Tumblr Confirms That Russian Trolls Spread Misinformation On Its Service

Tumblr confirmed on Friday that Russian trolls spread misinformation on the blogging service in prelude to the 2016 U.S. presidential election.

Tumbler, part of the Verizon Communications’-owned Oath media group, said it discovered last fall that 84 accounts were linked to the Internet Research Agency. This Russian propaganda outfit was one of the groups identified in a recent Justice Department indictment alleging the Kremlin’s role in spreading fake news through popular social media services to increase division among Americans and interfere with the 2016 presidential elections.

Tumblr’s confirmation that Russia-linked groups misused its service follows a similar admission by social media forum operator Reddit in early March. The IRA and other Russian-linked entities were also alleged by the DOJ to have spread fake news and misleading online advertising on social networks like Facebook (fb) and Twitter (twtr).

Tumblr said that after discovering the questionable accounts, it contacted U.S. law enforcement, terminated the accounts, and deleted the posts, the contents of which Tumblr did not describe. The Russian-linked Tumblr accounts spread misinformation via “organic content,” or conventional postings, rather than online ads, Tumblr said.

The blogging service said it worked “behind the scenes” with the DOJ and provided information that led to the Justice Department’s indictment, revealed in February.

“Remember, the IRA and other state-sponsored disinformation campaigns play off our zero-sum politics,” Tumblr said in a statement. “They want to drive a wedge between us so that we spend our time fighting with each other instead of building towards the future. We’ll be watching for signs of future activity, but the best defense is knowing how they operate and how to judge the content you see.”

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Tumblr said it would notify users who interacted with any of the IRA-linked accounts and that it would keep a public record of usernames associated with those accounts. Some of the IRA-linked usernames include 1-800-gloup, best-usa-today, ricordio, and stopropaganda, according to a separate Tumblr post.

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7 Excuses You Use to Put Off Starting Your Business

I have talked with hundreds of people about starting a business. People often tell me would love to start a business–then follow up with a list of reasons why they aren’t able to take the first step. From “I’m not good enough” to “not enough savings” and everything in between, there are many reasons starting a business can feel impossible.

And I understand. Starting a business feels overwhelming. Though I knew from my first lemonade stand that startup life was for me, it took me years of hesitating before I finally took the plunge. Here are the seven common reasons you might be hesitating–and seven ways to overcome these fears.

1. I don’t know how.

The beauty of business is that you can learn everything as you go from web resources, books, and peers. Most libraries have a business desk staffed with knowledgeable librarians who specialize in helping people just like you get started with business planning. Many libraries have free online access to the Lynda.com training database so you can learn online free and at your own pace. When I first started my company, Google was my best friend–anything I didn’t know was only a few clicks away. 

With increasing numbers of people working for themselves, chances are you know at least one person who is self-employed. Take them for coffee, ask them how they got started. It doesn’t have to be in the same industry. Ask for introductions to other entrepreneurs they know.

2. I’m too young or too old.

I hear twentysomethings say they’re too young and sixty somethings say they’re too old. But it doesn’t matter. The average American will change careers 5-7 times. That’s careers, not jobs. Age is truly one of the most meaningless measures of readiness. You can learn new things, you can adapt to change, and you can start a business at any age. You’re never too young or too old do change your life and start something you’re proud of.

3. What if I fail?

I fail frequently and you will, too. Get comfortable with the reality that 99 percent of everything you do won’t work. But the 1 percent that does work is magical.

4. My parents don’t support my startup dreams.

There are a lot of difficult dynamics at play when discussing your life choices with parents. But unless you’re asking your parents to bankroll your startup, it’s not really up to them. You only have one life, build one that you’re proud of without worrying about the opinions of others.

5. I don’t have the cash.

It’s a common misconception that you need a lot of capital to start a business. If you have access to a computer and the internet, you can start any number of businesses. I started my business with a $500 credit card loan and a hefty chunk of student loans. A lot of the software you need is available free and there are a variety of businesses you can start small.  As you start collecting payments, you can grow your business.

6. What will my friends or partner think?

If your friends or partner don’t support your dreams, get new ones. Seriously. It’s hard to let friends and lovers go, but if they are only contributing negatively to your dreams, it’s time to let them go. Practice now by telling your friends about your business idea–they might surprise you.

7. I’m not good enough.

Stop it. You know you’re wrong about that. It’s going to be scary, but no one else is better equipped to make your ideas and dreams into reality.

Running your own business is a lot work and there are many stressful moments. But the real rewards of building something you’re proud of far outweigh the imagined obstacles. Now you’re ready to start a business–no excuses!

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China Mobile 2017 net profit up 5 percent on boost from 4G subscriber growth

HONG KONG (Reuters) – China Mobile, the world’s biggest mobile phone operator by subscribers, on Thursday posted a 5 percent rise in annual net profit, fueled by growth in 4G subscribers.

