5 ms·

What is it like to be owned by Warren Buffett?

84 points by Oatseller 11y ago

Oatseller 11y ago
study linked in article: http://www.gsb.stanford.edu/faculty-research/publications/trust-consequences-survey-berkshire-hathaway-operating-managers http://www.gsb.stanford.edu/faculty-research/publications/tr...
jcdavis 11y ago
For those interested, I highly recommend reading Berkshire Beyond Buffet (http://www.amazon.com/Berkshire-Beyond-Buffett-Enduring-Values/dp/0231170041 http://www.amazon.com/Berkshire-Beyond-Buffett-Enduring-Valu...), which talks a lot about all the individual businesses before & after being acquired. A little repetitive, but good reading.
AaronM 11y ago
Maybe it's just me, but I find it obvious that they did better because they focused on long term goals, instead of short term profits.
- nickpsecurity 11y ago
  Same here. We saw the same with GE and many large tech companies for a while. The only exception that made sense was when companies made sacrifices for growth to put themselves on the right side of eventual monopoly or oligopoly. Even that's long-term thinking in its own regard as it's a setup for future plays.
- AndrewKemendo 11y ago
  It's not just you, it's their entire investment strategy. I did some study of Buffett/BH/Graham in college and resoundingly they do "value investing" which is predicated on the notion that true gains are made in longevity. Highly recommend the intelligent investor as a starting point in understanding the BH ethos. That said, BH has done some short term deals - and was taken to task in 2008 for their involvement in CDO trading. So it's not all peaches and cream.
  - Retric 11y ago
    CDO's are actually a useful tool for highly competent investors. However, the overwhelming majority of investors aren't. The reality is 10's of trillions in assets are managed by people who don't know what there doing and have little incentive to learn. Because, when your playing with other peoples money managing more has better ROI than managing well.
mring33621 11y ago
So companies that are acquired by Berkshire Hathaway get improved management 'for free' (in that there was no HR/recruiting work required). Sounds like a good deal if you have pre-acquisition ownership in one of them.
deleted 11y ago
[deleted]
fiatmoney 11y ago
This is partially selected for based on the kinds of businesses Berkshire invests in. They love high free-cash-flow businesses with significant regulatory or operational barriers to entry; the cash flow is then available to finance other acquisitions when opportunities arise, at a very low cost of capital. In those kinds of businesses, there tend to be easy-to-understand performance metrics that can actually be optimized for on a longer term. The bet on the business model has already happened and there is limited ability to make company-risking bets or engage in empire-building. One notable thing about Berkshire businesses is that internally they tend to be extremely "thrifty". Their insurance operations have one of the lowest expense ratios (operational expenses as a fraction of premiums) in the business, and are some of the only ones to actually make a profit off of the premiums directly rather than off of investing their float.
- oxide 11y ago
  wait, insurance companies don't usually make an actual profit directly from premiums? what a world we live in, that's an eye-opener for me.
  - fiatmoney 11y ago
    They typically make money from investing the money in between when it's received, and when they pay out claims - imagine a life insurer holding the cash between the start of the policy and the insured's death.
    - ant6n 11y ago
      If your insurance provider can make money without investing the premiums, then I'd say you're paying too much for premiums.
  - CapitalistCartr 11y ago
    They typically pay out more than they take in as premiums. But the time from taking money in to paying it out is in years to decades, so they sit on a mountain of money. Warren made the bulk of his money by using that money wisely.
kirk21 11y ago
His letters to shareholders are worth a read: http://amzn.to/1XTv2Xj http://amzn.to/1XTv2Xj
bcx 11y ago
This is a timely comparison to how we could imagine Alphabet/Google in the future. Provide a shield from the market to allow long term thinking.

84 points by Oatseller 11y ago

study linked in article: http://www.gsb.stanford.edu/faculty-research/publications/trust-consequences-survey-berkshire-hathaway-operating-managers http://www.gsb.stanford.edu/faculty-research/publications/tr...

jcdavis 11y ago

For those interested, I highly recommend reading Berkshire Beyond Buffet (http://www.amazon.com/Berkshire-Beyond-Buffett-Enduring-Values/dp/0231170041 http://www.amazon.com/Berkshire-Beyond-Buffett-Enduring-Valu...), which talks a lot about all the individual businesses before & after being acquired. A little repetitive, but good reading.

AaronM 11y ago

Maybe it's just me, but I find it obvious that they did better because they focused on long term goals, instead of short term profits.

nickpsecurity 11y ago
Same here. We saw the same with GE and many large tech companies for a while. The only exception that made sense was when companies made sacrifices for growth to put themselves on the right side of eventual monopoly or oligopoly. Even that's long-term thinking in its own regard as it's a setup for future plays.
AndrewKemendo 11y ago
It's not just you, it's their entire investment strategy. I did some study of Buffett/BH/Graham in college and resoundingly they do "value investing" which is predicated on the notion that true gains are made in longevity. Highly recommend the intelligent investor as a starting point in understanding the BH ethos. That said, BH has done some short term deals - and was taken to task in 2008 for their involvement in CDO trading. So it's not all peaches and cream.
- Retric 11y ago
  CDO's are actually a useful tool for highly competent investors. However, the overwhelming majority of investors aren't. The reality is 10's of trillions in assets are managed by people who don't know what there doing and have little incentive to learn. Because, when your playing with other peoples money managing more has better ROI than managing well.

mring33621 11y ago

So companies that are acquired by Berkshire Hathaway get improved management 'for free' (in that there was no HR/recruiting work required). Sounds like a good deal if you have pre-acquisition ownership in one of them.

deleted 11y ago

[deleted]

fiatmoney 11y ago

This is partially selected for based on the kinds of businesses Berkshire invests in. They love high free-cash-flow businesses with significant regulatory or operational barriers to entry; the cash flow is then available to finance other acquisitions when opportunities arise, at a very low cost of capital. In those kinds of businesses, there tend to be easy-to-understand performance metrics that can actually be optimized for on a longer term. The bet on the business model has already happened and there is limited ability to make company-risking bets or engage in empire-building. One notable thing about Berkshire businesses is that internally they tend to be extremely "thrifty". Their insurance operations have one of the lowest expense ratios (operational expenses as a fraction of premiums) in the business, and are some of the only ones to actually make a profit off of the premiums directly rather than off of investing their float.

oxide 11y ago
wait, insurance companies don't usually make an actual profit directly from premiums? what a world we live in, that's an eye-opener for me.
- fiatmoney 11y ago
  They typically make money from investing the money in between when it's received, and when they pay out claims - imagine a life insurer holding the cash between the start of the policy and the insured's death.
  - ant6n 11y ago
    If your insurance provider can make money without investing the premiums, then I'd say you're paying too much for premiums.
- CapitalistCartr 11y ago
  They typically pay out more than they take in as premiums. But the time from taking money in to paying it out is in years to decades, so they sit on a mountain of money. Warren made the bulk of his money by using that money wisely.

kirk21 11y ago

His letters to shareholders are worth a read: http://amzn.to/1XTv2Xj http://amzn.to/1XTv2Xj

bcx 11y ago

This is a timely comparison to how we could imagine Alphabet/Google in the future. Provide a shield from the market to allow long term thinking.