Farewell to One of the Greats - Murray Stahl

Murray Stahl, the founder of Horizion Kinetics, was that rarest of commodities in the investment industry - an original thinker. The world is a slightly dimmer place for his passing.

I first encountered the writings of Murray around 2010 and it was a revelation. If anyone happens to have any of his collections, I would be deeply grateful to receive them.

I believe he started out as a staid Utilities analyst, which makes his iconoclastic approach to investing all the more surprising.

Reading his thesis on Texas Pacific Land was my first encounter with his thinking. It was a completely outside-the-box approach to a weird company. To my eternal chagrin I didn't invest. I was convinced by another investor that royalty trusts are a "backwater" in investing. The stock is up over 100x since 2010.

He wrote a book called "How They Did It" about great investors and entreprenuers. While it is a quick read, it is not a book I would recommend to others. Each vignette has a Pledge and Turn, but there is generally no Prestige to tie it all together.

I will relay just two of the more interesting stories.

The Power of Perspective: Eugene Meyer, owner of the Washington Post and former Fed Chair, bought a copper miner controlling the top half of a mountain in Utah. A different company owned the underground rights with better ore. Eugene bought the company when it was nearly bankrupt. But because of continual landslides caused by mining the top half, the profitable company controlling the bottom half was forced to buy out Eugene to protect its operations. This highlights the potential value in taking a new perspective.

Pivoting Under Threat: A second story is that of brewer Anheuser-Busch. It should have gone backrupt during the 13 years of Prohibition. However, they switched to selling perfectly legal unfermented malt instead of beer, and bootleggers did the brewing themselves. Thus, Anheuser-Busch pivoted in the face of an existential threat. Something that may be helfpul from the perspective of companies today threatened by AI.

Thought Experiments

That said, I believe the thought experiments Stahl proposed in various essays were the true demonstration of his genius. They greatly spurred my own intellectual growth.

One of my favorite was from the oft-used characters Tweedle, Tweedledee and Tweedledum. They are staying the night at a cabin. Tweedledee and Tweedledum bring 5 logs and 3 logs, respectively, to warm their fire, while Tweedle brings no logs and instead contributes $8 to the effort.

How should Tweedle divide his payment between the chums? Dear reader, before pressing forward, I wonder what your guess is on the fair allocation?

Tweedle offers $5 to Tweedledee and $3 to Tweedledum, as each log is worth $1. A simple enough transaction and my original asumption as well. But this is incorrect.

The problem with this approach is that it frames the issue as a 2-variable algebraic equation, when it is in fact 3-variable. The correct answer is $7 to Tweedledee and $1 to Tweedledum.

Why? The warmth created by the 8 fire logs will be consumed in equal proportion by each member. Therefore, each member will individually consume 8/3 (or 2 and 2/3 logs) of firewood for themselves. So, Tweedle is actually paying $8 for 2 and 2/3 logs, not for 8 logs. That means a single log is worth $3. Thus he is buying 2 and 1/3 logs from Tweedledee for $7 and 1/3 of a log from Tweedledum for $1.

(Taken from Collected Commentaries and Conundrums Regarding Value Investing, Volume 1)

What does any of this have to do with investing? My interpretation of the story was that framing something from the conventional viewpoint may result in us missing the reality of the situation. This is a common theme in Stahl's writings.

For example, I once found a company in a historically low-return, old economy industry. This company had a dynamic new president who was willing to abandon the old paradigm of how to run the business (namely by shifting toward a focus on profit, rather than on tons of product shipped). When I spoke with other investors about the company, they chose to only understand it from the historical framework and showd no interest. That stock has returned nearly 10x in the 5 years since our first meeting.

Have a listen to Murray on a podcast here:

And here is a video of Murray:

Happy trails to you until we meet again.