It's time. We wrap our Berkshire Hathaway trilogy with Warren and Charlie entering a new era: the age of the internet. Can they and Berkshire adapt to this brave new world? We find out. And, after 9+ hours, we render our final judgments on Berkshire and Warren's career. Is "Never bet against America" still the right longterm approach? Or is there another, even bigger Snowball out there that Warren may be missing? If you love Acquired and want more, join our LP Community for access to over 50 LP-only episodes, monthly Zoom calls, and live...
It's time. We wrap our Berkshire Hathaway trilogy with Warren and Charlie entering a new era: the age of the internet. Can they and Berkshire adapt to this brave new world? We find out. And, after 9+ hours, we render our final judgments on Berkshire and Warren's career. Is "Never bet against America" still the right longterm approach? Or is there another, even bigger Snowball out there that Warren may be missing?
If you love Acquired and want more, join our LP Community for access to over 50 LP-only episodes, monthly Zoom calls, and live access for big events like our recent Book Club event with Brad Stone. We can't wait to see you there. Join here at: https://acquired.fm/lp/
Sponsors:
- Thanks to Tiny for being our presenting sponsor for all of Acquired Season 8. Tiny is building the "Berkshire Hathaway of the internet" — something they're so dedicated to, they even make and sell bronze busts of Warren & Charlie online! if you own a wonderful internet business that you want to sell, or know someone who does, you should get in touch with them. Just like Berkshire, they commit to quick, simple diligence, a 30-day or less process, and will leave your business to do its thing for the long term. You can learn more about Tiny here: http://bit.ly/acquiredtiny and find their Berkshire Nerds store here: http://bit.ly/acquiredbrknerds
- Thank you as well to Vouch and to Capchase. You can learn more about them at:
- https://bit.ly/acquired-vouch
- http://bit.ly/acquiredcapchase
The Berkshire Hathaway Playbook:
(also available on our website at https://www.acquired.fm/episodes/berkshire-hathaway-part-iii )
1. The Berkshire Hathaway "Culture"
- Berkshire Hathaway really only has three key cultural tenants that stretch across its huge array of operating businesses and investments:
- Don't put Berkshire's reputation at risk (i.e., don't be Salomon Brothers).
- Don't take money out of the business (i.e., re-invest and avoid or defer paying tax whenever possible).
- Funnel all excess cash back to Omaha for re-allocation (i.e., if you can't find a good use for excess cash, give it back to Warren).
2. You need different strategies at different company scales and points in time.
- Berkshire's greatest longterm strength has been its ability to adapt and employ different strategies as it and the world has changed. From the transition from cigar butts to wonderful businesses as we saw in our last episode, to diluting the equity portfolio with fixed income assets from Gen Re before the internet bubble crash, to focusing on preferred equity during the financial crisis and ultimately making a non-controlling stake Apple the largest asset in the whole Berkshire portfolio, Warren and Charlie have demonstrated remarkable flexibility during their investing careers.
3. There are huge advantages to a company structure where one person makes all decisions.
- Warren's ability to make $10 billion+ decisions on his own and within an hour (usually with input from Charlie) is truly unique in the global history of business, and allows Berkshire the flexibility to capitalize on opportunities that no one else can act upon, like the financial crisis. At the same time this setup obviously carries risk — not so much in Warren making bad decisions (cough, airlines), but in missing other opportunities simply due to lack of diversity in thought. Which leads us to our last playbook theme...
4. Never Bet Against The Internet. (aka the "Rosenthal doctrine")
- Andrew Marks of TQ Ventures perhaps sums up Warren's career best: he's the greatest "status quo investor" that's ever lived, as embodied in his "never bet against America" philosophy. As long as the future looks mostly like the present, nobody is better than Warren at handicapping probabilities and picking winners. But that's no longer the world we live in today. As Doug Leone laid out in our Sequoia Part II episode, we now live in a world of accelerating change: what works today is unlikely to keep working tomorrow. And where is that dynamic baked into the very fabric of existence? The Internet. Never bet against it.
