The 1 Money-Making Lesson Warren Buffett Wishes He Learned Earlier

Warren Buffett changed his billion-dollar empire for the better.

David Hanson
David Hanson
Aug 31, 2014 at 12:19PM

Over the past decade or so, Warren Buffett's Berkshire Hathaway has transformed from a company dependent on the success of its stock portfolio to a company leaning on operating businesses like energy and railroads. However, one of the biggest questions about the company going forward is, "what happens to these operations after its mastermind, Warren Buffett, is no longer running the show?"

To find some answers, Motley Fool analyst David Hanson recently sat down with Larry Cunningham, the author of The Essays of Warren Buffett: Lessons for Corporate America Warren Buffett himself said of the book, "Larry Cunningham has done a great job at collating our philosophy." Cunningham also has a new book coming out this fall, titled Berkshire Beyond Buffett: The Enduring Value of Values The book explores Berkshire's ability to live on after Buffett. In the following video, Cunningham explains the current model at Berkshire is the right one and how Warren Buffett learned to appreciate a strong operating business.

full transcript follows.

Hanson: Right, and you mentioned the "scores" of operating businesses at Berkshire Hathaway. One of the most underappreciated and under-covered aspects of Berkshire, in my opinion, over the last 5-10 years, has been the shift to a collection of operating businesses, rather than just a collection of stocks.

You and I were both at the Berkshire Hathaway annual meeting this year, and there were essentially no questions or discussions about the stock portfolio. It's kind of just in the background now, and the whole discussion is the collection of businesses.

My question to you is, do you think Buffett has transformed the company in that way to prepare it to live on after him? Or is it because that's the right move, regardless? Say he was only 50 years old; do you think he would still have this focus on operating businesses, rather than buying equities?

Cunningham: I think it's a great question, and I think there's an answer to it in my book. When I asked Warren who I should ask to write the forward to Berkshire Beyond Buffett, he instantly said, "Tom Murphy." Tom is the legendary executive who built up Capital Cities/ABC and ran it so successfully for years. It's a position Berkshire owned a big piece of, and invested in before it was acquired by Walt Disney Company.

I asked Warren, "Why Tom? Why do you suggest Tom?"

He said, "Tom is the manager that I have tried to emulate myself after."

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I said, "Wow. That's fascinating. Does he know that?"

Warren joked that, "No, Tom will probably deny it," but he said later -- following up in correspondence for the book, he added this statement that I quote right in the beginning. He said, "Everything I know about management, I learned from Tom Murphy, and I only kick myself that I learned it too late."

What he's saying is, this shift that you describe, in some ways it's a natural shift, and in some ways it fortuitously prepares the company, I think, for life beyond him. But what he's saying in that conversation is, "In my double-barreled approach to investing, I might have done better with more Murphy and less Graham, or at least I could have gotten in there sooner, buying these companies."

Tom's operating principles include those that you see at Berkshire; decentralization, enormous managerial autonomy, generous latitude, compensation programs. It's just a very healthy culture, so I think it just worked out this way fortuitously. But it will, I think, serve the shareholders, the continuing participants in Berkshire, well over many years to come.