4 ms·

I wonder what the good reason to sell is that he described. Like he pointed out, when you sell youre moving your safe assets to risky assets. Odd.

aeden 10y ago
Diversification perhaps? WEB clearly believes in the power of owning multiple businesses, perhaps he is just extrapolating from his own success that others are interested in following his lead?
- ruleabidinguser 10y ago
  Yea that does make sense actually.
hxta98596 10y ago
> when you sell youre moving your safe assets to risky assets That's not exactly what he is saying nor what he means. Both are risky assets. A 100% owned business you deeply understand is still a very risky asset. On its own. I agree with aeden's comment that diversification is one of the main reasons to sell. The other good reason to sell...you get cash! Sure some of the cash will "probably" go to a diversified stock portfolio but some of it will be spent on cool stuff. You can't use stocks to buy your dream vacation home or donate money to charity for it to be spent on medical research. Cash is also the reason to sell. Lastly, people die. A business founder must sell the business or give it to someone else at some point in one way or another or it will be done for him or her.
- ChefDenominator 10y ago
  That last part, death, is important, especially to Buffet. He supports the death tax because it strongly encourages business owners to sell to some outside investor. My understanding is that many businesses cannot support providing the Government with amount of cash necessary pay the tax, or the net reduction in income makes running the business not worthwhile. Note how the letter is worded to carefully state that the family members will still have some ownership and management will be maintained. While this is certainly wise acquisition tactic, it is also very appealing to a seller who is on the margin and primarily selling to avoid the death tax. (If you are thinking, "but the inheritor will still have to pay the tax on the cash," you are correct, but paying tax on cash still provides immediate payback with what is left over, whereas running or even just owning a business or any investment asset for 10+ years and getting zero or close to zero is not going to be desirable to a great many people.)
  - valuearb 10y ago
    Buffett doesn't support estate taxes because of self interest, that would be silly as it's just a tiny factor in Berkshire Hathaway's business. He just doesn't believe the concentration of wealth and power is healthy for a democracy. That's a big reason why 99% of his wealth is going to charity instead of his kids. Now I think he's wrong about this. Rockefeller had a roughly ten times greater share of our nations wealth as Gates or Buffett ever had. And somehow our democracy survived and flourished, because inheritances typically get split up among children, grand-children and eventually hundreds of great-grand kids and great-great grand kids, and predominantly those descendants dissipate the wealth because they don't have the same drive or abilities as the wealth creator. And lots of that money ends up in charities before it's all gone.
    - ChefDenominator 10y ago
      Non-profit entity is not the same as "charity". Most of the large non-profits operate on a percentage of the interest earned on a large endowment. It's essentially a scam for the very rich and the banks. If the purpose of the entity were truly to benefit the needy, then they would operate directly on donations and not withhold so much funding from those in need. I specifically discussed sellers who are on the margin. While it can be difficult to know exactly how many of these are, I'm willing to bet this would result in a very real and measurable reduction in investment opportunity for Berkshire. If it were 10 businesses in a year at Buffet's stated minimum of $10 million annual net profit, then that would represent $80 million in annual revenue for Berkshire. In the world of big business, famous personalities, and politics, my position is to assume the worst case scenario, which is that the only reason someone like Buffet supports the death tax is because he profits from it. In this case, it is not a coincidence.
      - tim333 10y ago
        >my position is to assume the worst case scenario If you always assume some extreme in the absence of evidence your assumptions are probably not going to be very accurate. There's a bunch of evidence Buffett is not like that.
georgeecollins 10y ago
Liquidity and diversification.
- ruleabidinguser 10y ago
  When you put it this way selling seems so unattractive
tim333 10y ago
Common reasons to sell - The person running it is getting to retirement and the kids aren't that in to taking over, or some of the kids would rather have the cash - often the case in Buffett's purchases You want to cash in and do something else eg. Paul Graham selling Viaweb and ending up with this YC stuff Maybe diversification Maybe you have VC like investors who want/need to monetize

aeden 10y ago

Diversification perhaps? WEB clearly believes in the power of owning multiple businesses, perhaps he is just extrapolating from his own success that others are interested in following his lead?