Links:
- Bill Gates 1996 Wired interview: https://youtu.be/VFFlO7yBIBM?t=1056
- Jeff Bezos's 2008 AWS == electricity talk at YC Startup School: https://www.youtube.com/watch?v=6nKfFHuouzA
- Charlie's 2021 Shareholder Meeting "slip-up": https://www.youtube.com/watch?v=6gyqElEG6Uo
Carve Outs:
-
Common Stocks and Uncommon Profits: https://www.amazon.com/Common-Stocks-Uncommon-Profits-Writings/dp/0471445509
-
Xbox Game Pass: http://xbox.com/gamepass
-
Goodfellas: https://www.imdb.com/title/tt0099685/
-
The Goodfellas soundtrack: https://open.spotify.com/playlist/0xVpgEngjrg6FOw5vEFHRp
Episode Sources:
- https://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm
- https://berkshirehathaway.com/2020ar/2020ar.pdf
- https://companiesmarketcap.com/berkshire-hathaway/marketcap/
- https://cunninghamjeff.medium.com/don-keough-mel-gibson-and-the-buffett-gang-abcb8b06e9b3
- https://en.wikipedia.org/wiki/Ajit_Jain
- https://en.wikipedia.org/wiki/Bear_Stearns
- https://en.wikipedia.org/wiki/Berkshire_Hathaway
- https://en.wikipedia.org/wiki/Donald_Keough
- https://en.wikipedia.org/wiki/Howard_Graham_Buffett
- https://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway
- https://en.wikipedia.org/wiki/Marmon_Group
- https://en.wikipedia.org/wiki/New_Coke
- https://en.wikipedia.org/wiki/Roberto_Goizueta
- https://en.wikipedia.org/wiki/Ted_Weschler
- https://en.wikipedia.org/wiki/The_Giving_Pledge
- https://en.wikipedia.org/wiki/Todd_Combs
- https://finance.yahoo.com/news/bank-america-become-one-warren-141016560.html
- https://fortune.com/2011/09/12/meet-ted-weschler-buffett-auction-winner-berkshires-new-hire/
- https://fs.blog/2009/11/the-crisis-the-decline-of-berkshire-hathaways-stock-from-triple-a-status/
- https://givingpledge.org/About.aspx
- https://markets.businessinsider.com/news/stocks/warren-buffett-invested-3-billion-general-electric-ge-2008-crisis-2020-6-1029327040
- https://omaha.com/business/ajit-jain-s-role-at-berkshire-expands-new-ceo-at-reinsurer-gen-re-will-report/article_e2c6283e-d64a-57aa-85bf-c6f540f41231.html
- https://omaha.com/business/berkshire-hathaways-bnsf-railway-seems-to-pull-its-own-weight/article_59b29e97-aa57-5826-9c1f-8e2cf85180cd.html
- https://rationalwalk.com/revisiting-berkshire-hathaways-acquisition-of-bnsf/
- https://rationalwalk.com/revisiting-berkshires-wrigley-investments-brka-brkb/
- https://realmoney.thestreet.com/investing/kass-apple-is-the-most-consequential-investment-that-warren-buffett-ever-made-15220462
- https://sabercapitalmgt.com/warren-buffett-1997-email-exchange-on-microsoft/
- https://sabercapitalmgt.com/wp-content/uploads/2019/12/BuffettRaikesemails.pdf
- https://seekingalpha.com/article/4175060-time-for-berkshire-and-mclane-to-part-ways
- https://static.fmgsuite.com/media/documents/1bae1ba7-c2f2-4af5-ac1f-c0429dc7e5f0.pdf
- https://theoraclesclassroom.com/blog/berkshire-hathaway-intrinsic-value-calculation-q3-2020/
- https://waitbutwhy.com/2015/01/artificial-intelligence-revolution-1.html
- https://www.ajc.com/business/keough-affable-but-tough-coke-leader/3mJH6FkDAXijjEscdeEQMK/
- https://www.amazon.com/Complete-Financial-History-Berkshire-Hathaway/dp/0857199129
