www.berkshirebeyondbuffett.com www.berkshirebeyondbuffett.com BUFFETT FANS / BERKSHIRE SKEPTICS BERKSHIRE BUILDERS BERKSHIRE OWNERS BERKSHIRE DIRECTORS Guyman W. Buffett Scott H. Buffett Olson Decker Munger Gottesman Murphy Gates Burke Witmer Keough “. Buffett immediately suggested Tom Murphy, a legendary businessman whom Warren said he had tried to model himself after. Warren later added a further explanation: ‘Most of what I’ve learned about management, I learned from Murph. I kick myself, because I should have applied it much earlier.’” Cunningham, Author’s Note “From afar, it may look like Berkshire’s wide-ranging businesses are very different from one another. In fact, as Larry’s book discusses, though they span industries, they are united by certain key values, like managerial autonomy, entrepreneurship, frugality and integrity.” -- Tom Murphy, Foreword Size by Employees > 40,000 BNSF > 30,000 Fruit of the Loom > 20,000 GEICO, McLane, Shaw > 15,000 Marmon, BH Energy > 10,000 Clayton Homes, ISCAR/IMC > 5,000 Forest River, Johns Manville, Lubrizol, Net Jets, Scott Fetzer > 2,500 BH Media, CTB, Flight Safety, Garan, Nebraska Furniture Mart, Richline, TTI > 1,000 Ben Bridge Jeweler and 10 other non-insurance subsidiaries < 1,000 A different 11 non-insurance subs; all insurance subs but GEICO and Gen Re Fortune 500 Level Subs Revenues (billions) Pre-tax Earnings (millions) McLane $45.9 BNSF $5,900 BNSF 22.0 BH Energy 1,800 GEICO 18.5 NICO 1,700 BH Energy 12.7 Marmon Group 1,200 NICO 12.0 Lubrizol 1,200 Marmon Group 7.0 GEICO 1,100 Lubrizol 6.1 McLane 500 Gen Re 5.9 Gen Re 300 Acquisition Size Billion Dollar Acquisitions Million Dollar Acquisitions $44.0 BNSF $835 Fruit of the Loom 22.0 Gen Re 725 Net Jets 9.7 Lubrizol 600 Justin (boots) 9.0 BH Energy 590 XTRA 9.0 Marmon (glom) 585 Dairy Queen 6.0 ISCAR/IMC 467 CORT 2.5+ GEICO 320 Scott Fetzer 2.0 Shaw (carpets) 180 CTB 1.8 Johns Manville 175 R. C. Willey 1.7 Clayton Homes <100 See’s, Fechheimer, KBS 1.5 FlightSafety; McLane 1.0 Benjamin Moore Valuation Ratios Price-to-Earnings Price-to-Book Value 8-10 Fruit of the Loom, Garan 1-2 Clayton, CTB, Garan 11-13 Johns Manville, Lubrizol 2-3 Benjamin Moore, Manville 14-17 Clayton, Benjamin 3-4 BNSF, Shaw Moore 4-5 Lubrizol 18-22 Shaw 23-30 BNSF, CTB >5 BH Energy >30 BH Energy Subsidiary Headquarters “Berkshire Hathaway is an accident.” Berkshire’s Acquisition Criteria Minimum Size (Earnings) * Proven Profitability Good Unleveraged Returns * Management in Place Basic Business * Fair Price Berkshire’s Cultural Traits Thrift * Earnestness * Integrity Kinship * Entrepreneurship * Autonomy Investor savvy * Rudimentary * Permanence Geico executives are “cost-conscious connoisseurs,” said Lawrence Cunningham, author of a coming book on Berkshire and a professor at George Washington University. “At headquarters, they're as thrifty as can be….Geico is the quintessential Berkshire company.” --Anupreeta Das, Wall Street Journal “Unlike others in the manufactured home industry, Clayton didn’t boost sales during the housing boom by pushing loans to buyers who couldn’t afford them, Cunningham says. Clayton’s rivals lured shaky buyers with low teaser interest rates. That cost Clayton business in the short run, stuck as fourth in the industry in 1999. After the financial crisis of 2008, Clayton’s rivals imploded and Clayton turned out as No. 1, Cunningham says.” --Matt Krantz, USA Today NICO and Gen Re insure large and unusual risks, from nuclear accidents and terrorism to the chance of a contestant picking the exact outcome of the NCAA men’s basketball tournament. Customers pay for the reliability of their promises and the companies pocket the premium premiums. Deft acquisitiveness runs in the Berkshire family: * Periodic opportunism Lubrizol, Clayton, Forest River * Historical Element Marmon, Mi-Tek * Driving Strategy BH Energy, BH Media, BH Home Services “. a conviction that people properly entrusted with authority will generally exercise it faithfully.” Chapter 10, Hands off “Berkshire’s secret to managing a large complex organization is to manage parsimoniously—as little as possible.” Chapter 16, B.E.R.K.S.H.I.R.E. “Berkshire is not often thought of as an orphanage for the corporate homeless, but it has given permanent homes to many, a Boys Town for business. At least seven subsidiaries found refuge in Berkshire after suffering from serial ownership by successive parents, leveraged buyout operators, private equity firms, or bankruptcy trustees—all working under short-term time frames.” Chapter 11, Eternal www.berkshirebeyondbuffett.com Succession Plan Chairman Shareholder Chief Inv. Officer Chief Exec. Officer +Gradual Changing Deep Portfolio Executive -Activism Relevance Bench Challenges Executive CIO Market Portfolio CEO Breadth Shareholder Showdowns Operational Violate thrift (Net Jets) Violate earnestness (Benjamin Moore) Trigger costs of autonomy (Sokol and Lubrizol) “Berkshire’s secret to managing a large complex organization is to manage parsimoniously—as little as possible.” ● Be frugal, including by avoiding debt ● Reinvest, including by acquisitions ● Nurture entrepreneurship ● Stick to your knitting ● Offer autonomy to business teammates ● Family businesses need identity and legacy ● Make money, eyeing the long term ● Manage knowing people value intangibles ● Above all, stress integrity .