153 - Great Management Matters (1970 Letter)

Welcome to Episode 6 of the "Becoming Buffett" Series! This week we discuss the 1970 letter to Berkshire Hathaway shareholders. Buffett's annual letters book: http://amzn.to/2ogVi4U Some brief notes: 1970  First letter signed by Buffett Very diverse earnings across various operations Bank had record earnings Insurance had some setbacks but still excellent returns Textile became more and more difficult and broke-even Highlights the value of diversifying Overall BH return of ~10% This is far better than would have been the case if BH had remained exclusively devoted to the textile business Again, reinforces why strategic diversification can be so valuable Continue to face strong headwinds in textile operations Actively working to make the most of the situation, including costly decisions to BH and employees Are we willing to make an honest assessment of our “business (household)” and make appropriate changes? Ex: cut expenses, take a step of faith and try to start a new income stream, etc. New insurance division will take years before a real evaluation can be made (long-term mindset) How long are we willing to wait for an investing thesis to play out? What if an investment loses money for 3 years, then returns 20%+ for 10 years straight, would that be worth the wait? Surety business Operated at a significant underwriting loss Contractor’s bond field was a disappointment Even Buffett and BH make investments that don't’ appear to work out, nobody is perfect at this! Launched a new business/subsidiary out of National Indemnity (insurance operation) and plan to open a new one in 1971 BH began launching new companies/subsidiaries This is a new method, methods so far: Full acquisitions Common stocks (no longer) Starting new businesses What options are on the table for you and I? Buffett is quick to celebrate his operational managers and give them credit Strong management is central to his acquisition philosophy Are you surrounding yourself with people smarter than you? Are you trusting your capital to people smarter than you? Are you humble enough to admit and act on this? Bonus: Would you hire yourself to manage your business? http://investorinthefamily.com/