This 104 Year-Old Woman Taught Billionaire Warren Buffett a Lesson He'll Never Forget

One piece of wisdom she imparted to the generations following her was, "If you have the lowest price, customers will find you at the bottom of a river."

It turns out one of the best pieces of wisdom Warren Buffett received didn't come from Wall Street, but a woman who sold the business she started with $500 to Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) for $60 million. 

Buffett and Blumkin. Nebraska Furniture Mart. 

The little business that could
Much has been made of the various businesses Buffett has acquired to build his empire, and one that has been instrumental is Nebraska Furniture Mart. Founded by Rose Blumkin -- affectionately known as Mrs. B, and the woman Buffett cited in the quote you see above -- in 1937, it has become one of the most successful furniture retailers in the country.

When Buffett bought the store in 1983, he remarked:

Today Nebraska Furniture Mart generates over $100 million of sales annually out of one 200,000 square-foot store. No other home furnishings store in the country comes close to that volume. That single store also sells more furniture, carpets, and appliances than do all Omaha competitors combined. 

In 1984, sales spiked another 15% and in its first full year it contributed $14.5 million to the $90 million of operating earnings at Berkshire Hathaway.  And that growth hasn't stopped, as its stores in Omaha and Kansas City netted about $450 million each in sales last year.

And with the store in Dallas being built now, Buffett said he predicts "the Texas store will blow these records away."

So how has NFM been so successful? It turns out the answer reveals why Berkshire Hathaway has major positions in both Wal-Mart (NYSE: WMT  ) and Costco (NASDAQ: COST  ) .

The bottom of the river
With the opening of the Kansas City Nebraska Furniture Mart in 2003, Buffett penned the above quote. It's evidence he believes providing cost advantage to customers can be one of the strongest competitive advantages.

In his 2007 letter to Berkshire Hathaway shareholders, Buffett said businesses need a "moat," to protect them, and "formidable barrier such as a company's being the low-cost producer (GEICO, Costco) or possessing a powerful worldwide brand (Coca-ColaGilletteAmerican Express) is essential for sustained success."

After all, it's this low cost lead that has allowed GEICO to watch its policies grow from just 2.5% of the U.S. insurance market when Berkshire fully acquired it in 1995 to more than 10% in 2014. In total, it's increased its policies by nearly $16 billion, from $2.8 billion to $18.6 billion. And one of the biggest reasons behind this growth is its ability to offer the lowest price to customers.

Buffett said this year while "no one likes to buy auto insurance," it's a necessity, and as a result, "savings matter to [families] – and only a low-cost operation can deliver these." In his words:

GEICO's cost advantage is the factor that has enabled the company to gobble up market share year after year. Its low costs create a moat – an enduring one – that competitors are unable to cross.

Remember it was just a few weeks ago when we learned Buffett grew its holdings of Wal-Mart by 17% through the first three months of the year. And what does Wal-Mart offer its customers? Products they need at low costs.

Or in its words, the opportunity to: "Save money. Live Better."

While the Costco holding of Berkshire Hathaway is much smaller than its Wal-Mart position -- $500 million versus nearly $4.5 billion -- it too is best known for the savings it offers customers.

The key takeaway
Buffett concluded his discussion on the Manufacturing, Service and Retailing Operations of Berkshire Hathaway this year by telling us:

Aspiring business managers should look hard at the plain, but rare, attributes that produced Mrs. B's incredible success. Students from 40 universities visit me every year, and I have them start the day with a visit to NFM. If they absorb Mrs. B's lessons, they need none from me.

Whether running a business, or looking for one to invest in, we too must recognize how powerful low prices can be.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2014, at 2:42 PM, mvshark wrote:

    Patrick Morris, here is my something you should take away from my comment: LESSON #1. The word is LESSON.

  • Report this Comment On June 08, 2014, at 2:52 PM, wilky1985 wrote:

    Kind of hard to believe that something like this would even be published with such and easily caught error.

