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May 31, 2000
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Re: Berkshire Versus General Electric
I think GE has one significant advantage over BRK .. it has a history and culture that drives them to be number one in any and all operating company sectors. BRK seems to wait for nice things (lots of family owned businesses) to come along.
In my opinion it is Advantage Berkshire. See's is not one of the largest candy companies in the world, but pound for pound I would not trade it for any others. Look at Scott Fetzer, a hodgepodge of dusty industrial companies that represent a wide cross section of American enterprise. There is nothing impressive about Scott Fetzer except that it earns over 100% on its equity every year. And dollar for dollar, would you rather have the world's largest furniture retailer, or NFM?
There is more than one way to get into investment heaven. And there is more than one way of getting into Enterprise heaven. General Electric must have a very frantic operation, always being forced to stay at the top, conquer or die. General Electric works in very broad strokes indeed, ignoring the subtly of lighting ( pun intended ) and shadow.
I like to think of Warren Buffett, sitting in his office, doing nothing. No frantic, wealth destructive plans of world wide domination here. If we have a sustained competitive advantage along with our industry leadership, such as in FlightSafety or Executive Jet, we will protect it. But if and when the sustained competitive advantage is permanently jeopardized, we will refuse to fight reality, letting it find the operational mode that makes the most economic sense. At Berkshire Hathaway, there is no requirement that its operations fit into any vision statement. I can rest assured that Warren Buffett will not engage in an insane bidding war to become or maintain being the market leader in anything if such activity leads to only the preservation of egos and not financial results. Maybe GE will not either, I don't know. But I also don't know who will be running GE two years from now, but I do know who will be doing the capital allocation and acquisitions for Berkshire Hathaway. And being required to be number one or two, is a temptation to go to any lengths to stay at one or two, whether the economic are there or not.
We lament the fact that Buffett is forced to hunt for Elephants, that the rising dollar value of assets at Berkshire Hathaway forces it to look to a smaller and smaller number of opportunities. But Berkshire Hathaway is a case study in flexibility compared to GE. It has the same size problems as Berkshire, but an added limitation as well: it will only act if it can be a market leader. No See's Candies, Scott Fetzer, Buffalo News or Nebraska Furniture Mart for it.
Any company can aspire to be a world leader in its industry. And many companies are foolish enough to try to do it. But how many companies have a reputation as being a home for outstanding business enterprises, where the former owners can still run the operations, where the word of management is its bond, where all threats of divestiture for poor performance are removed, where the only mission statement is to be honest and operate your business like you owned it and where you can manage your business for the rest of your life, free of home office meddling? As far as I know there is only one, and it is in Omaha.
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