Buffett – the department store failure

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In the late 1960s, the thirty-something Buffett is a multimillionaire. For over a decade he has been entitled to 25% of the gain he makes for his investment partners above the threshold of 4%.


Because he has averaged returns of around 30% per year and the investment fund has grown to more than $50m he is able to both please his partners and earn himself millions each year.
Buffett’s income is generally ploughed back into the partnership, thus he held a larger percentage of the partnership year by year.
The Partnership holds about 70% of the struggling Berkshire Hathaway. But BH has now bought the insurance company, National Indemnity for $8.6m so the future looks brighter there. Worried, he firmly limits further significant investment in textiles.
Berkshire Hathaway was not alone in having the majority or all of its shares controlled by the Buffett Partnership.
In January 1966 an investment banking friend, David “Sandy” Gottesman, mentioned the opportunity of buying a suffering Baltimore department store.
Hochschild-Kohn was not very competitive and needed a great deal of investment to initiate a revamp.
It was privately owned by a number of Kohn family members. Very few of the next generation wanted to be involved in the running of it, and they knew that it was unlikely to pay family members much in the way of dividends.
Martin Kohn, CEO, told Gottesman that they were willing to sell, and a “discounted price” would be acceptable.
Warren knew from the outset that he was buying “a second-class department store at a third class price.”
But he liked the look of the……
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