FILE PHOTO: A man walks past the China Mobile logo at the Mobile World Congress in Barcelona, Spain, February 28, 2018. REUTERS/Sergio Perez

China’s top telecommunications operator’s net profit for 2017 stood at 114.4 billion yuan ($18 billion), up from 108.8 billion yuan a year earlier, it said in a filing to the Hong Kong stock exchange.

Its 4G mobile network subscribers rose to 650 million in 2017 after the addition of 114 million customers, while its number of 4G base stations climbed to 1.87 million, covering 99 percent of China’s population.

The company said it aims to dedicate more resources to research and development and expects 5G technology to drive growth.

“We are expecting 5G technology development to drive new business models across the spectrum,” it said in a statement.

China Mobile announced a final dividend of HK$1.582 per share for the year ended December 2017.

Along with an interim dividend of HK$1.623 per share and a special dividend of HK$3.200 per share to celebrate the 20th anniversary of its Hong Kong listing, the total dividend payment for 2017 was HK$6.405 per share.

Operating revenue for 2017 rose 4.5 percent from a year earlier to 740.5 billion yuan.

China Mobile is also making big investments into burgeoning so-called Internet of Things, in line with the Chinese government’s strategy to see more devices and people become interconnected.

Reporting By Anne Marie Roantree and Sijia Jiang; Editing by Shri Navaratnam

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BlackBerry to provide software for Jaguar Land Rover EVs

(Reuters) – BlackBerry Ltd and Tata Motors Ltd’s Jaguar Land Rover (JLR) said on Thursday they reached a licensing agreement to use the Canadian company’s software in the luxury car brand’s next-generation electric vehicles.

FILE PHOTO: A Blackberry sign is seen in front of their offices on the day of their annual general meeting for shareholders in Waterloo, Canada in this June 23, 2015. REUTERS/Mark Blinch/File photo

BlackBerry will provide its infotainment and security software to JLR, in the Canadian firm’s latest licensing deal for its autonomous-driving technology after similar agreements with Qualcomm Inc, Baidu Inc and Aptiv Plc.

BlackBerry’s QNX unit, which makes software for computer systems on cars and has long been used to run car infotainment consoles, is expected to start generating revenue in 2019.

Its Certicom unit focuses on security technology and serves customers such as IBM Corp, General Electric Co, and Continental Airlines.

JLR, which was bought by the Tata group in 2008, said last year that all its new cars would be available in an electric or hybrid version from 2020.

Britain’s biggest carmaker said in January it would open a software engineering center in Ireland to work on advanced automated driving and electrification technologies.

Reporting by Ismail Shakil in Bengaluru; Editing by Amrutha Gayathri

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The Noisy Fallacies of Psychographic Targeting

At this point in the deafening media cycle around the story, it’s probably unnecessary to summarize the going Facebook/Cambridge Analytica scandal, but briefly and just in case: Facebook recently announced the suspension of a marketing data company called Cambridge Analytica from its platform after a whistleblower confirmed it had misused ill-gotten Facebook data to construct so-called “psychographic” models and help Trump win the presidency.

For the impatient, my fundamental thesis is this: Cambridge Analytica’s data theft and targeting efforts probably didn’t even work, but Facebook should be embarrassed anyhow.

For the more patient: What on earth is the sinister-sound “psychographics” about, and how is your Facebook data involved?

Antonio García Martínez (@antoniogm) is an Ideas contributor for WIRED. Before turning to writing, he dropped out of a doctoral program in physics to work on Goldman Sachs’ credit trading desk, then joined the Silicon Valley startup world, where he founded his own startup (acquired by Twitter in 2011) and finally joined Facebook’s early monetization team, where he headed their targeting efforts. His 2016 memoir, Chaos Monkeys, was a New York Times best seller and NPR Best Book of the Year, and his writing has appeared in Vanity Fair, The Guardian, and The Washington Post. He splits his time between a sailboat on the SF Bay and a yurt in Washington’s San Juan Islands.

The awkward portmanteau coinage of “psychographics” is meant to be a riff on the “demographics” (i.e. age, gender, geography), which are the usual parameters of how marketers talk about advertising audiences. The difference here is that the marketer attempts to capture some essential psychological state, or some particular combination of values and lifestyle, that imply a proclivity for the product in question. If it sounds nebulous, not to say somewhat astrological, it is. As a great example of the type of cartoonish zodiac that emerges from this approach, take the age-old classic, the Claritas PRIZM segments (now owned and marketed by Nielsen), which have been around since the 90s. One sample segment:

Kids & Cul-de-Sacs:  Upscale, suburban, married couples with children – that’s the skinny on Kids & Cul-de-Sacs, an enviable lifestyle of large families in recently built subdivisions. […] Their nexus of education, affluence and children translates into large outlays for child-centered products and services.

