Leaked: Warren Buffett's Recipe for Financial Success

Warren Buffett wants us to know the recipe for success at any company is simple, but tough to imitate.

Jun 29, 2014 at 1:13PM


All too often, we only think about the businesses Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) runs that we know by name. Fruit of the Loom. Geico. Heinz. But one of its businesses you've likely never heard of has a simple but remarkable history of success.

The big business that could
In May of 2006, for $4 billion, Berkshire Hathaway agreed to acquire 80% of Israel-based International Metalworking Companies (IMC), which provides metal cutting tools through ISCAR and other brands for business across the globe. The remaining 20% would be owned by the family. And it was in the 2006 letter to shareholders detailing why Berkshire made the purchase when Buffett wrote the quote found above.

Eitan Wertheimer, the chairman of IMC and member of the family who started it, wrote Buffett a 1.25 page letter asking if he'd like to buy it in 2005. In Buffett's own words, it has a "simple and profitable business model"; he and Charlie Munger couldn't turn it down when the opportunity to acquire it arose.

ISCAR makes a variety of small tools that are used by customers -- largely in the automotive, aerospace, and mold industries -- that operate massive machines for metal working. And while it's "groove-turn," "turning & threading," "hole making," "milling," and "tool holding," businesses won't grab headlines, its recipe for success should.

The recipe for success
In 2009, as the economy spun downwards, Buffett noted even though Iscar's results were "down significantly from 2008," he continued, "when manufacturing rebounds, Iscar will set new records." That didn't take long: Its profits rose by a staggering 159% in 2010.

So, how did it do that? Let's take another look at Buffett's words:

ISCAR makes money because it enables its customers to make more money. There is no better recipe for continued success.

Buffett has long touted the benefit of GEICO providing the least expensive insurance policy -- an unwanted requirement for Americans -- which has allowed it to take over the auto insurance industry little by little. In this year's letter, he said:

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.

And while it's a touch different, it's this business model that has allowed ISCAR to be successful. It provides value to its customers by ensuring there is a true benefit to their bottom lines when they use its products. It may not offer the cheapest tools, but it offers those with the most value.


Taking a step toward another Berkshire Hathaway investment consider, USG (NYSE:USG), or United States Gypsum Corporation. This non-exciting business manufactures drywall and other construction materials for residential and commercial properties. Like ISCAR, it isn't anything exciting, but it provides, "low-cost capacity and market-leading brands," which allows it to provide value to its customers. And as a result, it's "a leader in each of its three core businesses."  

So why bring up USG? While it too may be a small company that doesn't grab headlines, it's clearly one Buffett believes in. The $1.1 billion common stock position held by Berkshire Hathaway represents an ownership stake of more than 30%. 

The key takeaway
Last year, Warren Buffett shelled out $2.1 billion to buy the remaining 20% of IMC, meaning its value had more than doubled since 2006. Buffett said it "has enjoyed very significant growth over the last seven years," and he was "delighted to acquire," the remaining 20%.

Before you make your next investment, ask yourself if that business provides true and immediate value to its customers. If it does, the odds of a owning a long-term winner tip in your favor.  

Warren Buffett just bought nearly 9 million shares of this company
Buffett likes to buy companies neither you nor I have heard of, but offer great things to their customers. Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour. And the thing is, it too provides value to the people who use it. And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Patrick Morris owns shares of Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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