Berkshire Letter by Warren Buffett – 1992 (Part 2)
Jan 16th, 2007 by Martin Lee
Acquisitions
Making an acquisition is like marrying a spouse: It pays to be active, interested and open-minded, but it does not pay to be in a hurry.
Warren Buffett analogises the acquisitions of many managers to that of princesses kissing toads, hoping that they would one day turn into princes.
He himself was guilty of “dating” toads in his early days but finally revised his strategy to buy good businesses at fair prices rather than fair businesses at good prices.
In 1992, Berkshire made a purchase of a company that matched the definition of what they were looking for. The purchase was 82% of Central States Indemnity, an insurer that makes monthly payments for credit-card holders who are not able to pay themselves because they have become unemployed or disabled.
This acquisition had much in common with the very first one made 26 years ago, another Omaha insurer, National Indemnity Company.
On top of purchases made by the parent company, the subsidiaries of Berkshire sometimes make small “add-on” acquisitions that extend their product lines or distribution capabilities.
These add-on acquisitions are expected to contribute modestly to Berkshire’s value in the future.
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