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Berkshire Beyond Buffett: The Enduring Value of Values Hardcover – October 21, 2014
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"An invaluable read for entrepreneurs, business leaders, investors, managers and anyone wanting to learn more about corporate stewardship."
"Fascinating look at Berkshire as an institution."
(Liz Claman, Fox Business News)
“Fascinating . . . biography of both Buffett and Berkshire.”
(Don Dion, Seeking Alpha)
"An extraordinary portrait of Berkshire Hathaway, told through the companies’ distinct stories and the vital values like integrity, autonomy, entrepreneurship and a sense of permanence that they, and Buffett, share."
(David Slocum, Forbes)
"A great deep dive into Berkshire that breaks ground by showing Buffett to be an exceptional manager, and not just a legendary investor."
"An absolute must read for financial advisors."
(Nick Murray, Financial Advisor Magazine)
From the Back Cover
Inside view of Berkshire Hathaway based on interviews with dozens of top managers and board members.
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It’s time to change what Warren Buffett supposedly said about his mentors:
“I’m 85% Ben Graham, and 15% Phil Fisher.”
For those who don’t know, Ben Graham is regarded to be the father of value investing, and Phil Fisher the father of growth investing. Trouble is, Warren Buffett changed in his career such that this is no longer accurate. Most of Buffett’s economic activity does not stem from buying and selling portions of public companies, but by buying and managing whole companies. Buffett is the manager of a conglomerate that uses insurance reserves as a funding vehicle.
As a result, this would be more accurate about the modern Buffett:
Buffett is 70% Henry Singleton, 15% Ben Graham, and 15% Phil Fisher.
Henry Singleton was the CEO of Teledyne, a very successful conglomerate, and one of the few to do well over a long period of time. It is very difficult to manage a conglomerate, but Teledyne survived for around 40 years, and was very profitable. Buffett thought highly of Singleton as a allocator of capital, though the conglomerate that Buffett created is very different than Teledyne.
Tonight, I am reviewing a book that describes Buffett as a manager of a special conglomerate called Berkshire Hathaway [BRK] — Berkshire Beyond Buffett. This Buffett book is different, because it deals with the guts of how Buffett created BRK the company, and not the typical and misleading Buffett as a value investor.
Before I go on, here are three articles that could prove useful for background:
* Buffett’s Career in Less Than 1000 Words, and
* The Forever Fund — deals with the Burlington Northern Acquisition, and Buffett’s efforts to create a firm that will thrive long after he is gone.
* On the Structure of Berkshire Hathaway — describes how the insurance enterprises, particularly National Indemnity, own and fund many of the industrial subsidiaries.
The main point of Berkshire Beyond Buffett is that Buffett has created a company that operates without his detailed oversight. As a result, when Buffett dies, BRK should be able to continue on without him and do well. The author attributes that to the ethical values that Buffett has selected for when acquiring companies. He manages to cram those values into an acronym BERKSHIRE.
I won’t spoil the acronym, but it boils down to a few key ideas:
1. Do you have subsidiary managers who are competent, ethical, and love nothing better than running the business? Do they act as if they are the sole proprietors of the business, and act only to maximize its long-term value consistent with its corporate culture? These are the ideal managers of BRK subsidiaries.
2. Acquiring such companies often comes about because a founder or significant builder of the company is getting old, and there are family, succession, taxation, funding or other issues that being a part of BRK would solve, allowing the management team to focus on running the business.
3. Do the businesses have sustainable competitive advantages in markets that are likely to be relevant several generations from now?
The beauty of a company coming under the Berkshire umbrella is that Buffett leaves the culture alone, and so long as the company is producing its profits well, he continues to leave them alone. Thus, the one selling a company to Buffett gets the benefit of knowing that the people and culture of the company will not change. In exchange, Buffett does not pay top dollar, but gets deals done faster than almost anyone else.
This is a very good book, and its greatest strength is that it talks about Berkshire Hathaway the company as built by Buffett to endure. If you want to understand Buffett’s corporate strategy, it is described ably here.
Now, my three ideas above *might* have been a better way to organize the book, rather than the hokey BERKSHIRE. Also, a lot more could have been done with the insurance enterprises of BRK, which are a critical aspect of how the company owns and finances many of the other subsidiaries.
But will BRK do so well without Buffett? Yes, his loyal son Howard will guard the culture. The Board is loyal to the ethos that Buffett has created. Ted Weschler and Todd Combs will continue to invest the public money. The all-star subsidiary managers will soldier on, at least in the short-run.
But will the new CEO be the person that “you don’t want to disappoint,” as some subsidiary managers think of Buffett? As a result, how will BRK deal with underperformers? What new structures will they set up? Tracy Britt Cool is smart, but will BRK need many like her, and how will they be organized?
Will he be a great capital allocator? Will he maintain the “hands off” policy toward the culture of subsidiaries, or will the day come when some centralization takes place to save money?