This sort of caricature of a consumer segment was created as much for potential targeting as for populating ad agency pitches to clients. It took a complex and bewildering world of consumer data and preferences and reduced them to a neat mythology of just-so stories that got ad budgets approved. (“Aspirational Annie wants a starter car!” “Gregarious Greg spends over $400 per month on entertainment!”)

With the rise of programmatic, software-driven advertising in the late aughts, these truthy marketing fairy tales have taken a more quantitative tinge. Which, in the context of Facebook and Cambridge Analytics, is where the psychometricians at Cambridge University come in. Two researchers at the Department of Psychology there, Michal Kosinksi and David Stillwell, had endeavored to craft completely algorithmic approaches to human psychological evaluation. Those efforts included a popular 2007 Facebook app called myPersonality that allowed Facebook users to take a psychometric test and see themselves ranked against the ‘Big Five’ personality traits of openness, conscientiousness, extraversion, agreeableness, and neuroticism (often shortened to OCEAN). According to the report in The Guardian,which first ran the whistleblower’s claims, Cambridge Analytica had approached the authors of the myPersonality app for help with its ads targeting campaign. On being rebuffed, another researcher associated with Cambridge’s psychology faculty, Aleksandr Kogan, offered to step in and reproduce the model.

(Interestingly, you can still take some of their psychometric personality tests here. Don’t worry! No Facebook login required!)

Academic research centers with experimental volunteers and small sample sizes are one thing, but how do you do the study psychographics at Facebook scale? With an app, of course. Kogan wrote a Facebook app that asked Facebook users to walk through their computer-driven rating criteria with the specific view of ranking their ‘OCEAN’ characteristics, plus political inclinations.

Here is where the skullduggery comes in: Let’s assume you build a model that can actually predict a voter’s likelihood of voting for Trump or Brexit based on some set of polled psychological traits. For it to be more than a research paper, you need to somehow exploit the model for actual ads targeting. But the problem is that Facebook doesn’t actually give you the tools to target a psychological state of mind (not yet, anyway)—it only offers pieces of user data such as Likes. To effectively target an ad, Kogan would need to peg diffuse characteristics like neuroticism and openness to a series of probable Facebook Likes, and for Cambridge Analytics, he had to do it at a large scale.

Whether Kogan’s subjects realized it or not when they opted-in to his Facebook app, they allowed him to read some of their Facebook profile data. And for his collaboration with Cambridge Analytica, Kogan then hoovered in those users’ data, plus their friends’ data as well. (Facebook’s platform rules allowed this until mid-2015). That’s how the number of compromised users got as high as a reported 50 million. Kogan and Cambridge Analytica didn’t lure that many test subjects. They simply paid for or attracted hundreds of thousands, and pulling data from their subjects’ friends got them something like a third of the US electorate.

With the Facebook police asleep, and data theft pulled off, what was Cambridge Analytica’s next step?

They had to train a predictive model that guessed what sorts of Likes or Facebook profile data their targeted political archetypes possessed. In other words, now that Cambridge had a test set of people likely to vote for Trump, and knowing their profile data, how do they turn around and create a set of profile data the Trump campaign can input to the Facebook targeting system to reach more people like them?

Note that the aspiring psychograficist (if that’s even a thing) is now making two predictive leaps to arrive at a voter target: guessing about individual political inclinations based on rather metaphysical properties like “conscientiousness;” and predicting what sort of Facebook user behaviors are also common among people with that same psychological quality. It’s two noisy predictors chained together, which is why psychographics have never been used much for Facebook ads targeting, though people have tried.

While these conclusions are hard to make categorically even with the data in hand (and impossible to make without), a straw poll among my friends in the industry reveal near-unanimous skepticism about the effectiveness of psychographic targeting. One of the real macro stories about this election and Facebook’s involvement is how many of the direct-response advertising techniques (such as online retargeting) that are commonplace in commercial advertising are now making their way into political advertising. It seems the same products that can sell you soap and shoes can also sell you on a political candidate.

Conversely, if this psychographics business is so effective, why isn’t it commonly used by smart e-commerce players like Amazon, or anyone else beyond the brand advertisers who like keeping old marketing folklore alive?

One of the ironies of this most recent Facebook brouhaha is the differing reactions between the digital marketing professionals who’ve spent a career turning money into advertising pixels and a concerned public otherwise innocent to the realities of digital advertising. Most ad insiders express skepticism about Cambridge Analytica’s claims of having influenced the election, and stress the real-world difficulty of changing anyone’s mind about anything with mere Facebook ads, least of all deeply ingrained political views.

The public, with no small help from the media sniffing a great story, is ready to believe in the supernatural powers of a mostly unproven targeting strategy. What they don’t realize is what every ads practitioner, including no doubt Cambridge Analytica itself, knows subconsciously: in the ads world, just because a product doesn’t work doesn’t mean you can’t sell it. Before this most recent leak, and its subsquent ban on Facebook, Cambridge Analytica was quite happy to sell its purported skills, no matter how dubious they might really be.

