“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:
- 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.
- 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.
- 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. If you still want to buy it, you can buy it here: Berkshire Beyond Buffett: The Enduring Value of Values.
Full disclosure: I received a copy from the author’s PR flack.
If you enter Amazon through my site, and you buy anything, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)
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Full Disclosure: long BRK/B for clients and myself