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Buffett's MO for subsidiaries is businesses that generate low cost free cash flow that can be leveraged to fund more speculative paper investments. It's very s
by slavboj 4y ago
Buffett's MO for subsidiaries is businesses that generate low cost free cash flow that can be leveraged to fund more speculative paper investments. It's very similar to the conglomerate model - arranging for an internal cost of capital lower than you can get on the open market, to fund capital intensive longer term projects.
Interestingly Berkshire has never tried to develop any "synergies" whatsoever between its businesses, other than perhaps Dilly Bars at corporate events.
- zie 4y agoBasically all true, except every other conglomerate generally wanders into debt, then acts like it's candy, gets hooked and then runs into untold troubles for a while, when the debt and bad deals eventually catch up with them. BRK noticeably avoids debt, prefers all cash deals and keeps a very strong pile of cash laying around just in case.
- slavboj 4y agoBerkshire's ability to commit to long-term planning (at least currently) instead of levering up to boost short term returns to equity gives them an advantage over the traditional conglomerate model.