More Cambridge Analytica

Photograph by WIRED/Getty Images

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Facebook critics want regulation, investigation after data misuse

SAN FRANCISCO (Reuters) – Facebook Inc faced new calls for regulation from within U.S. Congress and was hit with questions about personal data safeguards on Saturday after reports a political consultant gained inappropriate access to 50 million users’ data starting in 2014.

FILE PHOTO: Facebook logo is seen at a start-up companies gathering at Paris’ Station F in Paris, France on January 17, 2017. REUTERS/Philippe Wojazer/File Photo

Facebook disclosed the issue in a blog post on Friday, hours before media reports that conservative-leaning Cambridge Analytica, a data company known for its work on Donald Trump’s 2016 presidential campaign, was given access to the data and may not have deleted it.

The scrutiny presented a new threat to Facebook’s reputation, which was already under attack over Russians’ alleged use of Facebook tools to sway American voters before and after the 2016 U.S. elections.

“It’s clear these platforms can’t police themselves,” Democratic U.S. Senator Amy Klobuchar tweeted.

“They say ‘trust us.’ Mark Zuckerberg needs to testify before Senate Judiciary,” she added, referring to Facebook’s CEO and a committee she sits on.

Facebook said the root of the problem was that researchers and Cambridge Analytica lied to it and abused its policies, but critics on Saturday threw blame at Facebook as well, demanding answers on behalf of users and calling for new regulation.

Facebook insisted the data was misused but not stolen, because users gave permission, sparking a debate about what constitutes a hack that must be disclosed to customers.

“The lid is being opened on the black box of Facebook’s data practices, and the picture is not pretty,” said Frank Pasquale, a University of Maryland law professor who has written about Silicon Valley’s use of data.

Pasquale said Facebook’s response that data had not technically been stolen seemed to obfuscate the central issue that data was apparently used in a way contrary to the expectations of users.

“It amazes me that they are trying to make this about nomenclature. I guess that’s all they have left,” he said.

Democratic U.S. Senator Mark Warner said the episode bolstered the need for new regulations about internet advertising, describing the industry as the “Wild West.”

“Whether it’s allowing Russians to purchase political ads, or extensive micro-targeting based on ill-gotten user data, it’s clear that, left unregulated, this market will continue to be prone to deception and lacking in transparency,” he said.

With Republicans controlling the Senate’s majority, though, it was not clear if Klobuchar and Warner would prevail.

The New York Times and London’s Observer reported on Saturday that private information from more than 50 million Facebook users improperly ended up in the hands of Cambridge Analytica, and the information has not been deleted despite Facebook’s demands beginning in 2015.

Some 270,000 people allowed use of their data by a researcher, who scraped the data of all their friends as well, a move allowed by Facebook until 2015. The researcher sold the data to Cambridge, which was against Facebook rules, the newspapers said.

Cambridge Analytica worked on Trump’s 2016 campaign. A Trump campaign official said, though, that it used Republican data sources, not Cambridge Analytica, for its voter information.

Facebook, in a series of written statements beginning late on Friday, said its policies had been broken by Cambridge Analytica and researchers and that it was exploring legal action.

Cambridge Analytica in turn said it had deleted all the data and that the company supplying it had been responsible for obtaining it.

Andrew Bosworth, a Facebook vice president, hinted the company could make more changes to demonstrate it values privacy. “We must do better and will,” he wrote on Twitter, adding that “our business depends on it at every level.”

Facebook said it asked for the data to be deleted in 2015 and then relied on written certifications by those involved that they had complied.

Nuala O’Connor, president of the Center for Democracy & Technology, an advocacy group in Washington, D.C., said Facebook was relying on the good will of decent people rather than preparing for intentional misuse.

Moreover, she found it puzzling that Facebook knew about the abuse in 2015 but did not disclose it until Friday. “That’s a long time,” she said.

Britain’s data protection authority and the Massachusetts attorney general on Saturday said they were launching investigations into the use of Facebook data.

“It is important that the public are fully aware of how information is used and shared in modern political campaigns and the potential impact on their privacy,” UK Information Commissioner Elizabeth Denham said in a statement.

Massachusetts Attorney General Maura Healey’s office said she wants to understand how the data was used, what policies if any were violated and what the legal implications are.

Reporting by David Ingram; Editing by Peter Henderson and Chris Reese

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​Meet the Scarlett Johansson PostgreSQL malware attack

More security news

It’s not the first time an image has been used to give a victim malware, but it may be the first time it’s been used so narrowly. According to the security firm Imperva, their StickyDB database management system (DBMS) honeypot has uncovered an attack that places malware, which cryptomines Monero, on PostgreSQL DBMS servers. Its attack vector? An image of Hollywood star Scarlett Johansson.

