On B-H wide interests preventing excessive attachment to one industry: "That’s important: If horses had controlled investment decisions, there would have been no auto industry."
What Charlie Munger used to say when he disagreed: “Warren, think it over and you’ll agree with me because you’re smart and I’m right.”
On short- and long-term horizons: As Ben Graham said many decades ago: “In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.” Occasionally, the voting decisions of investors – amateurs and professionals alike – border on lunacy.
On the value B-H offers to its companies: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency
On giving at least 10 years to a CEO to perform: It’s hard to teach a new dog old tricks.
On hostile acquisitions: A caring owner, however – and there are plenty of them – usually does not want to leave his long-time associates sadly singing the old country song: “She got the goldmine, I got the shaft.”
On the "bias to action": There are worse things in life than having a prosperous business that one understands well. But sitting tight is seldom recommended by Wall Street. (Don’t ask the barber whether you need a haircut.)
Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20% to 50% premiums over market price for publicly-held businesses. The bankers tell the buyer that the premium is justified for “control value” and for the wonderful things that are going to happen once the acquirer’s CEO takes charge. (What acquisition-hungry manager will challenge that assertion?)
A few years later, bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to “unlock shareholder value.” Spin-offs, of course, strip the owning company of its purported “control value” without any compensating payment. The bankers explain that the spun-off company will flourish because its management will be more entrepreneurial, having been freed from the smothering bureaucracy of the parent company. (So much for that talented CEO we met earlier.)
(Mental “flexibility” of this sort by the banking fraternity has prompted the saying that fees too often lead to transactions rather than transactions leading to fees.)
On Jimmy Ling: But Charlie told me long ago to never underestimate the man who overestimates himself.
In 1967 Ling bought Wilson & Co., a huge meatpacker that also had interests in golf equipment and pharmaceuticals. Soon after, he split the parent into three businesses, Wilson & Co. (meatpacking), Wilson Sporting Goods and Wilson Pharmaceuticals, each of which was to be partially spun off. These companies quickly became known on Wall Street as Meatball, Golf Ball and Goof Ball.
[Comment: the Wilson tennis balls we used to play cricket with, which were always better than Cosco tennis balls, seem to be from this very same company!]
By the early 1970s, Ling’s empire was melting, and he himself had been spun off from LTV . . . that is, fired.
Charlie and I frequently get approached about acquisitions that don’t come close to meeting our tests: We’ve found that if you
advertise an interest in buying collies, a lot of people will call hoping to sell you their cocker spaniels. A line from a country song expresses our feeling about new ventures, turnarounds, or auction-like sales: “When the phone don’t ring, you’ll know it’s me.”