Buffett's annual earnings
In 1983, he invested $60 million to buy a Nebraska furniture store, Berkshire's stock portfolio of $1.3 billion, Buffett's personal net worth of $620 million, and entered the Forbes magazine's List of Fortune 400 companies for the first time.
In 1984, several berkshire listed companies bought back shares because their intrinsic value exceeded the stock price.
Mrs. B was born in 1893 in a small village near Moscow, and her name was Ross Grick. She had 7 siblings, all crammed into a room and sleeping on straw.
Her father was a Jewish priest, but Rose was not a devout believer, believing that prayer was useless and that the family would not have a mattress because of it.
When she woke up in the middle of the night, she often saw her mother who opened a food store baking bread on the stove, and she began to help her mother in the food store since she was 6 years old.
Rose couldn't afford to go to school, and she learned to read and arithmetic from another wealthy family. Influenced by her mother's personality, she firmly believed that begging for others was a shameful thing to do.
Mrs. B
At the age of 13, she volunteered to work in a dry goods store in Minsk. At the age of 16 she became the manager of the store, managing 5 big men.
In 1917 Rose traveled by train through Siberia, through Manchuria in China to Japan, managed to get a bunk on a boat carrying peanuts, and after a month and a half at sea, she finally reached Seattle, USA.
Rose and her husband settled in Omaha city in 1919. Despite the financial strain, he took his parents and siblings over and lived with a large family.
Her husband, Isado Brownkin, runs a pawnshop and old clothing store, and Rose learns English with the children who are in school.
In 1937, when Rose was 44 years old, she saved money and spent $500 to open the Nebras Furniture Mall, whose business purpose was "small profits and high sales, and children are not deceived." ”
(1) Local monopoly
Nebraska Furniture Store is the largest furniture store in Omaha, covering approximately 200,000 square feet and generating annual sales of about $100 million.
Buffett commented that no other furniture store in the country has reached such a large scale, and a single store sells more furniture, carpets and other utensils than all of Omaha's competitors combined.
(2) Discount stores
Nebraska furniture stores source directly from suppliers and sell directly to customers, adding only a little difference to the wholesale price. Very similar to the concept of today's discount stores, it is committed to providing customers with the lowest price and returning the saved costs to customers.
If customers can get real value, it will form a virtuous circle, low prices will bring more customers, form a larger sales scale, save more costs, and then bring lower prices to customers.
This concept is the same as the later Amazon concept:
Everything starts from customer needs, and goes all out to create the best experience and maximum value for customers. In the ever-changing business world, Amazon focuses on those constant needs: customers always want more choice, faster delivery, better product quality and service experience, and lower prices.
(3) Cost control
In an interview, Mrs. B revealed to the outside world that in 1983, the mall's expenditure was only $7 million, which meant that the mall's annual management expenses were only 7%, compared with 19.8% of Wal-Mart's sales management fees in 1983.
The Nebraska furniture store's 200,000-square-foot retail store generated $100 million in revenue, meaning that the amount of sales per square foot was as high as $500, compared with Walmart's sales of only $130 per square foot that year.
Buffett once said: We would rather buy a 10% stake in a good company at X price than 100% of that good company at 2X, but most of the company's management class prefers the latter and always makes excuses for this behavior. For this behavior, we summarize three motivations:
(1) The leadership class rarely lacks animal nature, and always exudes the idea of being active and fighting.
(2) Most companies or enterprises and their operating class are mostly "scale" rather than "profit".
(3) Most of the management class is obviously overly immersed in the fairy tale of a prince who became a toad and was saved by a deep kiss from a beautiful princess, and thought that as long as they were kissed by their excellent management skills, the acquired company could be reborn.
Investors can always buy toads at the price of toads, and if investors are willing to double the cost of funding the princess to kiss toads, it is best to bless the miracle.
