First a Dream By Jim Clayton

[Saluki]

I really enjoyed this autobiography by Jim Clayton.  I'm convinced that most businesses are terrible and the profitability of most businesses depends on the operator.  That's why there are lot's of people with one struggling restaurant and a few people with a dozen thriving restaurants. 

 

Jim was in radio ad sales, used car sales, refurbished mobile home sales, mobile home manufacturing, real estate and eventually banking.  And he did well in everything. In my opinion it's always a good idea to get some insight into the mind of a successful operator because they are few and far between. The Clayton sale to Berkshire was very controversial at the time and the subject of a few law suits.  In this book you will see Jim's side of the story and why it was a great match for BRK and Clayton homes (BRK solved Clayton's problem of financing sales for their customers in a downturn so, unlike their competitors, they no longer had to rely on the kindness of strangers). 

 

My only critique of the book is that the typeface is so large that if the used a normal size font it would a 1/3 smaller and lighter.

 

I tend to avoid any company that relies on debt as part of their business model, but from looking at this and my previous efforts to understand auto manufacturers, and John Deere, a pattern is emerging for me that sometimes financing is best part of a business. If McDonalds' tells you that the money isn't in the hamburgers, it's in the real estate, well maybe for some businesses, the money isn't in the business, the money is in the money. 

 

Not a book, like Poor Charlies Alamanack, that will change your worldview, but a good fun read with some business lessons thrown in as well as cameos by a lot of famous musicians like Elvis and Dolly Parton. 

[xo 1]

Very helpful review.  Regarding your thesis that there are a few super talented operators, how do you balance that against WEB's goal to find businesses so good that a ham sandwich can run it?  I am not challenging your perspective that there are some business people who leap out as much better than the competition no matter the field.  But I am cognizant of the WEB maxim that when management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

 

 

 

[KCLarkin]

Regarding your thesis that there are a few super talented operators, how do you balance that against WEB's goal to find businesses so good that a ham sandwich can run it?

 

The issue is that there are only a few super talented operators. But I really question his philosophy. There are so many great "jockey" stocks. And there are many examples of bad managers destroying good businesses (Geico in the 70s is a good example).

[Jurgis]

There are no businesses that a ham sandwich cannot destroy.

 

If you buy a business that's not run by a great operator, you can only expect that the management is not worse than mediocre and therefore won't destroy it (much).

 

If you buy crappy business, you either need luck or great operator or both and it still might not be enough.

 

 

(This is all about long term investing. You can buy crappy business for reversal to mean, short term activist boost, special situations, etc. That's not covered by above.)

[Saluki]

Very helpful review.  Regarding your thesis that there are a few super talented operators, how do you balance that against WEB's goal to find businesses so good that a ham sandwich can run it?  I am not challenging your perspective that there are some business people who leap out as much better than the competition no matter the field.  But I am cognizant of the WEB maxim that when management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

 

Buffett used to feel great about the newspaper business and even when it was a good business, there where people who made a lot more than others at it even though they were operating in different markets.  The same came be said with TV stations which, before cable, were a license to print money.  Even the mediocre people got rich, but some people made fortunes. So I think in good businesses, a great operator can make it a great business. And even in a great business like Microsoft that is almost indestructable, a bad operator like Steve Ballmer can work his incompetence to turn it into a mediocre one.

 

I think that's why a lot of cable operators ended up selling out to bigger competitors like John Malone.  They were in a great business but weren't getting all the horsepower out of the engine so they were better off merging into a worldclass operator and let them take over the ship.

 

Buffett has said that he doesn't like turnarounds, he wants great businesses with great management already in place.  Maybe that's a recognition that some things where you don't have both are trades and other are lifetime purchases (100% owned operating companies).