(Question)
CHARLIE MUNGER: Want me to answer that one?
They’re not worth nearly as much as growing businesses.
(Laughter)
WARREN BUFFETT: Well —
CHARLIE MUNGER: But they can still be quite valuable
if a lot of cash is going to come out of them.
WARREN BUFFETT: Yeah.
Generally speaking,
it pays to stay away from declining businesses.
It’s very hard.
You’d be amazed at the offerings of businesses we get
where they say, you know,
it’s — I don’t want to upset Charlie,
but they say, you know, it’s only six times EBITDA,
and then they project some future that doesn’t have any
meaning whatsoever.
If you really think a business is declining,
most of the time you should avoid it.
Now, we are in
several declining businesses.
You know,
the newspaper business is a declining business.
We will pay a price in that business.
We do think we understand it pretty well.
We will pay a price to be in that,
but that is not where we’re going to make the real money
at Berkshire.
The real money is going to be made by being in
in growing businesses,
and
that’s where the focus should be.
I would never spend a lot of time
trying to value
a declining business
and think, you know, I’m going to get one free
— what I call the cigar butt approach,
where you get one free puff out of the
cigar butt that you find.
It just isn’t —
the same amount of energy and
intelligence brought to other types of businesses
is just going to work out better.
And so we —
our general reaction, unless there’s some special case,
is to avoid new ones.
We’re playing out certain
declining businesses,
by their nature,
but you know,
we started with declining businesses.
We started with textiles in New England and
we tried U.S.-made shoes
and we’ve —
CHARLIE MUNGER: Department store in Baltimore.
WARREN BUFFETT: Department store in Baltimore.
Howard and Lexington Street.
CHARLIE MUNGER: Trading stamp company.
We’re specialists in — (Laughter)
WARREN BUFFETT: Yeah.
We have one business
We have one business that did 120 million or so of sales
in 1967 or ’8,
and what did we do last year, about 20,000?
CHARLIE MUNGER: Yes.
WARREN BUFFETT: 20,000. Yeah.
CHARLIE MUNGER: I presided over it myself.
(Laughter) WARREN BUFFETT: Yeah. Well,
I want to say I helped.
I mean, he didn’t do it all by himself.
CHARLIE MUNGER: No, no, but I sat there on the location
and watched the —
WARREN BUFFETT: We thought of bringing the sales chart
down here and turning it upside down to impress you,
but
Charlie is still in charge of this business. He’s —
(laughter)
I can’t get him to sell it,
but make me an offer.
(Laughs) CHARLIE MUNGER: If you think what came out
of those three declining businesses,
all of which failed,
it’s so many billions you —
it’s hard to imagine how much came out of it.
We’re not looking for an opportunity to do it again.
WARREN BUFFETT: No. But it was — in 1966 —
maybe we should, because in 1966,
Sandy Gottesman — one of
our directors and Charlie and I — we put $6 million into a company.
We called it Diversified Retailing,
although we only had one operation but, you know — (Laughter)
It was kind of like Angelo Mozilo calling his one location,
you know, in New York, Countrywide Mortgage,
at the time. (Laughter)
And we bought a department store at Howard and Lexington Street.
Now,
in our defense,
I would have to say there were four department stores
at Howard and Lexington Street in Baltimore,
and all four of them are gone.
But that $6 million
has turned into about $30 billion,
starting with that —
CHARLIE MUNGER: — failed business.
WARREN BUFFETT: Failed business. Yeah, yeah.
And of course,
Blue Chip Stamps was another example of that because
that was another company that —
and then, of course,
Berkshire was the textile business.
So we
we were sort of masochistic in the early days.
(Laughs)
Becky?
CHARLIE MUNGER: Ignorant, too.
(Laughter) WARREN BUFFETT: Yeah, OK.
(Laughter)
That was the word that came to mind,
but I didn’t really like to use it.
(sub)