Warren Buffet’s Big Gig: Capital Allocation

Warren Buffett's Recommended Books on Investing

Most of us know Warren Buffet as perhaps the greatest investor who has ever lived. Thinking about how to invest. But, behind the scenes, he also runs Berkshire Hathaway.

Warren Buffet is the CEO there at Berkshire Hathaway. No doubt, Berkshire owns stocks which Buffett himself purchased. But Berkshire also owns 100% of franchises whole bunch of other businesses. Including household names Diary Queen, Fruit of the Loom, Geico, Netjets, etc.

Warren Buffett started to make his living from investing on the stockmarket in 1951, and was deeply influenced by Ben Graham, who wrote a classic book on investment, “Security Analysis” (1934), and had been his tutor at Columbia University.

Berkshire Hathaway, for much of its long history, was only in the textile business. Using its very modest excess cash flow, Berkshire Hathaway in its present form was created. The morph of Berkshire Hathaway from a sleepy New England company producing men’s suit liners to the present day conglomerate generating more than $100 million of cash a week is one of the best business lessons of our age.

Bill Gates should take a close look at Warren Buffett’s business model at Berkshire Hathaway. Managers at the various Berkshire companies use whatever portion of the cash flow they generate to grow their respective businesses and send the rest to Omaha for Buffett to allocate as he sees fit. Net users of cash (like Executive Jet) get whatever cash they need from Omaha to continue growing their business.

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