- https://www.amazon.com/Poor-Charlies-Almanack-Charles-Expanded/dp/1578645018
- https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553805096
- https://www.berkshirehathaway.com/2008ar/2008ar.pdf
- https://www.berkshirehathaway.com/2020ar/2020ar.pdf
- https://www.bostonglobe.com/business/2017/02/27/buffett-apple-airline-wagers-highlight-emergence-deputies/nV0z0YHUmR8SjYi1XZ6eLK/story.html
- https://www.cnbc.com/2019/12/31/this-decade-saw-warren-buffett-finally-exit-ibm-jump-big-into-apple.html
- https://www.cnbc.com/2019/12/31/this-decade-saw-warren-buffett-finally-exit-ibm-jump-big-into-apple.html
- https://www.cnbc.com/2020/02/24/warren-buffett-says-apple-is-probably-the-best-business-i-know-in-the-world.html
- https://www.economist.com/leaders/2021/05/08/warren-buffett-should-step-aside-for-his-chosen-successor
- https://www.einpresswire.com/article/251597070/donald-r-keough-1926-2015
- https://www.fool.com/investing/2018/02/18/the-3-biggest-mistakes-warren-buffett-made-with-ib.aspx
- https://www.fool.com/investing/2019/11/19/heres-how-much-warren-buffett-has-made-on-coca-col.aspx
- https://www.fool.com/investing/2019/12/29/heres-how-much-money-warren-buffett-has-made-in-ge.aspx
- https://www.forbes.com/sites/joewalsh/2021/05/01/buffett-doesnt-regret-selling-airline-stocks-last-year---and-he-still-doesnt-want-to-invest-in-them/?sh=48cbba1e6dfa
- https://www.goldmansachs.com/our-firm/history/moments/2008-buffett-investment.html
- https://www.himcap.com/#Management
- https://www.investopedia.com/ask/answers/021615/what-difference-between-berkshire-hathaways-class-and-class-b-shares.asp
- https://www.macrotrends.net/stocks/charts/BRK.A/berkshire-hathaway/stock-price-historyhttps://www.cnbc.com/2019/02/25/warren-buffett-says-berkshire-stock-managers-weschler-and-combs-have-trailed-the-sp-500.html
- https://www.nytimes.com/1995/02/15/business/worldbusiness/IHT-buffett-quietly-amasses-10-stake-in-amex.html
- https://www.nytimes.com/2008/04/28/business/28gum-web.html
- https://www.reuters.com/article/us-berkshire-buffett-precisioncastparts/warren-buffetts-10-billion-mistake-precision-castparts-idUSKCN2AR0MZ
- https://www.theguardian.com/business/2011/apr/30/warren-buffett-big-mistake-david-sokol-lubrizol
- https://www.wsj.com/articles/BL-DLB-32821
- https://www.wsj.com/articles/SB10001424052702303341904575576373008860754
- https://www.wsj.com/articles/SB10001424052702303467004575574630162624198
- https://www.wsj.com/articles/SB10001424052748703740004574513191915147218
- https://www.wsj.com/articles/SB10001424052748703977004575393180048272028
- https://www.wsj.com/articles/SB10001424053111904353504576569102534356770
- https://www.wsj.com/articles/warren-buffett-recounts-his-role-in-2008-financial-crisis-1536314400
- https://www.youtube.com/watch?v=6gyqElEG6Uo
- https://www.youtube.com/watch?v=6nKfFHuouzA
- https://youtu.be/QSGz4Y8CP2I
- https://youtu.be/VFFlO7yBIBM?t=1056
- https://youtu.be/VFFlO7yBIBM?t=1056
- https://www.sec.gov/Archives/edgar/data/109694/0000898430-96-001695.txt
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