wabuffo Posted July 15, 2020 Share Posted July 15, 2020 https://www.amazon.com/Capital-Allocation-Financials-England-Textile/dp/B088B96JRK/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=&sr= Books about Warren Buffett are usually a dime a dozen. Despite the long title, this is a Buffett book that I heartily recommend. A warning, though, this book is for the wonkish, financial analysis types like me who enjoy poring over balance sheets and sources/uses of funds tables rather than hearing heartwarming stories about Buffett and Munger via their pithy "words of wisdom". Instead, this is what I call a "meat and potatoes" kind of book about the blocking and tackling that traces the path from the textile business into the modern day BRK colossus that starts to appear in the late 70s in the form we recognize today. In Buffett's life's work, I've always felt there is a "donut hole" between the end of the Buffett Partnership (BPL) in 1969 and the "birth" of the modern Berkshire Hathaway in and around 1977. This is a time when Buffett was mostly silent in terms of writing to his shareholders. This was largely due to the fact that he did not have a unitary vehicle during this period (like BPL or BRK-only) through which he could speak to his shareholders in a comprehensive but focused way. His investment structure during much of this time was a tangle of Berkshire Hathaway, Diversified Retailing, and Blue Chip Stamps as he exited BPL but before he consolidated his corporate structure into a single entity (BRK). In fact, it is this tangled series of structures and cross-ownership that got him (and Munger) in trouble with SEC (back when people feared the SEC, LOL) for possible fraud in their actions that might have caused the failure of a Wesco-Financial Corp of Santa Barbara merger in 1975. As an outcome after that legal near-miss, Buffett went about cleaning up the spaghetti-chart corporate structure and the "modern" Berkshire Hathaway was born. With that done, starting in 1977, the BRK "Chairman's Letter" started giving Buffett back his voice in a format that hasn't changed much since. In addition, by the late 80s, the AGMs started to draw investors to hear him and publications like OID began printing transcripts. But during most of the 1970s none of this existed. I like this book because the author uses financial sources (annual reports, 10-Ks, insurance industry regulatory filings) to trace a path through the capital re-allocation that occurred from the original BRK textile business control position to the National Indemnity purchase through to his other investments into Illinois National Bank, Diversified Retailing and Blue Chip Stamps. It fills out for me, which structure purchased which investments and really breaks down how funding capital was created from, say, the textile business, to buy the insurance business. It also goes into great financial details about investments in this period that not much was written about like Pinkertons, Detroit International Bridge, etc because they fell into the "donut hole" of the Warren Buffett experience. It also becomes much clearer why Buffett shut down the BPL fund, at least for me. While his reasons of an overvalued market are a factor, I think this book shows the other factors. For one, in 1967, he had found a large source of permanent capital via the float of National Indemnity. Also, equally important, he was starting to buy common stock investments outside of his Buffett Partnership. I hadn't realized that by the late 60s, BPL no longer owned 100% of his marketable securities. He owned DIS in 1966 via the BRK textile biz b/s (and not BPL). In 1968, he had added to his AXP position on the BRK textile biz b/s (among many other stocks). His investment focus was probably fragmenting plus he no longer needed the "hot" capital of his investors anymore - so perhaps that created the impetus to wind down BPL. One also realizes, that far from the success it is today, the insurance business was a slog for Buffett during this period as he tried to expand into it. There are many failures (Home and Auto, Cypress Insurance) as well as struggles growing the reinsurance business from whole cloth organically during its first decade or so. Anyway, I'm only half-way through the book. Its definitely got a lot of numbers (and no cute Buffett cornball sayings) - and for those who already understand some terms like insurance float, there will be some pages that are less interesting. But overall, its a big thumbs up from me and it will definitely occupy a space on my bookshelf next to the very best books about Buffett. wabuffo Link to comment Share on other sites More sharing options...
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