Warren Buffett.
Getty Images / Bill Pugliano
Warren Buffett’s Berkshire Hathaway is the result of an incredible turnaround, says Jacob McDonough.
The author explains that it was unlikely that the company would be successful because it was the result of three failed companies.
The historian praised Pilot, now fully owned by Berkshire, for its attractive brand and real estate.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by an editor.
The rise of Warren Buffett’s Berkshire Hathaway is a remarkable story of turnaround. So said the chronicler of the company’s early days, Jacob McDonough. “The Berkshire we know today was created from three failed companies,” McDonough told Business Insider. He is the author of Capital Allocation: The Financials of a New England Textile Mill 1955 – 1985.
He was referring to Diversified Retailing, Blue Chip Stamps and Berkshire, which was a textile company when Buffett acquired it in 1965. Buffett and his late business partner Charlie Munger merged the former two companies to form Berkshire in 1978 and 1983, respectively, after their retail and private label businesses shrank. In 1985 they closed Berkshire’s thriving textile business.
That left Buffett and Munger in a situation where three companies they had heavily invested in were virtually worthless just two decades later. But “Buffett not only saved his investments in these three companies, he turned them into a company that is approaching a $1 trillion valuation,” McDonough explains.
“Just surviving to this day would be impressive if you had a sheet of textiles, private labels and department stores in your hand, but the success that has been achieved despite these difficulties is even harder to comprehend,” he added.
McDonough attributed Berkshire Hathaway’s unlikely success to the flexibility and adaptability of its bosses. Buffett and Munger moved from store to store as needed. Eventually they created a widespread network of subsidiaries in insurance, energy, railroads, manufacturing, retail, services and other industries.
Berkshire now owns companies like Geico and Dairy Queen, as well as billion-dollar stakes in Apple, Kraft Heinz and other publicly traded companies.
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Ein Dairy Queen in Windsor Heights, Iowa.
Bryan Metzger/BI
Praise for Berkshire Hathaway’s latest deal: Pilot
McDonough praised Berkshire Hathaway’s recent deal, purchasing the final 20 percent of Pilot Travel Centers. The truck stop chain generated sales of around 70 billion US dollars (64.3 billion euros) in 2022 – more than Nike, Coca-Cola or Netflix.
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The founder and portfolio manager of McDonough Investments highlighted Buffett’s comments about Pilot properties during Berkshire’s annual meeting last year. Describing the “hundreds of hundreds of locations along the interstate,” the Berkshire CEO said, “There’s nothing like it.”
“They’re not going to move the interstate two miles to the right or anything like that,” Buffett added. “People will likely be traveling on the highways for decades to come, and Pilot should be in good locations to serve those customers,” McDonough said. “That’s a lasting advantage that would be difficult to destroy.”
He also noted Pilot’s strong brand and the consistent quality of experience the company offers compared to other truck stops. Buffett is famous for valuing “moats,” or persistent barriers to competition, such as brands and real estate, so it’s likely he bought Pilot in part because of its strengths on that front.
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