The way Warren Buffett does it

Finally, back to my favourite topic, investing! It's been awhile since I've blogged about investing since my camp. And I'm quite excited to present to you this post this morning. I've just fi'nished reading a book about Berkshire Hathaway(Warren Buffett's company) and the companies in which it consists of. The main theme of the book was to explore the different personas of the managers in which Warren Buffett had bought the different companies from.

When Warren Buffett(WB) buys a company, he doesn't replace the management within. He often jokes that because he only has 9 and a 1/2 employees(one works from mond - thurs) he has no one to send over to the acquired company. That being so, he often buys the company with management in place. There are many great companies out there available at fair prices at which WB won't buy because of lack of the proper management. He looks for owner-managers where the owners are passionate about their businesses. They are all financially-independent but they still work because of the love of it. None of them has to work nor have a contract with WB obliging them to stay on but their whole arrangement is just based on trust and love for the work they do.

WB buys companies that are usually market leaders in their field. They are usually the top of some measurement for their industry in their field. The company might be a jeweller business who sells the most jewelleries per square foot retail space or it might be cheapest and giving the most value to customers among all its other competitors. Those businesses also tend to be private businesses. They are sold to WB because the owners are/were thinking about succession of the business and worried that the business will fail after they're gone. Among the list of buyers, the best one almost all the time would have to be Berkshire Hathaway under the directorship of WB.

The unique feature about Berkshire is that they buy and hold companies for great amounts of time. WB considers those companies he bought "partners for life". He will not sell them but treats it like a wholly-owned business in which there is no way he could sell it. When WB looks at a potential company, he just browses through a few years of financial statements. He doesn't usually visits the headquarters of the company because being so experienced in his field for about 50 years, he knows what he is looking for and doesn't need to do anything further. He would then meet up with the owners and ask them questions about their competitive advantage, their positioning and a little about the history of the company. He pays no regard to the financial statements at that time.

He would then ask them to give him some time whilst he comes up with a worth of what the company is to him at which he regards it as a fair price for the company. He then sends them the price figure and if they agree to it, the transaction takes place. It was just that simple. There were third parties interfering, no investment bankers, no lawyers of that sort. Almost everything was based on trust. WB often was able to get his worth within a few minutes. That amount of confidence in his own ability must have come from God and his many years of experience as an investor.

The whole book went through some of the famous companies WB bought such as HH Brown Shoe, See's Candies, Borsheim's Fine Jewelry, Nebraska Furniture Mart, Justin Industries, Executive Jet, GEICO Insurance, General Reinsurance and The Buffalo News. Berkshire Hathaway can be seen as a parent company which has a long line of fine businesses all hand-picked by WB himself. Berkshire Hathaway's stock is the most expensive stock in the world, listed in the US. If ever you are considering an investment and wealthy enough, a great choice would of course be Berkshire Hathaway.