The Winchester Mystery House | The Acquirer's Multiple®

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed The Winchester Mystery House. Here’s an excerpt from the episode:

Jake Taylor:
Yeah, I will. So the Winchester Mystery house is this … It’s a tourist attraction in San Jose. And it came about from the widow actually of the Winchester Rifle Company. He died of tuberculosis, they had an infant who died and she thought she was cursed. And you have to understand how rich she was based on this company that this guy founded-

Tobias Carlisle:
That lever action rifle man, that was the gun that won the West.

Jake Taylor:
Yeah, so she was worth about 500 million of today’s dollars. And she was getting like nine million in dividends from the company a year. So she had a pretty good cash flow happening. Well-

Bill Brewster:
That’s almost that Buffet money.

Jake Taylor:
Yeah.

Bill Brewster:
Close.

Jake Taylor:
No.

Bill Brewster:
Not really. [inaudible 00:19:08] that much.

Jake Taylor:
Yeah, so she goes to like a psychic, a medium who tells her that she’s going to be forever haunted by all of the ghosts that were killed by the Winchester rifle which at that point, probably a lot of people, right? So she moves out West, moves to San Jose, buys this property and the medium tells her as long as she continually adding to this house that the ghosts will like leave her alone basically. So she starts building in 1884 and she just keeps adding to it and adding to it at all times. And eventually, the thing is like seven storeys tall, it’s this mid monstrosity. Earthquake happens and like a bunch of it falls over. So they rebuild it till It’s four stories today. It’s got 161 rooms. There’s all these doors and stairs that go to nowhere because it’s not designed by any central plan. It’s just like, Oh, well let’s add another room over here. 47 fireplaces, 10,000 glass panels.

Jake Taylor:
The thing is just like a monstrosity. Well, so she ends up dying in 1922 it gets auctioned off for like $135,000 and someone that turns it into a into an oddity, basically, like come and check this thing out. All right. So kind of fun story. But what does this have to do? What can we learn from this because, I have to be the vegetables guy here. This is what drives me crazy about things like GDP. So she’s adding to this house at all times. And this is like GDP growth, right? We’re adding to GDP with every single one of these. However, what was the real value that was ever created for the average person because of this? It’s nothing right? If those same materials could have been used to build 100 different houses for people and produce much more value for society. All right. What does that mean?

Bill Brewster:
It is network, charter. Anyway.

Jake Taylor:
Oh boy. Now you’re talking your own book. So this is what drives me crazy about dip shits like Paul Krugman who say things like in 2011 that we need an alien invasion to come to get us all on the same page to get GDP growing. That is such a stupid comment. I can’t even believe that there are Nobel prizes that aren’t stripped when you say things like that. We figured this out in 1850 when Frederic Bastiat wrote about the broken window fallacy, that you can’t just create something and it doesn’t take away from something else, right? So we could create … we could have scientists working around the clock on how to counter an alien invasion. But that’s just things that they wouldn’t be solving for like cancer or putting better roofs over our head or more food for everybody. It boggles my mind that even today, we still see that same kind of broken window fallacy coming out.

Jake Taylor:
So think for a second about guys like Buffett and Gates, where they have all of these claim checks that they’ve accumulated over their lifetime. And they’re not building houses with 160 rooms, and then they’re not building only … they’re not having 1000 people come and paint their picture of them, right? They’re putting that money towards trying to actually help most of humanity. The people on the lowest rung. It’s such a beautiful sentiment to me that-

Bill Brewster:
Are they really doing that.

Jake Taylor:
Yeah, he’s given us money to gates.

Bill Brewster:
So he’s outsourcing all that I don’t know that he’s doing.

Tobias Carlisle:
That makes sense [crosstalk 00:23:05] get the guy, he’s best to do it for you. Get the young guy who’s energetic and super smart to do it for his built out the infrastructure.

Jake Taylor:
That’s right.

Bill Brewster:
It’s criticism of his that I understand.

Frédéric Bastiat – The Parable Of The Broken Window

Jake Taylor:
So I’m going to read a quote from Bastiat in 1850. Okay so, this is not breaking news or anything. Society loses the value of things which are uselessly destroyed to break, to spoil, to waste is not to encourage not national labor. Destruction is not profit. Okay. I think a lot of people would be really well served, do yourself a favor and pick up Henry Hazlitt’s book economics in one lesson that will teach you everything that I think you need to know about where most of the problems that we see with economics today typically and it was written, I think in the 1950s. So, All right so, comments there before I move on to Part Number Two of what we can learn from this house?

Bill Brewster:
I guess no. I think I understand what you’re saying. But I also think that if you look at how much better life is today than it has been, I don’t disagree that there are parts of GDP growth that are like, oh, what are we really chasing here, but in aggregate, we’ve done a pretty good job.

Tobias Carlisle:
He’s not disputing that what he’s disputing is whether that is the measure that tells you that we’ve done it really well. Maybe it’s a different measure. Maybe it’s like gross wealth or something like that rather than gross domestic product to gross national product.

Bill Brewster:
Yeah. Probably GDP per capita plus some measure of the wealth gap, right?

Tobias Carlisle:
But the problem is that-

Bill Brewster:
[inaudible 00:24:54] for all of society.

Tobias Carlisle:
The problem is the GDP is this aggregated measure that is muddy as hell. And it doesn’t really tell you for wealth of the nation, the capital of the nation is the thing that makes it wealthy.

Jake Taylor:
Wealthy.

Tobias Carlisle:
Because GDP … this is the point that has Bastiat I’m making is that if you go and vaporize a city, and then you rebuild the city, you’re definitely poorer. But now your GDP is up because you got to spend money that you saved to rebuild the city, rather than sort of building new factories and creating new things new inventions, new businesses.

Bill Brewster:
Yeah, this is why I think that I don’t buy the inflation argument. We just vaporized a lot of velocity and then you’re putting more money in and you’re saying inflation is on the come? I’m just not sure that’s true. So I do understand the concept.

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