Diamonds in the crown
Many princesses still believe that their kisses have the power to turn toads into princes, even though her backyard is already full of a whole bunch of toads. Still, to be fair, there are two cases in which an M&A will succeed:
(1) You buy companies that are particularly adaptable to inflation, and usually they have two characteristics, one is that it is easy to raise prices and is not afraid of losing market share or sales, and the other is that as long as you increase a small amount of capital expenditure, you can increase turnover significantly.
(2) The second category are the business wizards who have the insight into a few princes wrapped in the cloak of toads and have the ability to get them to take off their disguises.
Lady B is a business wizard belonging to the second type, who has the ability to make the prince wrapped in the cloak of a toad remove his disguise.
Buffett quoted a $60 million purchase price, taking a 90 percent stake in the company, while also offering an option to the core members of the Brooking family: They could buy back 10 percent of their shares for $5 million in consideration.
So Buffett bought an 80 percent stake in the company for $55 million, and the Nebraska furniture store is worth $68.75 million.
After sorting out the inventory, it was found that there was $85 million in inventory, and even if it was not operated for liquidation, Buffett spent $68.75 million to buy $85 million worth of goods, which is equivalent to a 20% discount, and the fixed assets of the Nebraska furniture store itself were not calculated.
The company's pre-tax profit in 1983 was $15 million, which means that the after-tax profit was $8.1 million, which equates to a price-to-earnings ratio of less than 9 times; if you consider that the Nebraska furniture store is a company with annual revenue of $100 million and will continue to grow, this is still a good deal.
In 1983
About 67 years ago, when Mrs. B was 23 years old, she used her mouth to persuade border guards to flee Russia and come to the United States, never received a formal education and did not know English, and many years later, she learned English by teaching her daughter every night to review every word she learned in school during the day, and then after many years of selling second-hand clothes.
In 1937, relying on the $500 saved by saving money, she realized her dream of opening a furniture store, referring to the Largest furniture trading center in the United States at that time, the American Furniture Supermarket in Chicago, which she named Nebraska Furniture Store.
Then she encountered all kinds of difficulties as you could expect, starting with $500 without any product or geographical advantage to fight against the well-funded, long-running competition in the industry, and in the early days, when her limited resources were exhausted, Mrs. B even sold everything of value in the family to maintain credibility.
When the retailer in Omaha discovered that Mrs. B could give customers a lower price, they joined forces to pressure the furniture and carpet factory not to supply Mrs. B, but by various methods, she still obtained the supply and cut the price sharply, and even went to court to violate the Fair Trade Act.
But in the end, not only did she win all the lawsuits, but she also opened up her popularity, including one case in court to prove that even after a large discount at the current market price, she still had a profit and sold a carpet to the judge.
Buffett with Mrs. B
Today, with a 200,000-square-foot store and annual sales of $100 million, no retail furniture store in the United States can match the furniture, carpets and home appliances it sells more furniture, carpets and home appliances than all the other businesses in Omaha combined.
When we judge the corporate value of a company, I often ask myself the question: "If I have enough money and talent, would I be willing to compete with this company?"
I'd rather wrestle with the Big Grizzly Than compete with mrs. B's family, who purchase a set with operating expenses that their competitors can't have imagined, and then give back every penny saved to their guests, an ideal business built on creating value for customers and translating it into financial benefits for their owners.
In 1986
The Nebraska furniture store is a miracle in the Brooking family's continued business history, competitors come and go, but Mrs. B and her family are still standing, last year the store's performance grew by 10% to $130 million, three times what it was ten years ago, when the store had dominated the entire Omaha area.
This achievement is even more valuable when one considers the slow local population growth rate and the moderate inflation rate, and the only reason that can be explained is that the market scope of the store has continued to expand as the reputation of low price and full style spreads, and in order to cope with future growth, the store has begun to expand its warehouse.
The 93-year-old Mrs. B is a woman of great skill, showing super high sales ability and endurance, working seven days a week, from opening a store to closing every day, it takes incomparable courage to compete with her, everyone may easily ignore the legend of Mrs. B, but it does not matter that the 93-year-old her has not yet reached the peak, and when the 2024 Berkshire shareholders' meeting is held, please wait and see.
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