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Since I have been a shareholder of Berkshire Hathaway (NYSE: BRK.A), I have enjoyed reading with great interest the musings of company chairman Warren Buffett as he gives almost a play-by-play review of the year in his letter to shareholders. He writes in a tone I would compare to Will Rogers, the writer, actor, comedian, cowboy and former mayor of Beverly Hills.
"My pal Warren" highlights both the triumphs and disasters of the year and his own perspective of the State of the Union and the economy like only he can. I strongly recommend investors take the time to read his letter(s).
One of the most often referred to items in Buffett's letters is regarding the quality of the management at each of the companies that Berkshire owns, or has major stock holdings in. There are many shrewd investors who will make a convincing argument that the quality of management is the highest priority.
He glowingly speaks of the wisdom, integrity and hard work of his management partners. He openly states that one reason that most of Berkshire acquisitions tend to work so well is the mutual appreciation of these character traits they all share. Unlike many companies that look to make money by shaking up the management structure, Buffett bases his investment strategy on keeping the strong management that built the enterprise in place.
He and his partner vice-chairman Charlie Munger, a brilliant man in his own right, often quip that most of the managers of his enterprises are very wealthy and do not need to work, so he considers himself the world's greatest cheerleader, keeping them interested in their jobs. He says he is lucky they are all so motivated that this is an easy task.
Given that good managers tend to be very involved in the detailed operations and major decisions of the company, their ability to grapple with a wide range of issues from budget appropriations, to product development, to key hiring decisions and marketing is essential to success.
When you think of the success of Apple Inc. (NASDAQ: AAPL) you think of Steve Jobs. When Microsoft Inc. (NASDAQ: MSFT) comes up in a conversation, Bill Gates comes to mind. Most certainly the remarkable success of Berkshire Hathaway itself is inseparable from Warren Buffett.
In the deplorable risk management in the financial sector we have witnessed the firing of CEOs at Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER), while CEOs Jamie Dimon of JP Morgan Chase (NYSE: JPM) and Lloyd C. Blankfein of Goldman Sachs (NYSE: GS) look brilliant in comparison.
Who is in the hot seat now? None other than Jeffrey Immelt of General Electric (NYSE: GE), who was hand picked for the job by a leader of historic proportions, Jack Welch, only to reign over a company that has seen its stock price shed value for the last six years. This might have been Welch's only bad call, but finding the right leaders is a challenge so it is no surprise that when you find one you should be able to ride him all the way to the bank!
You can find Buffett's letters on the company website or refer to Everything Warren Buffett for this year's letter, and past years as well.
Previous stories in the series:
- Serious Money: The page on Buffett -- Part I: your understanding
- Serious Money: The page on Buffett -- Part II: Dividends
- Serious Money: The page on Buffett -- Part III: Price-to-book
- Serious Money: The page on Buffett -- Part IV: Durable Competitve Advantage
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B.
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Reader Comments (Page 1 of 1)
4-17-2008 @ 8:27PM
Bernard Biales said...
Welch left Immelt with some bogus financials to work out. Also, if you are a fan of Buffett, the question of the performance of the company, not the stock, is the one to ask.
Bernard B
4-17-2008 @ 10:09PM
Beltway Greg said...
Please Sheldon give young Jeff a break. Most if not all of the divisions of GE are doing very well, the one that has stumbled the most? GE Capital. Problems with banks and credit who'd a thunk it? Jack Welch is a shrewd dude but his Greenspanesque exhortations from the sidelines are a bit premature. Hmmm. They missed by a penny in a market that has missed a number of pennies in the last couple of months. Did Welch ever have to face a time as trying as the last couple of months? The world has changed in the last two decades. Financial markets were previously such cute, benign places. You called your Account Executive gave the ticket to Mary (or Marty) in the back office and the trade settled god knows when. Today maniacs like us are spoiling for a fight from the get go ready to pounce on anything thing that moved or missed. Look at Google in the after-hours today. Give Jeff a bit more time though I wouldn't buy the stock as the "House that Jack Built" is too exposed on too many levels. Basically, if everything is working on the macro level for GE you'll get much better growth someplace else because fortune will favor the smaller company (in regard to growth) instead of the global conglomerates like GE. It's just too diverse and invites trouble on many fronts and one of those fronts is bound to be disquiet at some point.
Beltway Greg
4-17-2008 @ 10:15PM
Sheldon L said...
Greg,
Re-Read, I only said he was in the hot seat, which is true. I pointed out the stock is down, also true, nothing more...otherwise I agree with your comments.
4-18-2008 @ 1:52AM
Beltway Greg said...
Crazy us, why doesn't Jack Welch send Jeff a copy of his book, "Winning," co-authored by former Harvard Bidness Review editor and now Mrs. Jack Welch, Suzy Welch. There ought to be a chapter to cover this mess in there somewhere. BTW, if Citi beats tomorrow day trade yourself to glory. All of you have my permission.
Beltway Greg