. They hired the best meteorologists to track weather patterns in order to pinpoint periods of volatility and subsequently traded on basic supply/demand discrepancies. However, they got to a point where they learned how to make money not on the ratio of supply/demand but on the ratio of volatility itself. All that was required was for oil prices to be volatile. They didn't need to know in which direction. It was like Tim Cook setting up a trading floor in Apple headquarters that specialized in iPhone futures and that division eventually becoming more profitable than the iPhone division.

Stahlmann mentioned in his investing thread "making money from money." It doesn't get any better than this. It has definitely made me think more about the concept, just on my own scale.

[Jason]

Some may recall the Sacramento, CA power crisis in 2000-20001 due to market manipulations of electricity supply. Big Brothers guess who was behind that (if you surmised Enron you are also correct). Being that the Koch brothers are still here, we now know who the smartest guys in the room really were. This event led to the demise of Governor Gray Davis and the ascension of Arnold Schwarzenegger to the governorship. So yes, The Terminator owes The Koch Brothers.

[fiby41]

due to market manipulations of electricity supply. (if you surmised Enron you are also correct).

Same Enron 'Power Play' (from the book with the same name) was here half the world across:

"Somewhere in my musty papers, I have a clipping of a Hindustan Times report from 8 July 1999. It says that the Maharashtra State Electricity Board (MSEB) asked the Tata Electric Co. (TEC) to “back down its power generation by 200-400 MW". TEC was then the major supplier of electricity to the city of Mumbai, and this was a significant chunk—11-22%—of its installed capacity.

MSEB asked for this “despite TEC offering power at a rock bottom rate of Rs1.80 per kwh. MSEB [was instead] sourcing its requirements from the controversial Enron’s Dabhol Power Corporation (DPC) which is charging anything between Rs3.01 and Rs4.25 [per kwh]." "

[Jason]

The topic is a conflation of complex financial instruments and complex scientific issues. At least to me.

The distinction between trading electricity and trading oil is that (1) oil can be stored and (2) the transfer of oil can be tracked in real time. Electrons are always active in the conduits. There is no such thing as an electron tank. Also, you don't know exactly where electrons are, you only can know where they were after they serviced the customer. Koch took advantage on both these characteristics of electricity, the latter illegally (they said they moved electricity that wasn't moved). The upshot is that the market manipulation had a real time consequence. The public services were forced to video gamesque routing of electrons when it came to making sure electricity was supplied where it was demanded. With regard to the financial end, suffice it to say Koch Industries is not subject to renegotiating outstanding invoices.

Koch Brothers benefited from the demise of New Deal regulation on public utilities and natural resources. However, the term is really not de-regulation its re-regulation. Regulation does not go away. It just gets moved to another regulator. Ultimately, in this instance, it was the financial markets.

[Jason]

Koch Industries' growth reflects Berkshire Hathaway's as they grew to a point that they moved into the outright purchases of companies. This started in the 1990's when they began to participate in the private equity boom. They also seemed to possess the same criteria as BH (1) Distressed Companies (2) Long Term Plays (3) Within their spheres of expertise. Their first foray was a grain co-op where they beat out a competitor because they were not beholden to pleasing the short term perspectives of their shareholders. Koch had two brothers. BH had Buffet/Munger. Two basic decision makers.

This has made reevaluate my involvement in the stock market. As an individual investor, I am a small (micro) private equity firm. Small private equity firms do not invest in every company seeking funding in order to mitigate risk. They select those companies that they belief will provide them the best returns. As I have begun to focus more on individual stocks than ETF/Index/Mutual funds, I feel like I have actually "invested" in a company as opposed to merely investing in an investing concept.

Biogen stock spiked close to 30% one day this week due to an unsuspected Alzheimers situation. As Jim Cramer stated, the gains that type of event provides is something index fund investors will never see. Its one thing if you don't think because you can't think or if you don't have time to think. It's another thing to not think because someone else told you not to think.

[Mister Imperceptible]

This has made reevaluate my involvement in the stock market. As an individual investor, I am a small (micro) private equity firm. Small private equity firms do not invest in every company seeking funding in order to mitigate risk. They select those companies that they belief will provide them the best returns. As I have begun to focus more on individual stocks than ETF/Index/Mutual funds, I feel like I have actually "invested" in a company as opposed to merely investing in an investing concept.

.....

Its one thing if you don't think because you can't think or if you don't have time to think. It's another thing to not think because someone else told you not to think.

This is a higher level (investing-wise) break thru from

John Bogel represents this view and is the basis of index funds. Simply put, you are a depraved, ignorant piece of shit living in utter darkness and you need a savior. But this also applies to the douchebag with the shiny Rolex driving his sports car on the fees you've been paying him. Therefore, we must remove both you and the "priestly" class i.e. the specialists who purport to have secret knowledge and greater access to the Gods and give your money to a non-human mediator - the market. In return, we just ask for a minimal tithe. God bless you and we will see you in forty fuckin dollar cost averaging years.

The next part is identifying the return profiles of your investments to determine whether they are truly uncorrelated, and setting up multiple vectors. (See page 10)

[tonyedgecombe]

Biogen stock spiked close to 30% one day this week due to an unsuspected Alzheimers situation. As Jim Cramer stated, the gains that type of event provides is something index fund investors will never see.

That goes both ways and the downsides look pretty catastrophic.

[Mister Imperceptible]

For example someone who lives in a blue state where talk of rent control is getting louder and louder, they should try to set up an alternative vector.

Especially if their employment is in the real estate business and they get really fucking pissed as “progressive” reforms are implemented.

[Jason]

The retail brokerage industry applies words like "catastrophic" only in terms of the loss of invested principal, not in terms of the loss of potential gains. That is except when it shoots its own foot and speaks of "fees." So losses are only deemed catastrophic when they are due to the individual investor's inevitable picking of terrible stocks and the compounding of brokerage fees but not when they are due to the foregoing of the loss of potential gains due to playing the game differently or better. This appears to be the game theory equivalent of tee-ball. It's better to approach the game as though you can't win it.

Losses do not have to be catastrophic. As a matter of fact, learning from losing is adage level pedagogy. The retail brokerage industry is saying the stock market is a flame then when I touch it myself I will get burned but when they touch it for me I will not. The problem is "burned" only applies to playing the game wrong and not to not playing the game right. Or at least better. It omits the idea that one is burned just as much for not winning as they are for losing.

I would like to ask Warren Buffet what he feels most burned by - losing on investing in Heinz Kraft or not investing in Walmart. I bet Walmart burns more because it was right in front of him. Koch industries made dumb decisions. But they learned from them. What I missed in the index fund argument is that not allowing oneself to make dumb decisions is a dumb decision.