ruleabidinguser 10y ago
Yea that does make sense actually.

hxta98596 10y ago

> when you sell youre moving your safe assets to risky assets That's not exactly what he is saying nor what he means. Both are risky assets. A 100% owned business you deeply understand is still a very risky asset. On its own. I agree with aeden's comment that diversification is one of the main reasons to sell. The other good reason to sell...you get cash! Sure some of the cash will "probably" go to a diversified stock portfolio but some of it will be spent on cool stuff. You can't use stocks to buy your dream vacation home or donate money to charity for it to be spent on medical research. Cash is also the reason to sell. Lastly, people die. A business founder must sell the business or give it to someone else at some point in one way or another or it will be done for him or her.

ChefDenominator 10y ago
That last part, death, is important, especially to Buffet. He supports the death tax because it strongly encourages business owners to sell to some outside investor. My understanding is that many businesses cannot support providing the Government with amount of cash necessary pay the tax, or the net reduction in income makes running the business not worthwhile. Note how the letter is worded to carefully state that the family members will still have some ownership and management will be maintained. While this is certainly wise acquisition tactic, it is also very appealing to a seller who is on the margin and primarily selling to avoid the death tax. (If you are thinking, "but the inheritor will still have to pay the tax on the cash," you are correct, but paying tax on cash still provides immediate payback with what is left over, whereas running or even just owning a business or any investment asset for 10+ years and getting zero or close to zero is not going to be desirable to a great many people.)
- valuearb 10y ago
  Buffett doesn't support estate taxes because of self interest, that would be silly as it's just a tiny factor in Berkshire Hathaway's business. He just doesn't believe the concentration of wealth and power is healthy for a democracy. That's a big reason why 99% of his wealth is going to charity instead of his kids. Now I think he's wrong about this. Rockefeller had a roughly ten times greater share of our nations wealth as Gates or Buffett ever had. And somehow our democracy survived and flourished, because inheritances typically get split up among children, grand-children and eventually hundreds of great-grand kids and great-great grand kids, and predominantly those descendants dissipate the wealth because they don't have the same drive or abilities as the wealth creator. And lots of that money ends up in charities before it's all gone.
  - ChefDenominator 10y ago
    Non-profit entity is not the same as "charity". Most of the large non-profits operate on a percentage of the interest earned on a large endowment. It's essentially a scam for the very rich and the banks. If the purpose of the entity were truly to benefit the needy, then they would operate directly on donations and not withhold so much funding from those in need. I specifically discussed sellers who are on the margin. While it can be difficult to know exactly how many of these are, I'm willing to bet this would result in a very real and measurable reduction in investment opportunity for Berkshire. If it were 10 businesses in a year at Buffet's stated minimum of $10 million annual net profit, then that would represent $80 million in annual revenue for Berkshire. In the world of big business, famous personalities, and politics, my position is to assume the worst case scenario, which is that the only reason someone like Buffet supports the death tax is because he profits from it. In this case, it is not a coincidence.
    - tim333 10y ago
      >my position is to assume the worst case scenario If you always assume some extreme in the absence of evidence your assumptions are probably not going to be very accurate. There's a bunch of evidence Buffett is not like that.

georgeecollins 10y ago

Liquidity and diversification.

ruleabidinguser 10y ago
When you put it this way selling seems so unattractive

tim333 10y ago

Common reasons to sell - The person running it is getting to retirement and the kids aren't that in to taking over, or some of the kids would rather have the cash - often the case in Buffett's purchases You want to cash in and do something else eg. Paul Graham selling Viaweb and ending up with this YC stuff Maybe diversification Maybe you have VC like investors who want/need to monetize