Will Buffett’s replacement be equally intuitive with respect to acquisition prices, and sustainable competitive advantage?
Buffett’s not perfect — he has had his share of errors with textiles, shoe companies, airlines, Energy Future, and a variety of other investments, but his record will be tough to match, even if replaced by a team of clever people. Say what you will, but teams are not as decisive as a single manager, and that may be a future liability of BRK.
Summary / Who Would Benefit from this Book
Most people will not benefit from this book if they are looking for a way to make more money in their life. There are no magic ways to apply the insights of the book for quick gains. Also, readers are unlikely to use Buffett’s “hands off” methods in building their own conglomerate. But readers will benefit because they will get to consider the building of the BRK enterprise from the basic principles involved. There will be indirect benefits as they analyze other business situations, perhaps using BRK as a counterexample — a different way to acquire and run a large enterprise.
But as for getting any direct benefit from the book? There’s probably not much, but you will understand business better at the end.
It delves into their histories and why they were deemed worthy of purchase by Warren Buffett.
Along the way, the author does a credible job of what makes a company successful such as a culture of integrity (this can't be understated), vigilant cost-control, lasting competitive advantage (large moat), and ability to sustain and gain marketshare even in a down economy.
In my view, the problem with this book is that it is little too folksy for my tastes. It is more of a business story book rather than a business analysis book. For someone who wants to get the golden nuggets of information and have them analyzed thoroughly (preferably with some statistical analysis), I have found this book wanting. If you are looking for good business anecdotes, I think this is a good book. If you are looking for 5 fundamental business secrets of Warren Buffett and Berkshire businesses, then you might be disappointed.
1)Good stories behind what makes a Berkshire company.
2)Good anecdotes on business wisdom.
1)Where are the deep business analysis?
Looking at the entrepreneurial juggernaut that Berkshire is today, it would be easy to say that it looks as if it was built by happenstance. And that would be absolutely correct. After reading this year’s shareholder letter from Berkshire, Cunningham remarked that Charles Munger seemed to have caught a slight version of the hindsight bias virus in chronicling the superiority of the “Berkshire system”, creating the 4th most valuable company in the US. And that comment makes total sense - people with integrity, intelligence and energy don’t come walking around the corner at regular intervals, carrying an appetizing price tag. This makes a copycat approach of Berkshire’s evolution nigh impossible. But while the most crucial part of this is not replicable – Buffett’s inimitable broad capacities – the blueprint he and others created can surely be learned from and applied more than is currently the case. This book will take aspiring students a long way towards permanent learning.
The outline of the book is very Buffettesque; simple, yet witty. After establishing its distinct corporate culture as the one homogeneous factor among Berkshire’s 80 subsidiaries, the author outlines the underlying traits via the acronym B-E-R-K-S-H-I-R-E (Budget-conscious, Earnest…). Overall, the book is filled-to-the-brim with anecdotes and nerdy facts. However, it sometimes falls into the trap of being too narrative; there are just so many stories to be told, so many nuggets to bring out. But the topic is not any obscure company premiering in the spotlight. Yes, large parts about Berkshire is misunderstood and/or neglected. But not the narrative aspects, rather the details. The “why” rather than “what”, the “how” rather than “when”. Berkshire Beyond Buffett really shines when diving into the nerdy facts about competitive edges of MiTek or discussing Marmon as a Berkshire Mini-me.
Overall however Berkshire is all about permanence and autonomy, the latter which can best be described as a trust-arbitrage. The net gains from giving full authority to people far outweigh its potential abuse. “There is money in being trusted. It is such a simple idea”. The book does this aspect a huge favor, as the myth of “Buffett just buys high quality companies” is widespread. Cunningham provides several interesting statistics around this, where the quality is not so much apparent in the absolute numbers themselves (for the subsidiaries), but rather via its people and organizational values.
While it is easy to agree with the author on the “endurability” of corporate culture - in Buffettshire…pardon, a Berkshire beyond Buffett, that might not matter in the medium term. With the aura around the company gone, Berkshire’s loyal shareholder base might slowly be replaced by Mr. Market – and he might not be so forgiving. It is all too easy to see how the bad apples at GenRe, Benjamin Moore or Salomon would have affected a Buffettless Berkshire. Another aspect likely to hurt is that it might be the most personal corporate animal ever created (considering its size). The “benign dictatorship” has led to everything being a result of Buffett's personal taste. “Berkshire is my painting, so it should look the way I want it to when it’s done…it is designed to fit me”. Cunningham brings up the “make Warren proud” motif among many operating chiefs, and this aspect cannot be overstated enough. “Make the memory of Warren proud” does not have the same ring to it. The seamless web of deserved trust might be neither seamless nor deserved down the line. Let us enjoy the creation before the buybacks start.
This is a review by investingbythebooks.com