Devoted to Managers and those that seek to improve their management skills

If a Business Generates Some Cash Berkshire Won't Sell It

Everything that Warren Buffett does is related to balance. Not in the negative sense of the word where some nothing is ever tried or a risk never taken, but in the sense of weighing everything out.

Even when you listen to many people that talk about Buffett and his tactics, many don't understand many of the reasons he does certain things.

For example, Buffett has commented that if a business is generating cash, Bershire (BRK-A) won't sell it; even if it's below expectations. On the other hand, neither will the company partake in an expensive rescue of a business if it is failing. Buffett even admits that his could potentially hurt performance.

The one thing that being in the insurance business does is to cause you to have the discipline of weighing out all the variables that result in measuring risk, against the cost of the premiums to accept that risk.

To me this, along with Buffett's staunch adherance to his principles, is the key to why he does these types of things. There are many things involved in the statement made above about not selling a lower performing company.

For one thing, the tax consequences in many of these deals could be huge, along with any capital gains taxes or other costs of doing the transaction. That's something that is being weighed. Because Buffett never would hire a poor manager, or buy into a company with a poor management team, you can be assured that if a business is failing, it is the sector the business is in, not those running it that are the cause.

Buffett mentions this at times that if a poor business is run by great managers, the reputation of the business will win in the end. In other words the managers will be made to look bad, even when it's the fault of the business or sector.

There are financial, human and corporate reasons that many of these things wouldn't be done by Buffett. In our own businesses we need to understand to our fullest ability the consequences of getting rid of businesses or departments etc. The costs can be far more than we can ever imagine if we don't weigh things carefully.

Other Buffett Resources:

Company growth

“Everybody Else is Doing it”

MSU students have special visit with billionaire Warren Buffett

WARREN BUFFETT PHILOSOPHY II

Sticking to what you know  Core businesses

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