During the 2014 Berkshire Hathaway Annual Meeting, Warren Buffett explained why he continues to hold businesses that are unprofitable. Here’s an excerpt from the meeting:
Q. Berkshire is known to buy companies for many years. But that wasn’t the same earlier in your career. What do you do to gain the trust of founders/owners of companies you’ve bought out in the past?
Warren: We have kept our word. We are careful about what we promise. We can’t promise not to have a layoff. We can promise not to sell the business unless it has significant loses or labor problems. We do keep certain businesses that you wouldn’t get a passing grade in business school if you wrote down your reasons. We keep them because we made a promise, which we write in the back of our annual report.
We can’t make the promise we’ll never break employment or sell a business, but we can keep the promise not to sell unless there is the prospect of unending losses or labor problems. If we didn’t keep our promises, word would get around. We have put ourselves in a class by ourselves for people that care about their business. It doesn’t matter to private equity — they don’t care. But some founders do care about the future of their businesses. They don’t want to see them torn apart by a few MBAs that want to show their stuff.
We have a unique asset in Berkshire, and we’ll maintain it as long as we behave ourselves. Its valuable, and it’s how we like to operate.
Charlie: Obviously, we behave the way we do because we like doing it. We’re doing pretty well, and we’re unlikely to stop.
Warren: You can tell he doesn’t get paid by the word.
You can find excerpts from the meeting here:
Berkshire Hathaway 2014 Annual Meeting – Transcript
Video of the full meeting here:
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