  • Report this Comment On June 08, 2014, at 3:37 PM, janland17 wrote:

    I agree with mvshark. While part of Motley Fool's slogan is "to amuse," please check your spelling or you'll convey unintended meaning. Even Yahoo! picked up your story and they did not bother to correct the "lession" that was learned. Sounds painful.

  • Report this Comment On June 08, 2014, at 3:51 PM, dickbutt wrote:

    What's a "lession"? Seriously? How can you expect anyone to take a publication seriously with such a lazy error?

  • Report this Comment On June 08, 2014, at 5:06 PM, madmilker wrote:

    Maybe if the American consumer had learn its "lession" back in 1975 the US would not of had the past 38 years of trade deficits and accumulated another $16.5 trillion of debt.

    Wal*Mart ain't saving no one sh!!...

    It commissioned super cargo ships years ago to bring Made In China to America. It's said that each of those ships pollute as much as 50 million cars each year. Do you see the cost of that pollution on a dang Wal*Mart receipt...NO..!

    It cost over $9 billion a year from all taxpayers just to clean the ballast tanks of ships...Do you see why as a consumer all that so-call cheaper foreign ain't cheap but actually in the long run cost more.

    Retail makes NOTHING.....it only moves a countries currency....PERIOD.!!

    America wasn't built by a dang Retailer.

    You people have set here for the past thirty-eight years and watch the wealth leave America.....38 straight years of trade deficits and there will come a day that all the US dollars will be held by foreigners......Whatcha you gonna do on that dang day... give your hard earn soul for some of that so-call foreign cheap sh!!...because you sure as sh!! ain't gonna give a George Washington.

    The US dollar use to be the World currency....because Americans were proud of Made In America and a foreign would give their left nut just to hold a George in their hand...

    US dollars floated around these union of states and the few that did go to foreigners came back in the way of those foreigners purchasing what Americans produce.

    WELL, Wal*Mart puts less than 5% foreign in all its stores in China. Is that depriving the consumers of China from purchasing foreign made OR....is it to make sure the Chinese yuan stays in China floating around in the hands of the Chinese and being used as fuel to make MORE...

    GROW UP..!!

    A trade with the world has to be FREE but most important it has to be FAIR.

    38 damn years of trade deficits sure ain't fair and the likes of a Wal*Mart, Sears, Kmart, Costco, Home Depot, Lowes or any of the other American Corporate Geedy turnips that only look to their pocket book and not at what is good for America and Americans....

    THAT INCLUDES WARREN BUFFETT AND HIS DANG CHOO CHOO and those few ignorant rich turnips that think another 1400 miles of pipeline will be harmful even though there is over 2.5 million miles of pipeline under US.

    Oh!

    most likely the person that wrote this cares less about what is written here...

    Just like most of the ones that commented about his written lesson....

    Good day and God Bless

  • Report this Comment On June 08, 2014, at 5:38 PM, madmilker wrote:

    Lession #2 would be nice....it's about posting what people comment here ....

    because when one doesn't....

    Lession #3 is about it biting them in the butt later...

  • Report this Comment On June 08, 2014, at 7:14 PM, calanus wrote:

    Imports only show up on the shelves when customers buy them. If madmilker and friends had avoided all foreign made items 30+ years ago, there would have been no demand and the flow would stop. Whether it comes from China, Brazil, Taiwan, Japan, or Indonesia is not the critical factor. When American manufacturers have their goods made offshore and then slap their own tag on the product, it still is not American. So why not direct your tirade against GE, Westinghouse, RCA, and all the rest rather than the retail outlets? The retailers are not the manufacturers. You may be better off looking at the increased level of governmental regulations and restrictions that sent our manufacturers offshore in the first place.

    Check labels in the grocery stores - it is almost impossible to buy anything that is completely made in the USA of USA ingredients and packaging. Do you refuse to buy anything not made in the US? If you are not part of the solution, you are part of the problem.

  • Report this Comment On June 09, 2014, at 10:45 AM, Interventizio wrote:

    Somebody has time to waste here. Good for them.

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