By Robert Miller and Ben Rundle| Portfolio Managers at NAOS Asset Management
During our recent trip to Omaha, we met with three Berkshire CEOs and a Berkshire board member. These meetings provided great insight into how Berkshire Hathaway has become one of the most successful companies in the world. Whilst listening to Warren Buffett and Charlie Munger for six hours on the Saturday provided some great nuggets of wisdom, meeting the managers that sit below him gave us a better feel of the recipe for success that has been consistently adhered to over the years.
“Culture is the single most unique thing about Berkshire Hathaway”- Kevin Clayton, Clayton Homes
Every one of the Berkshire representatives we met highlighted the importance of culture at the company. Don Wurster from National Indemnity told us he has no employment contract with Warren and he has no need to work for the money. Despite this he turns up every day because he wants to be there. An interesting fact about Berkshire Hathaway is that they have never lost a sitting CEO to a competitor.
“We went through 13 years of insurance volume decline because we focus only on profit rather than on volume or market share”- Don Wurster, National Indemnity
When Warren & Charlie buy a business, they do so using the following checklist which they never stray from:
- Proven profitability
- Good unlevered returns
- Management in place
- Basic business
- Fair price
Kevin Clayton told us that Warren offered $12.50 per share for Clayton Homes when he bought it and would not move one cent from that price despite the Clayton board wanting closer to $20. Kevin said he had never seen discipline like that.
“Lose money for our firm and I will be understanding, lose a shred of reputation and I will be ruthless”- Warren Buffett
Ron Olson has been a Berkshire board member for over 20 years. When looking at the management team of a company they are buying he looks for high intensity, high energy and high integrity. He stresses that if you find someone with only the first two, run a mile the other way! His recipe for dealing with a crisis is “get it out, get it right, get it over.”
Separately, Don Wurster told us he believes that interviewing is the worst way to find an employee, but rather it should be done based on reputation.
“Regardless of which industry you are in, if you have the highest levels of customer service you are likely to win the game”- Ron Blumkin, Nebraksa Furniture Mart
Ron Blumkin is the grandson of the famous Rose Blumkin or ‘Mrs B’ from Nebraksa Furniture Mart. When we sat down with Ron the most important message he could get across to us was that you can’t be a ‘me too’ operator, particularly in a tough industry like retail. For them, it is all about customer service. On internet retailing, his view is that the internet doesn’t make bricks and mortar fail, failure to change with the customer does that”.
“60% of Berkshire shareholders are individuals, whereas most companies are owned 75% by institutions”- Prof. Larry Cunningham, author, The Essays of Warren Buffett
A consistent theme from all the CEOs we spoke to is that Berkshire has a shareholder base that allows it to operate in a way that no other company does. We met Professor Larry Cunningham who wrote “The Essays of Warren Buffett”, who stressed how important the shareholder base was to the success of Berkshire. He believes this has been achieved by years of consistent and transparent communication to shareholders.
One of the key messages we took away from spending the weekend in Omaha is just how much emphasis Warren, Charlie and Berkshire’s collective group of CEOs place on non-financial metrics. Obviously, the financials are incredibly important, but the other ingredients are essential for Berkshire to pursue an opportunity. We found the trip to Omaha incredibly insightful and believe the collective wisdom of the Berkshire Hathaway managers can be applied not only to financial markets, but also many other areas of life.
Read further Insights from the 2018 Berkshire Hathaway Annual Shareholders Meeting by Ben Rundle.
This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529 and is provided for general information purposes only and must not be construed as investment advice. It does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision, investors should consider obtaining professional investment advice that is tailored to their specific circumstances
Published: 21 May 2018