March 01, 2022
We are running the *free* annual WBRG (World of Business Reading Group – inspired by Warren Buffett) again for high school and college students this summer (one night a week for six weeks beginning Jun 12 via Zoom).
If you have high school or college students who are interested in business — or simply learning more about business, then encourage them to check out our online PDF with more details and a link to apply here: WBRG.org.
I started this during the pandemic and it was a big hit.
It’s free, the teachers are Harvard MBAs, no business or finance experience is required, and we seek gender parity (and many young women have really enjoyed it). What’s not to like?
We’d love to have one or more of your kids join.
While I’m talking about Buffett, I also want to remind you that I will be hosting our special conference/weekend this year as part of Buffett’s “Woodstock for Capitalism.”
And for 2022 I’ve added a special element: you can bring your high school/college-aged kids with you and we’ll have some separate programming for them (you don’t have to bring kids, but you can).
At the meeting in Omaha, I will ask four students to deliver brief presentations on each of these four businesses. That’s right your students will be your teachers.
More info and registration details (or reach out if you have questions about Omaha or about WBRG).
You’ve got to come out at least once – and who knows how much longer Buffett will be doing this (he’s 91 years old after all).
Finally, whatever you do, I encourage you to read this year’s letter from Buffett, which came out last Saturday. You’ll find no better insights into business, finance, and even a little bit of life.
Phyl
P.S. A few highlights below from this year’s letter.
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1. Berkshire’s perpetual motion machine
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Buffett’s greatest gift is his least understood.
Many think of him as a great investor (and he is), or as a great philanthropist who has given all his money away without concern for his name being attached (yes, he’s done that). Others think that his insights into business, finance, even customer experience are important (and they are).
Still others believe he’s a moderate Democrat and no libertarian (and that’s correct).
Yet, his greatest gift to us is this: in a company of 372,000 employees, and 90 operating divisions like Geico or Burlington Northern Railroad, there are how many people at headquarters?
How many to run this huge company and set up all kinds of bureaucratic processes?
What’s your guess? Don’t peek below….close your eyes and guess.
~26.
That’s right.
The question that has animated Buffett for decades is: how do you build a large sustaining enterprise that does not develop, like barnacles, the bureaucracy that kills entrepreneurial spirit?
I think he’s found it and, as a result (and we’ll discuss this more in Omaha), he’s created something akin to a perpetual motion machine.
Another way to put it is Buffett has developed one of the purest forms of capitalism out there – and that’s worth understanding especially in an age where capitalism has a growing number of critics.
And, by the way, if you understand this, you’ll understand some other things about Buffett including why he doesn’t get behind certain trendy initiatives that create more bureaucracy.
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2. Honesty and trust
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The shareholder letter begins with Buffett’s characteristic honesty and respect for shareholders.
They have a built a ‘web of trust’ at Berkshire, which is part of why they are successful at radical decentralization and have so little bureaucracy.
But lots of people talk about honesty and trust. Few practice it the way they do.
It’s powerful and even emotional to experience.
And you can see it right in the letter.
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3. Business pickers
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Many think of Buffett as a great investor and ‘stock-picker.’
As Buffett makes clear again in this year’s letter, he rejects the term ‘stock-picker.’ Instead, he’s a ‘business-picker’ meaning that he thinks about durable business advantage.
He’s probably the best business thinker out there.
And as I tell my students in the WBRG program, they can learn from Buffett to guide them in choosing good companies to work for.
In addition to fighting bureaucracy and “organizational inertia” (see point 1 above), Buffett has constantly asked the following question throughout his life: what makes a good business?
Interestingly, and this is an important lesson, his answer has evolved over the decades as the world has changed.
Famous for having an ‘inner scorecard’, Buffett doesn’t simply follow trends, but he does change.
He started out looking for companies with more cash on the balance sheet than their total market cap. These were often ‘cigar butts’ (I’ll explain this more in Omaha).
But beginning in the 1960s with his purchase of American Express during a salad-oil scandal (you read that right — you’ll learn more about this soybean snafu in Omaha), Buffett began to see that customer experience was critical.
His purchase of See’s Candies in 1972 really drove that home (and, yes, you’ll get some See’s Candies if you come to Omaha with us – which may be the best reason to come 😉
In fact, you can draw a straight line from See’s Candies to his purchase of Apple, which to date has produced the single largest absolute investment gain in the history of capitalism – something like $120 billion and counting.
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4. The 4 big businesses of Berkshire
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While there are 90 divisions, there are really 4 big businesses that matter in Berkshire, as Buffett explains again in this year’s letter:
– Insurance (it’s what’s made everything possible)
– Railroad
– Utility (they have built more wind power than almost anyone)
– Apple (Buffett considers Apple and the 5% they own as one of Berkshire’s big 4)
The insurance, railroad, and utility businesses are going to be around for a long time and their businesses have durable competitive advantage. Their utility delivers power, a lot of it renewable, at rates way below the competition – and, unlike other utilities, they retain their profits for investments in infrastructure and growth. This provides a real advantage and tremendous shareholder benefit (Buffett points out in the letter that Berkshire owns more infrastructure than any other company in the U.S.).
Railroads are a key part of their infrastructure and are a backbone to supply chains. Tt’s unlikely that any new ones will be built (that would be incredibly expensive) – and further Buffett has resisted Wall Street pressure to embrace a pre-pandemic trend that left other railroads vulnerable (we’ll talk about that).
No one runs insurance businesses like Buffett. Not only are Berkshire’s insurance businesses some of the biggest in the world, but they, unlike competitors, deliver consistent underwriting profitability *and* they supply nearly $150 billion of float, which I’ll explain in Omaha, Buffett gets to invest. While most insurance companies lose money on underwriting and then invest float in low-interest bonds, Buffett makes money in underwriting and invests float in companies like…Apple.
Apple has built a great ecosystem and brand – and we’ll explain not just that, which you likely already understand, but how Buffett views it as a “Berkshire business.”
There is much else worth reading in this year’s letter.
Enjoy!
Phyl
P.P.S. Below I’m surfing Sol Lewitt at Mass MOCA (a museum in the Berkshires). Our 2021 Slow Art Day annual report just came out – I started Slow Art Day in 2010 as a way to reimagine the museum experience and it’s grown to include 1,500 museums all over the world. Now a great volunteer team runs this with me including fellow CG member Ashley Moran at Comcast.
