Berkshire Hathaway emphasizes an owner-oriented approach and values long-term partnership with shareholders.
Berkshire Hathaway leverages its conglomerate structure for financial strength and growth opportunities.
Berkshire Hathaway's commitment to long-term ownership aligns with shareholder interests and emphasizes value over short-term price movements.
Berkshire Hathaway prioritizes a culture of alignment and stewardship, treating shareholders as long-term owner-partners.
Deep dives
Berkshire's Distinctive Structure and Culture
Berkshire Hathaway's conglomerate structure provides capital allocation flexibility, low cost of capital, and a competitive advantage. The company views shareholders as long-term partners and emphasizes an owner-oriented approach. With an unmatched collection of businesses and dedicated managers, Berkshire prioritizes per-share progress and long-term capital growth. The company values a stable shareholder base and discourages short-term trading. The directors and management have a substantial portion of their net worth invested in Berkshire stock, ensuring alignment with shareholders. The culture fosters an enduring partnership mentality, and the company prioritizes delivering value to shareholders over short-term stock market fluctuations.
Berkshire's Five Owner-Related Business Principles
Berkshire Hathaway's owner-related business principles revolve around the concept of partnership. They view shareholders as owners and think of themselves as managing partners. The company focuses on delivering long-term progress rather than short-term results. The directors and management have significant personal investments in the business, reinforcing their commitment to shareholder value. Berkshire prioritizes per-share gains in intrinsic business value and measures success through per-share progress. They aim to maximize shareholder wealth and avoid actions solely benefiting management. Berkshire's goal is to maintain a stable shareholder base by providing an environment where shareholders see themselves as long-term partners.
Berkshire's Conglomerate Advantages
Berkshire Hathaway leverages its conglomerate structure to its advantage. It has an unmatched collection of businesses and an extraordinary diversity of earnings, offering financial strength and growth opportunities. The company's low turnover of shareholders and its non-managing partnership approach align with a long-term orientation. By being able to move funds between businesses and leverage scale, Berkshire can allocate capital rationally and at minimal cost. It strategically acquires pieces of outstanding businesses and benefits from tax and administrative efficiencies. Berkshire seeks to provide a permanent home to owners and managers of exceptional businesses, preserving their people and culture while enhancing financial strength and growth potential.
Berkshire's Commitment to Long-Term Ownership
Berkshire Hathaway's commitment to long-term ownership is a central tenet. Unlike most companies, Berkshire does not focus on short-term price movements, nor does it issue quarterly reports. Instead, it communicates directly with shareholders as managing partners to deliver comprehensive annual reports. Berkshire's strategic approach aligns with shareholder interests and long-term expectations. The company emphasizes the importance of owning a business rather than a piece of paper. With substantial personal investments in Berkshire, the management team leads by example and embraces the partnership concept. Promoting a long-term mindset, Berkshire seeks owners who understand the company's policies, approve of its strategic direction, and share common expectations.
Berkshire's Culture of Alignment and Stewardship
Berkshire Hathaway nurtures a culture of alignment and stewardship. The company values its shareholders as co-venturers, treating them as long-term owner-partners. It promotes an owner-focused attitude among directors and management. With substantial personal stakes in Berkshire, the management team is vested in the company's performance. Berkshire's distinctive structure and culture prioritize the long-term interests of shareholders. The company's commitment to maximizing intrinsic business value and maintaining a stable shareholder base reinforces its status as a preferred home for outstanding businesses.
Selling a business to Berkshire Hathaway
Warren Buffett explains why selling a business to Berkshire Hathaway offers advantages compared to other types of buyers: strategic acquirers and financial maneuverers. Berkshire Hathaway allows the current owners to continue running the business autonomously and adapts to their methods rather than imposing its own. Buffett promises to behave exactly as promised and emphasizes the importance of key members of the current management team remaining as owners. Berkshire Hathaway offers a fair price in cash, with no brokers involved, and Warren Buffett assures sellers that the deal will not be backed off at the last minute. He stresses the transparency, stability, and reliability of Berkshire Hathaway as a buyer.
Preserving wealth and aligning incentives
When acquiring a business, Buffett emphasizes that the seller will not be any wealthier after the sale, but the form of their wealth will change from owning an established business to holding cash and investing in other businesses. He candidly explains that Berkshire Hathaway needs 80% ownership to consolidate earnings for tax purposes, and emphasizes the importance of key members of the family continuing to run the business. Buffett also highlights the long-term focus and commitment to preserving the intrinsic value of the acquired businesses. He compares Berkshire Hathaway's track record to other buyers and invites potential sellers to check with their past acquisitions to validate the performance versus promises. Buffett ensures that the transaction will be fair and that he would be proud to have Berkshire Hathaway as a buyer.
An alternative to conventional buyers
Warren Buffett emphasizes how Berkshire Hathaway differs from other types of buyers, such as strategic acquirers or financial maneuverers. While these buyers often seek to assert control or focus on short-term gains, Berkshire Hathaway allows current owners to continue running the business autonomously and avoids imposing its own methods or interfering with day-to-day operations. Buffett describes Berkshire Hathaway as a unique buyer that aims to build long-term partnerships and operate businesses with stability and transparency. He assures potential sellers that any promises made will be upheld and highlights the commitment to retaining the culture and success of the acquired businesses.
The Essays of Warren Buffett by Lawrence Cunningham
For over 50 years, Warren Buffett has written an annual letter to Berkshire Hathaway's shareholders. Many people set it as a goal to read all of Warren’s shareholder letters chronologically. Which is certainly a fascinating way to see how Berkshire Hathaway evolved year after year.
This book is different. It breaks from this chronological order to instead group things Warren has said over the years by topic. So, for instance, you can see his ideas on the importance of culture or the power of incentives holistically — as a single body of work.
What I love about this book is the focus on Warren’s ideas. Warren Buffett has built one of the largest conglomerates in history — full I’d incredible companies from See’s Candies to GEICO — from a standing start in 1965. I would argue that if you only have time to study one entrepreneur and investor, that you should study Warren Buffett.
There’s no better way to do that than with this book. I know it’s one I’ll be rereading for the rest of my life.
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Notes & Transcript
Find my full notes and transcript for this episode at outlieracademy.com/warrens-essays.
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