Now, you might ask, “How many PostgreSQL DBMS servers are out there on the internet to be attacked?” The answer: “More than you’d expect.” A Shodan search revealed almost 710,000 PostgreSQL servers ready to be hacked. It appears there are so many of them because it’s way too easy, especially on Amazon Web Services (AWS), to set up PostgreSQL servers without security.

Cryptocurrency malware attacks are becoming increasingly more common. Why not? They’re profitable. The Smominru miner alone has infected at least half a million machines, mostly Windows servers, and has made at least $3.6 million.

While Smominru used the relatively sophisticated EternalBlue exploit to speak, this method of attack, steganography, the hiding of data or malware in an image, is older than the hills. In this attack, what appears to be a G-rated image of Scarlett has a malware payload.

Once a victim downloads the image it tries to brute force its way into your DBMS. Since a PostgreSQL instance shouldn’t be simply sitting on the internet in the first place, chances are good that it hasn’t been secured in other ways either. A compromised system then uses PostgreSQL to run invoke Linux or Unix shell commands to install a Monero cryptocurrency miner.

Besides trying to spread itself to other targets and hide itself, the program starts looking to see if your server has access to a GPU. Without one of those, your server, whether bare-metal or virtual, is going to be doing a cryptominer much good.

If it is successful, the first thing you’ll know about it is when your monthly cloud bill is far higher than expected. According to Impervia, most antivirus programs fail to detect this attack.

So, what can you do? Impervia recommends:

  • Watch out of direct PostgreSQL calls to lo_export or indirect calls through entries in pg_proc.
  • Beware of PostgreSQL functions calling to C-language binaries.
  • Use a firewall to block outgoing network traffic from your database to the internet.
  • Make sure your database is not assigned with public IP address. If it is, restrict access only to the hosts that interact with it (application server or clients owned by DBAs).

In other words, once more the best security recommendation is to practice server security 101, and you should be immune to such attacks. And, if you must ogle the lovely Ms. Johansson, make sure you only look at safe pictures.

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Elon Musk Doesn't Need a Business Plan. Do You?

In a recent appearance at SWSX, Elon Musk explained that he’s not a big fan of business plans. Instead, he works at the visionary level and leaves the operational details to others.

I’ve known other successful entrepreneurs who work that way. Their motto is “if you build it, they (the customers) will come,” rather than “failing to plan is planning to fail.”

Such entrepreneurs see building a company as more like improvising jazz (start with an idea and run with it) than playing a symphony (disseminate a plan and follow it). To them, a business plan is burdensome overhead.

Does this mean that you don’t need to write a business plan when you launch your first business? Absolutely not.

Musk (and similar serial entrepreneurs) don’t create business plans for their projects because they’ve transcended the need for them, not because they don’t believe that plans are unnecessary. Let me explain:

In the early stages of a startup, a business plan performs two functions, one external, the other internal:

  1. It is a recruiting tool that convinces prospective investors, employees and customers that the company will be successful. (External.)
  2. It provides structure and direction so that everyone on the team can work together to achieve measurable goals and milestones. (Internal.)

Musk doesn’t need a business plan as a recruiting tool because he has more than enough credibility to attract investors, employees and customers.

Similarly, Musk has already built enough businesses that he no longer needs guide rails to tell him whether a project is where it needs to be.

There’s a larger truth here about mastering skills. When you start learning a skill (in this case creating startups) you must follow the rules to become successful at it. However, once you’ve reached mastery of a skill, you can break those rules. Indeed, it is only through breaking those rules that you can achieve the highest level of mastery.

Take computer programming, for example. One of the most important rules for writing clear, supportable code is that the code should be structured into blocks, subroutines and conditional loops rather than “spaghetti code” that jumps all over the place. However, some programmers are so talented that they can break that rule. To quote the Tao of Programming:

“There once was a Master Programmer who wrote unstructured programs. A novice programmer, seeking to imitate him, also began to write unstructured programs. When the novice asked the Master to evaluate his progress, the Master criticized him for writing unstructured programs, saying, “What is appropriate for the Master is not appropriate for the novice. You must understand Tao before transcending structure.”

Writing is like that, too.  An experienced writer can intentionally break a grammatical or stylistic rule in order to get an idea across more succinctly and vividly

For example, the previous sentence has two adverbs. As a general rule, adverbs (like adjectives) tend to weaken your writing. Thus, had I been writing this same column when I first started writing professionally, I would have found a way to write around those adverbs.

Today, however, I’m experienced enough as a writer to know that, in this particular case, the sentence does the job better (i.e. communicates more effectively) with adverbs, placed at the end of the sentence in order to suggest emphasis.

The same thing is true with business plans and entrepreneurs. In the beginning, you need a business plan but, over time, business plans become both less useful and less necessary. 

