2025 Third Quarter Recap
There were three main themes this quarter: tariffs, clothing, and management.
And there are two areas where I’m looking at updating my notes: the history of the tech sector (AI has become more important since my last update), and the video game industry (EA has just been acquired by private equity).
I plan to do more publishing but, as always, that depends on how much time my son needs to have with me.
I think it goes deeper than what I’ve seen economists or investors discussing. From my perspective, the problem is even more fundamental than the issue of tariffs:
Short-term thinking that blows up any potential for long-term trade negotiations. Why make a deal that might be broken next year, or next week?
An assumption that America has the strongest trade position. This might be true in a direct confrontation with anyone other than China or the European Union, but attacking every country in the world at the same time is not a fight that the U.S. can win. And the first point makes America’s trade position even weaker, because other countries have been exploring new trade deals that exclude the U.S.
A belief that trade deals can only have winners and losers, and that it can’t be win-win. Free trade can create losers in the short-term, but the long-term benefits have been proven over hundreds of years.
Combine those three things, and you get a really bad way to make policy decisions. The risk does not come from tariffs alone. It comes from a bad process.
How Tariffs Are Hurting the Auto Industry (So Far…)
At the end of April, the total effect on new car prices was estimated to be between $2,000 and $12,000 per car. And at that point, luxury and sport vehicles could still see tariffs that go beyond $20,000 per car. While the effects have been somewhat variable so far (the estimate is now around $5,000 per car), automakers are beginning to validate some of the initial forecasts.
When it comes to clothing, my own perspective groups these online businesses into sets of categories:
Generalist Marketplaces: Known primarily for selling a wide range of goods, these companies take a cut from items that sell on their websites.
Subscription Models: Customers pay a subscription fee for access to the service or receive some kind of personalized attention.
Consignment Models: The business does all of the work to sell someone else’s items in exchange for a fee, usually a percentage of the sale.
Social Models: Emphasize a social experience or social network as part of the buying and/or selling experience.
Many of the business models are questionable, the numbers are bad, and there is too much competition chasing not enough demand. But it was worth taking one more look after the introduction of AI tools and tariffs. For most of them, AI has been more of a threat than a benefit, and tariffs represent a benefit that cannot be precisely determined (although this benefit has so far shown up in the stock prices more than the financials).
“Easier ways to make money” is one of the standards for a good business. I don’t see it in this industry, but sometimes it takes a few bad businesses to appreciate the value of a really good one.
Three Sides of Management Focus (Why Berkshire Hathaway Lost Money on Kraft Heinz)
Put it all together, and my conclusion is basic: If a business is not paying attention to what customers need, then the losses are inevitable.
“Steve Jobs” by Walter Isaacson is one of the best books that I have ever read, but I’ve seen many managers learn the wrong lesson from reading this book. Their goal should not be to behave like Steve Jobs, because that actually goes against what Jobs himself would tell them to do. Their goal should be to have an authentic style that is unique to their own experience. And on the business side, it was Jobs’ attention to customers that mattered more than his style.
There is one thing I need to add about this story (from a very helpful comment): Because of how the deal was structured, Berkshire Hathaway still came out ahead, but a write-down is still a recognition of a loss.