The Warren Buffett Way

So as we spend the week watching yet another train wreck involving a jewelry retailer owned by a hedge fund, I was happy to come across these words by Warren Buffett, whose Berkshire Hathaway owns three jewelry retailers and one mega-wholesaler. Buffett was speaking — just yesterday — at the headquarters of Michael Anthony, one of the companies folded into his Richline Group:

 

“Berkshire has a policy started in 1965, when I became involved, to acquire terrific companies run by terrific people. And then I don’t have to do anything,” he said, getting appreciative laughter.

 

“But it’s worked. We don’t ever sell companies,” he said. “A lot of private equity firms, they talk about buying something with an exit strategy. Well, we have an entrance strategy, but we have no exit strategy. The idea is to build and build and build, whether it’s GEICO, whether it’s Dairy Queen, whether it’s, you name the company. We have 76 of them now.

 

“We trust our managers. They’ve earned that trust. They’ve delivered over the years, and we let them run their businesses,” Buffett said. “I take no credit for any of their successes, and I take no blame for any of their failures.”

 

Wise words, and timely. Of course, a lot of hedge funds give lip service to this. Take this quote from the CEO of the fund that bought Fortunoff in 2004:  ”Our job is to back good people that run a business and heaven knows that’s what we have here. We bought the business because it’s a wonderful business, not because we want to change it.” Then the company ended up selling its flagship store, made other changes, and we all know the story after that.

 

But Buffett seems to stick by it – to the extent of letting his jewelry companies run independently, and not forcing them to do business with each other, as we discussed here.

 

Obviously that is easy to do when you buy only “terrific” companies. When you are dealing with companies with problems — and Whitehall had difficulties for years – the answers aren’t so easy.

In many ways, this industry is caught in a paradox. It needs to change – badly. It needs to upgrade its marketing, its retail systems, its ways of doing business.  As someone said to me recently, the top jewelry retailers – the ones that are considered models for our industry, like Tiffany and Sterling – are still far behind retailers in other industries. That is no knock on them; they do a great job. But it does show this industry needs to modernize.

 

And yet in most (though certainly not all) cases, when outside people come in, it just doesn’t work. There is something about the jewelry business that doesn’t necessarily apply itself to the standard formulas. I am not sure why, but that is how it seems to be. So this industry needs to find ways of adopting new ideas (and people), without losing what has gotten it this far.

 
Of course, that is probably easier said that done, but it’s something to think about, at the end of yet another downbeat week. Any thoughts?

 

JCK News Director