Just to be clear, though, I’m NOT recommending that anybody write a complicated document based upon the many “business plan” templates downloadable on the web. As I explained in “The Secret to a Great Business Plan: Don’t Write One,” what’s needed and wanted in today’s ADHD business climate are ten slide that hit the main points.

But after you’ve founded a few companies and made them successful, you’ll no longer need even this minimal plan in order to move your business successfully forward.

Going back to the  jazz vs. symphony analogy at the beginning of this column, the best jazz musicians–the ones who can improvise great music–usually have decades of experience playing music that’s less free-form.

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Are You Thinking Of Buying Berkshire Hathaway? Consider Baby Berkshire Instead

Source: Berkshire’s annual letter

A few days ago, Berkshire Hathaway (NYSE:BRK.A) (BRK.B) released its annual report. Markel Corporation (MKL) has not published it yet, but it released its full year results.

As the readers of Warren Buffet’s letters already know, in 2015, he decided to slightly change the comparison criteria he had been using to evaluate Berkshire’s performance. He had always just compared BH’s book value appreciation against S&P 500 appreciation.

Since 2015, he has been taking into account also Berkshire stock price appreciation. The official reason for the change was that book value could not completely reflect the intrinsic value of the company (arguably, when we also consider good will and intangibles), but the real reason was that, for the first time in history, S&P 500 total return in the previous 5 years had surpassed Berkshire’s book value total return, whereas its stock price delta still performed better.

What is remarkable now is that, in the course of the last 10 years, as reported in its last annual report, even Berkshire stock price total return was beaten by S&P 500, a milestone in the company’s history.


Annual percentage change Berkshire

Annual percentage change S&P 500































Compounded annual gain



Source: Berkshire’s annual letter

The reason is quite clear: Berkshire is too big!

Why Berkshire’s best years are not in sight

That’s right. Berkshire is too big; its huge capitalization of about half trillion dollars makes it what I usually call an index company. Its stocks are good for index ETFs and funds, but not so good for individual investments.

In fact, there is a sort of physical limit to stock growth. If a company is very big, it could be hard to find substantial space for business growth. It could be even harder to do it against the will of the anti-trust entities.

Personally, I rarely own shares of companies exceeding a double digit billion-dollar cap. I would prefer to buy an ETF to avoid risks as well as hours of due diligence, therefore, saving time and energy.

With Berkshire we have an additional problem, which is not solvable, because it is linked to the inner structure of the company.

Berkshire is basically an insurance company that uses its float to invest in the equity market

Since Warren Buffett credo is value investing, he never owns more than a dozen companies for 90% of his publicly quoted companies’ portfolio. Now, this is where it gets tough: let’s say you have a $100B budget and you are committed to using no less than 10% of that budget for each purchase, then your hunting territory will be limited to a tiny fraction of the companies that are listed in the public stock exchanges. If you don’t want to overpay your shares, on average, you will need to only bet on the very fat guys. It could be hard to find value out there.

The same goes with acquisitions. It is increasingly difficult for Berkshire to find private companies to buy. I think that, in the near future, we will witness Berkshire implementing the same suggestion W. Buffett gave individual investors several times: 10% bonds and 90% cheap index ETF.

Ten years from now, Berkshire Hathaway will be a huge holding company, with some insurance companies in its pocket, no more and no less. Its biggest competitive advantage will eventually vanish. Given the lack of investment opportunities, it will most likely even start to pay dividends in order to deploy its enormous cash.

This last option could sound good for some investors, but it is drastically against Buffettology itself.

Now let’s talk about Markel

Although Berkshire is likely to be on the path of giving up its terrific long-term performance in the years to come, there is another company that will continue to grow at the same pace, using the same business model structure as Berkshire’s, but enjoying a relatively low capitalization. I am talking about the so-called baby-Berkshire: Markel Corp.

Markel’s intent is not a secret to anyone and that is to copy the Berkshire Hathaway business model. In other words, using the float of a solid insurance business (which yields an underwriting profit 80% of the time) to acquire private companies or to invest in securities. They even hold their annual meeting at the Omaha Hilton Hotel, just a day or two after Berkshire Hathaway’s annual shareholders meeting in the same town.

The company is co-managed by Tom Gayner: a Buffett fan and smart disciple.

Actually, for being a copycat, Markel performed very well. Here is a direct comparison between the two companies during the course of the last 10 years:

Source: Yahoo Finance

Berkshire vs. Markel

In this table, I put some key figures for the two companies, data in billion dollars, collected as of Dec. 2017:






Equity Securities



Fixed Inc Maturity Securities



Cash and Short Term T-notes



Intangibles and Goodwill



Total Assets



Source: Berkshire Hathaway and Markel official filings, Author’s elaboration

We can note that Markel’s float is about 28% of total assets, compared to 16% for Berkshire. That reveals Markel’s bigger exposure to its insurance business.

