Berkshire

"The CEOs who run Berkshire’s subsidiary companies simply never hear from Buffett unless they call for advice or seek capital for their businesses. He summarizes this approach to management as “hire well, manage little” and believes this extreme form of decentralization increases the overall efficiency of the organization by reducing overhead and releasing entrepreneurial energy.13"

"Buffett had been attracted to Berkshire by its cheap price relative to book value. At the time, the company had only a weak market position in a brutally competitive commodity business (suit linings) and a mere $18 million in market capitalization."

"Buffett (with the exception of a few small, early buybacks) is the only CEO in this book who did not buy back significant amounts of his company’s stock. Despite admiring and encouraging the repurchases of other CEOs, he has felt buybacks were counter to Berkshire’s unique, partnership-like culture and could potentially tamper with the bonds of trust built up over many years of honest, forthright communications and outstanding returns."

"Buffett’s pattern of investment at Berkshire has been similar to the pattern of underwriting at his insurance subsidiaries, with long periods of inactivity interspersed with occasional large investments. The top five positions in Berkshire’s portfolio have typically accounted for a remarkable 60–80 percent of total value. This compares with 10–20 percent for the typical mutual fund portfolio. On at least four occasions, Buffett invested over 15 percent of Berkshire’s book value in a single stock, and he once had 40 percent of the Buffett Partnership invested in American Express. The other distinguishing"

"Buffett and Sarbanes-Oxley Buffett’s approach to corporate governance is also unconventional, contradicting many of the dictates of the Sarbanes-Oxley legislation. Buffett believes that the best boards are composed of relatively small groups (Berkshire has twelve directors) of experienced businesspeople with large ownership stakes. (He requires that all directors have significant personal capital invested in Berkshire’s stock.) He believes directors should have exposure to the consequences of poor decisions (Berkshire does not carry insurance for its directors) and should not be reliant on the income from board fees, which are minimal at Berkshire. This approach, which leaves him with a small group of “insiders” by Sarbanes-Oxley standards, provides a stark contrast with most public company boards, whose members rarely have meaningful personal capital invested alongside shareholders, whose downsides are limited by insurance, and whose fees often represent a high percentage of their total income. Which approach leads to better alignment with shareholders?"

"Buffett came to the CEO role without any relevant operating experience and consciously designed Berkshire to allow him to focus his time on capital allocation, while spending as little time as possible managing operations, where he felt he could add little value. As a result, the touchstone of the Berkshire system is extreme decentralization. If Teledyne, Capital Cities, and the other companies in this book had decentralized management styles and philosophies, Berkshire’s is positively anarchic by comparison."

"Buffett can perhaps best be understood as a manager/investor/philosopher whose primary objective is turnover reduction. Berkshire’s many iconoclastic policies all share the objective of selecting for the best people and businesses and reducing the significant financial and human costs of churn, whether of managers, investors, or shareholders."

"Charlie Munger has said about Berkshire’s approach to acquisitions, “We don’t try to do acquisitions, we wait for no-brainers.”"

"When Buffett acquired National Indemnity in 1967, he was among the first to recognize the leverage inherent in insurance companies with the ability to generate low-cost float. The acquisition was, in his words, a “watershed” for Berkshire. As he explains, “Float is money we hold but don’t own. In an insurance operation, float arises because premiums are received before losses are paid, an interval that sometimes extends over many years. During that time, the insurer invests the money.”2 This is another example of a powerful iconoclastic metric, one that the rest of the industry largely ignored at the time."

"This sawtooth pattern of revenue (see figure 8-2) would be virtually impossible for an independent, publicly traded insurer to explain to Wall Street. Because, however, Berkshire’s insurance subsidiaries are part of a much larger diversified company, they are shielded from Wall Street scrutiny. This provides a major competitive advantage—allowing National Indemnity and Berkshire’s other insurance businesses to focus on profitability, not premium growth. As Buffet has said, “Charlie and I have always preferred a lumpy 15 percent to a smooth 12 percent return.”3"

"Whenever Buffett buys a company, he takes immediate control of the cash flow, insisting that excess cash be sent to Omaha for allocation. As Charlie Munger points out, “Unlike operations (which are very decentralized), capital allocation at Berkshire is highly centralized.”"

"Charlie Munger has said that the secret to Berkshire’s longterm success has been its ability to “generate funds at 3 percent and invest them at 13 percent,” and this consistent ability to create low-cost funds for investment has been an underappreciated contributor to the company’s financial success."

"The company’s primary source of capital has been float from its insurance subsidiaries, although very significant cash has also been provided by wholly owned subsidiaries and by the occasional sale of investments. Buffett has in effect created a capital “flywheel” at Berkshire, with funds from these sources being used to acquire full or partial interests in other cash-generating businesses whose earnings in turn fund other investments, and so on."

"As Buffett said when he finally closed Berkshire’s textile business in 1985, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”6"

"This mix of loose and tight, of delegation and hierarchy, was present at all the other outsider companies but generally not to Berkshire’s extreme degree."

"Buffett contrasted this with Berkshire, emphasizing how the conglomerate structure can enhance the rational allocation of capital: it lets capital flow to wherever it will earn the best return. For Buffett, the conglomerate structure, “if used judiciously, is an ideal structure for maximizing long-term capital growth.”"

"The best thing a human being can do is help another human being know more. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2010"

"Clearly, he has set up his life so that it suits him and so that he enjoys it. When I asked if he had consciously created Berkshire’s unique decentralized structure, he emphasized that it operates that way because it suits his personality, not because it maximizes returns."

"of Berkshire in Omaha and Wesco in Pasadena"

"he had permanent capital to invest since Berkshire is a company, not a fund."

"Yellow BRKers. Their website warns: “The Yellow BRKer Gathering is a 100% informal and unofficial gathering of Berkshire shareholders. The gathering is not intended as a forum to promote any particular product [or] service.”"

"Jonathan Brandt when I noticed that Don Keough was standing nearby. Keough is a renowned business leader who has served on the boards of companies like Berkshire, Coca-Cola, and McDonald’s."