and want to understand what it is that they own, because Warren has said that he would like to always buy shares of Berkshire at the right price. Berkshire would love to repurchase its shares.The trouble is that Warren doesn't want to buy from someone who's uninformed about its worth.
had to show numbers differently than Berkshire . Berkshire has created the world that it occupies by focusing only on value and not reported profits.Anyone else could do it, but it takes the kind of discipline.
And one of the examples I'd say is if a business is focused on the near term, they'll either do one of two things. Berkshire 's excellent at that.
The joy of eating sweet things. Berkshire is the best one.
80% of Berkshire 's value is in its 50 operating subsidiaries and only 20% in common stocks. Berkshire is today America's fifth largest corporation.Marking its fiftieth anniversary under Warren's leadership next year, it is a microcosm of corporate America.
They concentrate and overemphasize the diversity of the businesses and underappreciate and sometimes overlook the cultural unity. Berkshire subsidiaries engage in a wide range of totally unrelated businesses, insurance and paint, energyand housing, transportation and food, jewelry and pig-feeding equipment.
Profit margins are all over the place, stretching from 1% at McLane, the logistics supply chain manager, to 25% at BNSF Railway. Berkshire subsidiaries were acquired at prices all over the map, way less than a billion for Justin boots, 2 billion for Shaw carpets, 9 billion for the Marmom group,the conglomerate that Jay and Robert Pritzker built.
This diversity can be explained by the first sentence of my book. Berkshire Hathaway is an accident.It has never had a business plan.
It is purely opportunistic, buying companies that fit its criteria and gel with its culture. Berkshire has disclosed what it seeks in its acquisitions since 1986, when it ran an ad in the "Wall Street Journal" stating its criteria.Those criteria have never changed, except for size, which went from 5 million in annual earnings back then to 75 million today.
Proven profitability, good unleveraged returns on equity, management in place, basic businesses, and a fair price. Berkshire often sites Berkshire culture as part of what will enable it to prosper without him, but he's never said exactly what that cultureis or explained where it comes from.
Let me highlight a few of these traits. Berkshire subs tend to be thrifty, some say frugal, cheap, even tightwads.Geico is a great example.
had made to its local distributor network. Berkshire subs are earnest.They consider keeping a promise to be sacrosanct.
People prize autonomy and complex businesses gain value from hands-off oversight. Berkshire is thoroughly decentralized, with subsidiary CEOs having virtually unbridled discretion over all operational and strategic decisions.Autonomy starts at the top and trickles down throughout the subsidiaries and in most subsidiaries, it tends to trickle down across that.
Being treated that way makes it easy for me to treat our managers the same way." In chapter 16, I conclude with this sentence, quote, "Berkshire 's secret to managing a large complicated organization is to manage parsimoniously, as little as possible.'' And finally Buffett is well known as a long-term investor.
family. The piece about rapidity of change, though, is a question mark. Berkshire prefers rudimentary businesses, those that have been around a long time, that change relatively little.And so if the successor were to adhere to that aspect of the rationale, I wouldn't expect to see a great many come into the Berkshire
They pivot around that same longing for a way to generate capital without the shackles of either micromanagement or short term-ism. Berkshire is one place.Recently, Berkshire made some big investments in BYD in China and Posco in South Korea.
You with me? People should avoid-- I think the one big risk for Berkshire beyond Buffett is the nostalgia trap, when people think, oh, Berkshire was so wonderful before.Now there are mistakes being made.
And my response, thanks to my wife, was there's only one Warren Buffett. Berkshire has acquired a lot of newspapers, just in the last three or four years, a business that is rapidly changing.
And my response, thanks to my wife, was there's only one Warren Buffett. Berkshire put into place senior management who vowed to correct that problem, eliminate those kinds of concentrated risk, and maintain a culture in which that will not
So all I care about is that it gets implemented when you say it's going to, and it works out great. Berkshire Hathaway gets what's called a conglomerate discount because we know he will never sell off businesses.
Anyone else could do it, but it takes the kind of discipline. And Berkshire thrives on that. Another example-- equity index put options-- this is an interesting one.
And they had $1.6 million of operating income in the first 12 or 14 months. So Berkshire Hathaway, I started buying back in the late '70s.
Charlie Monger, who is the vice chairman at Berkshire Hathaway said that See's was their first high quality company that Berkshire bought and that opened up the door to Coca-Cola. They were able to realize the value of pricing power, competitive advantage, and some of these qualitative things that they really hadn't paid attention to earlier in their partnership.
The joy of eating sweet things. Inside Berkshire , it didn't matter.
The joy of eating sweet things. in Berkshire , understand that book value doesn't capture all that we've got that's good.
But they are thoughtful and they know that. And Berkshire really is the best example of a company that had that in place, where you had the genius at the top who knew that the original business, which was a textile business-- whatever money that made, it was best to invest that somewhere else.
