He might talk about profits a lot, but Berkshire is very much a cashflow-optimized machine. The entire thesis of the company was a hack, noticing that insurance collects cash upfront (premium payments) in trade for future liabilities, giving smart insurers a huge amount of cheap, investable cash.
Within Berkshire, they have operating businesses (Marmon, Fruit of the Loom, Dairy Queen) that throw off operating profits, which then get plowed into high-return but illiquid assets like BNSF (the railroad) which are great long-term investments, but require deploying mountainous, almost government-sized piles of cash.
This isn't my own thinking either; it's a bit of an infection of American businesses that we're so margin-obsessed. This is the thinking that got IBM out of PC manufacturing. "You can't take a profit margin to the bank", as they say. And given the current rate climate, we're anything but capital constrained.
He might talk about profits a lot, but Berkshire is very much a cashflow-optimized machine. The entire thesis of the company was a hack, noticing that insurance collects cash upfront (premium payments) in trade for future liabilities, giving smart insurers a huge amount of cheap, investable cash.
Within Berkshire, they have operating businesses (Marmon, Fruit of the Loom, Dairy Queen) that throw off operating profits, which then get plowed into high-return but illiquid assets like BNSF (the railroad) which are great long-term investments, but require deploying mountainous, almost government-sized piles of cash.
This isn't my own thinking either; it's a bit of an infection of American businesses that we're so margin-obsessed. This is the thinking that got IBM out of PC manufacturing. "You can't take a profit margin to the bank", as they say. And given the current rate climate, we're anything but capital constrained.
Cashflow is everything.