The Story of Berkshire Hathaway: How Warren Buffett Built an Empire w/ Jacob McDonough (TIP573)

Clay is joined by Jacob McDonough to discuss Berkshire’s Beginnings. In this episode, you’ll learn how Buffett was able to turn the business around and make its way to eventually becoming worth nearly $800 billion in 2023.

Jacob is the author of the book Capital Allocation, which covers the financials of Berkshire Hathaway from 1955 through 1985, and he’s the host of the 10-K podcast, where he dives into the annual reports of various companies from decades ago, such as Geico and GM.

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IN THIS EPISODE, YOU’LL LEARN:
0:00:00 - Intro
0:00:28 - Why purchasing Berkshire Hathaway’s stock was one of Buffett’s worst investment decisions.
0:04:54 - How cheap Berkshire’s stock was when Buffett purchased it.
0:07:38 - The initial steps Buffett took to turn Berkshire’s business around.
0:13:26 - Why Buffett’s emphasis on cutting costs was so critical to Berkshire’s early success in the mid-1960s.
0:18:33 - The pivotal moment in 1967 that changed everything for Berkshire Hathaway.
0:21:30 - How National Indemnity’s valuation compared to the textile business.
0:24:54 - How insurance float helped supercharge Berkshire’s growth.
0:29:27 - The advantages Berkshire gained by getting into the insurance industry.
0:36:11 - What got Buffett and Munger into purchasing shares in Blue Chip Stamps.
0:44:47 - Buffett’s unconventional use of debt in expanding operations.
0:47:29 - What fueled the 1970s expansion phase.
0:52:36 - What led Geico’s stock to drop 96% in the 1970s.
0:57:29 - How Warren Buffett and Charlie Munger met.
1:05:40 - The financials and story of one of Berkshire’s best investments ever - See’s Candy.
1:14:07 - How Jacob thinks about different return metrics when analyzing a company.
1:17:26 - Jacob’s biggest takeaways from studying the history of Berkshire Hathaway.

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On We Study Billionaires, we interview and study famous financial billionaires including Warren Buffett, Bill Gates, and Ray Dalio. We teach you what we learn and how you can apply their investment strategies in the stock market.

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[maikvoets]

13:25 Well, this is the trick right!? Go back to what you mentioned at the beginning -> it was a capital intensive business where lots of capital was tied up in the supply chain of this textile mill. When you wind down such type of business that capital gets released. It’s the winding down that gave him the ability to relocate that capital. Still genius move though!

[PhillCurtis]

Ill have to take a look at the book capital allocation 👍

[mattp]

there are at least 2 papers I have read showing thar all of buffet's returns come from his aggressive use of leverage...he actually underperformed significantly via his stock picks, ie he should have just used an index fund rather than pick stocks

[PhillCurtis]

Snow ball - alice schroder, good book 👍

[latinthunder]

Thank you!! Great episode. Looking forward to reading the book.

[voicuioanpaul]

Great stuff really fascinating insight