"The New York Times" last year portrayed Buffett as having a, quote, "irreplaceable magic touch." "The Economist" this year lamented that Berkshire was down to, quote, "playing out the last hand." Such views are paradoxical. Buffett's goal has been to build a lasting corporation.
They were acquired at varying multiples, from cheap bargains for the maker of Garanimals to princely premiums for the likes of BH Energy. And Berkshire subsidiaries are headquartered all over the map. Beneath that slide is a map of the United States of America that in this picture are not showing up, but they are in Massachusetts, North Carolina, Tennessee,
Intuitively, people don't expect conglomerates, vast and diverse, to have discernible corporate cultures, but Berkshire has a distinctive one, based on a core set of shared values. In my research, I probed Berkshire 's fifty main subsidiaries, seeking to identify
That model grows market share, increases total premiums, and enlarges aggregate profits. All Berkshire subsidiaries embrace the golden rule. Do unto others as you would have them do unto you.
They charge premiums for the kind of special commitments that these high-end products entail. So Berkshire thus generates value from its high-end businesses where customers pay a premium for earnestness. People prize autonomy and complex businesses gain value from hands-off oversight.
So once he righted the ship, he needed more capital. And Berkshire was a perfect place for him. Because there's plenty of capital, and as long as you're generating good returns on capital, you're likely to get plenty more.
They are experienced investors with a good track record. At Berkshire , they, I think, were responsible for selecting DirecTV, which had a good run and then a big payout, and also for DaVita Health, which is developing kidney dialysis equipment.
And my response, thanks to my wife, was there's only one Warren Buffett. Does Berkshire look for companies that already bring the same cultural values to it, or do the subsidiaries evolve to that same point?
And my response, thanks to my wife, was there's only one Warren Buffett. When Berkshire scouts for acquisitions, or when acquisition proposals are presented to it, primarily to Warren, he has a sense that the company needs
No other insurance company, publicly held, could withstand that type of a markdown based on mark to market. And so I think Berkshire succeeded in that investment largely because they did not have competitors willing to take on the same risk. Let's go back a second here.
And one of the examples I'd say is if a business is focused on the near term, they'll either do one of two things. That has made Berkshire $22 billion.
And so it sounded like a kind of facetious reply, but it really wasn't. And at the 2001 Berkshire shareholders meeting, Buffett said that when he started in '51, he went through every page of the Moody's manual twice, and a set of Moody's manuals were 20,000 pages.
We were talking-- you were alluding to it, I think, before you began the talk. And buying Berkshire as a textile mill was one of the worst mistakes he's ever made in his life.
He wrote just a-- just as a side note, he wrote an op-ed piece for Barron's last fall. And he argues that Berkshire Hathaway should-- it's time for Berkshire to deconglomerate. It's too big and that the pieces are worth more than the sum.
The joy of eating sweet things. Another thing that Berkshire did was, the equity index put options.
As a result, the products lose their distinct identity or autonomy." That's the most interesting part for me. Successful serial acquirers like Berkshire have carved out a niche for themselves to become preferred owners of wonderful businesses.
And if there was one of those four that's the one that I would think about the most, it would be the third point, the reinvestment. And I saw Berkshire Hathaway, and I was so stupid that when I looked at the price and it was $380 a share
So that route means nothing. Warren Buffett at Berkshire started with a textile mill for God's sake.
You can find more about the book tour and see if I'll be at a campus near you at the book's website, berkshirebeyondbuffet.com. I've been studying Berkshire for 20 years and began writing about it in 1997, with the publication of the essays of Warren Buffett. That grew out of a conference I organized where I first met Warren, Berkshire 's chairman and CEO, who participated alongside his wife, Susan, and Berkshire 's vice
Today, the mix is the other way around. 80% of Berkshire 's value is in its 50 operating subsidiaries and only 20% in common stocks. Berkshire is today America's fifth largest corporation.
It's an impressive group of people. A second group are Berkshire 's directors, many who also helped me, like former Microsoft executive Charlotte Guyman, Warren's son, Howard, and especially Tom Murphy, who built Capital Cities ABC into a media powerhouse.
Tom Murphy, who built Capital Cities ABC into a media powerhouse. Earlier this year at Berkshire 's annual meeting, I asked Warren who should write the forward to the book. He instantly said Tom Murphy.
That's where I come in. By defining and illustrating Berkshire culture, my book contends that this culture is Berkshire 's most valuable and durable competitive advantage, which will contribute to its business longevity long after the Warren Buffett era.
And they turn that moral conviction into economic gain. Examples are Berkshire 's other two big insurance companies, National Indemnity, NICO, and Gen Re. They insure large and unusual risks, some spanning decades.