I like that, because insurance is the key of the two companies’ business model. They are not simply holding companies, but rather insurance companies that invest their float on equities and acquisitions.

Cash and short-term T-notes, compared with equity securities, are more or less the same for both companies, but fixed maturity securities are much bigger for Markel (170% vs. 13% of equity securities for Berkshire).

This reflects Markel’s more conservative approach and it is also partly due to the recent acquisitions of Alterra and State National, which had numerous bonds and treasuries in their investment baskets.

This over-exposure to bonds could lead to a better performance in the future, as management will eventually shift a bigger part of its portfolio to equity stocks.

Goodwill and intangibles, as percentage of total assets, are much bigger for Berkshire (16% vs. 9.5%). Today, this difference can be explained with Buffett and Munger being in charge, but I cannot guarantee that this would be a realistic scenario when they retire.

The bottom line is that Markel is well-positioned for future growth in all respects. Its business is well balanced and strong. Even during a difficult year, like the last one for insurance companies, due to several dramatic catastrophes, Markel managed to deliver an excellent profit for its shareholders. The net unrealized investment gain of more than $760M together with the income of the fast-growing Markel Ventures operation, which exceeded $100M in 2017, easily offset the net loss brought by the insurance segment.

On the other hand, by comparison, Berkshire appears to be scrambling a little bit after Markel.

Even the P/B value ratio, which is cheaper for Berkshire, does not differ that much, if we consider only the tangible assets. Markel is only 12% more expensive than Berkshire according to this metric.


Berkshire Hathaway has been a legend for all investors. Due to its terrific performance, it earned the well-deserved fame of a modern institution in the financial environment.

Nevertheless, several signs are telling us that its future performance will not be as good as the past ones.

If you are as intrigued as I am by the Berkshire’s business model, you should buy Markel instead, a company that shares the same investment philosophy, but without the size-problems of its larger twin.

After all, a Markel’s buy-out would not be that extravagant for Berkshire in the future. Maybe it is already on Mr. Buffett’s to do list.

Disclosure: I am/we are long MKL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The Kinder Morgan Dividend Story Is About To Resume

By the Sure Dividend staff

Kinder Morgan (KMI) has been a favorite dividend growth investment for many retail investors, until the company cut its payout by three quarters two years ago. After two years of low payouts, during which the company focused on reducing debt levels and finishing projects, things are about to change soon. Kinder Morgan is one of 294 dividend stocks in the energy sector. You can see all 294 dividend-paying energy stocks here.

Kinder Morgan has aggressive dividend growth plans for the coming years, but unlike in the past, this time they look very achievable. The company is about to increase its dividend meaningfully soon, and investors will very likely benefit from ongoing strong dividend growth rates over the coming years.

Since Kinder Morgan is not trading at an expensive valuation at all, shares of the pipeline giant are worthy of a closer look right here.

Company Overview

Kinder Morgan is proud of its huge asset base, and rightfully so:

(company presentation)

The company operates a giant pipeline network spanning North America, with the focus being put on natural gas pipelines. Kinder Morgan also owns terminals, pipelines and oil production assets on top of its natural gas pipeline network.

(company presentation)

The vast majority of Kinder Morgan’s revenues are fee-based, which means that there is very low commodity price risk. The company’s revenues, earnings and cash flows do not depend highly on the price of oil and natural gas. The only segment with a bigger exposure to the price of oil is Kinder Morgan’s CO2 business. Kinder Morgan is hedging its revenues from that segment, though, thus the short-term price swings for WTI do not matter very much.

Due to the fact that Kinder Morgan is much less impacted by commodity price swings than other companies in the oil & gas industry, its cash flows are not cyclical at all.

(company presentation)

During 2018 Kinder Morgan plans to increase its EBITDA as well as its distributable cash flows slightly. Distributable cash flows are operating cash flows minus the portion of capex that is needed to keep the assets intact (maintenance capex). Distributable cash flows are thus the portion of the company’s cash flows that are not needed to maintain the business, those can be spend in several ways:

– Growth capex, which expand Kinder Morgan’s asset base and lead to higher earnings / cash flows in the future.

– Shareholder returns via dividends & share repurchases.

– Debt reduction, which leads to lower interest expenses and thereby positively impacts the company’s earnings and cash flows.

A couple of years ago Kinder Morgan has paid out almost all of its DCF in dividends and financed growth capex by issuing new shares and debt. That did not work very well once its share price collapsed, which was the reason for the dividend cut, as Kinder Morgan had to finance its growth projects organically from that point.

Right now Kinder Morgan is using its DCF for a combination of growth capex, dividends and share repurchases. The company has brought down its debt levels meaningfully already, but doesn’t plan to reduce its leverage further this year.

Kinder Morgan Has Announced Aggressive Dividend Growth Plans Through 2020

In the last two years Kinder Morgan has produced about $2.00 per share in distributable cash flows, but paid out only $0.50 each year. This has allowed the company to finance billions in growth projects with excess cash flows whilst also paying down debt.

The company has stated that it wants to increase the dividend meaningfully this year as well as in 2019 and 2020:

– The dividend will be $0.80 for 2018 (which means a 60% raise year over year)

– The dividend will be $1.00 for 2019 (which means a 25% raise yoy)

– The dividend will be $1.25 for 2020 (which means a 25% raise yoy, again)

This looks like a very compelling dividend growth rate, especially when we factor in that Kinder Morgan’s current dividend yield is not low at all: Based on a share price of $16.10, Kinder Morgan’s shares yield about 3.1% right now. The forward dividend yields are thus 5.0%, 6.2% and 7.8% for 2018, 2019 and 2020, respectively.

A closer look at the company’s dividend growth plans and cash flow generation shows that those plans are not unrealistic at all:


DCF per share


Payout ratio

Excess DCF after dividend payments





$2.8 billion





$2.4 billion





$2.0 billion

Assumption: DCF grows by two percent a year

Even in a rather conservative scenario where distributable cash flows grow by only two percent annually, Kinder Morgan’s payout ratio stays below 60% through 2020. At the same time the company would generate $7.2 billion in cash flows that are not needed to pay the dividends. Those cash flows could thus be utilized for growth capex, share repurchases or for paying down debt.

Kinder Morgan Has Significant Growth Potential

The scenario laid out above (2% annual DCF growth) is rather conservative due to the fact that Kinder Morgan plans to invest heavily into new assets over the coming years:

(company presentation)

Management has identified $12 billion of potential investments which fit the company’s strategy and which promise attractive returns. The company could complete a meaningful amount of these projects in the coming years, as high after-dividend cash flows allow the company to spend on growth investments heavily.

According to management these assets could add $1.6 billion to the company’s EBITDA, which means a 21% increase over 2017’s level. When we assume that distributable cash flows would grow by 21% as well, Kinder Morgan’s DCF per share could hit $2.40 in 2022. This calculation does not yet include the positive impact share repurchases would have on the DCF per share growth rate.

Kinder Morgan has recently started a $2 billion share repurchase program and has already bought back more than 27 million shares since December. At that pace Kinder Morgan’s share count would drop by almost five percent a year, this alone would drive DCF per share up by mid-single digits each year, without any underlying organic growth.

Due to its focus on natural gas pipelines Kinder Morgan is well positioned for the future. Natural gas consumption will, according to most analysts, continue to grow for decades, as natural gas combines several positives: The commodity is significantly more environmentally friendly than oil and coal, it is inexpensive and it is available in North America in large quantities. Through LNG terminals natural gas can even be exported to other markets (primarily in Asia).

All the natural gas that gets used in the US or exported to foreign countries needs to be transported through the US by pipelines. Kinder Morgan as the provider of the vastest pipeline network should benefit from that trend, which will lead to ample cash flows for decades.


The US Energy Information Administration expects that global consumption of natural gas will grow from 130 quadrillion Btu to 190 quadrillion Btu through 2040. Since proved reserves of natural gas in the US are growing, it seems opportune to assume that the US will remain a major producer of natural gas going forward. This, in turn, means that Kinder Morgan’s asset base will not only exist for a very long time, but will remain very profitable through the coming decades.

Kinder Morgan Is Trading At A Discount Price

KMI EV to EBITDA (Forward) data by YCharts

Kinder Morgan is trading at the lowest valuation the company’s shares have traded for over the last couple of years right now. With a forward EV to EBITDA multiple of about ten Kinder Morgan is also not looking expensive at all on an absolute basis.

When we focus on the cash flows the company generates, we see that Kinder Morgan trades at eight times trailing DCF and at slightly less than eight times forward distributable cash flows. This means that shares can be bought with a distributable cash flow yield of 12.7% right now. Kinder Morgan is a non-cyclical company which has a solid growth outlook, and at the same time its size and diversified asset base mean that there isn’t a lot of risk. Based on those facts the current valuation looks pretty low.

Investors can currently acquire shares of the company with a forward dividend yield of 5.0% (the dividend increase announcement should come next month) at a DCF multiple of slightly below 8. For long term focused investors who seek an investment that provides a growing income stream that looks like an attractive investment case.

Final Thoughts

Kinder Morgan’s failed dividend growth plans hurt many retail investors in the past, but management has learned from its mistakes. This time the dividend growth plans are well thought out and look very achievable.

Thanks to high cash flows and a big growth project backlog Kinder Morgan should be able to provide a steadily growing income stream over the coming years. This, combined with a low valuation, makes shares of the pipeline giant worthy of a closer look right here.

Disclosure: I am/we are long KMI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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