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Today I’ll start a series of 5-6 posts describing one of the greatest investments of all time, when Warren Buffett’s Berkshire Hathaway acquired 90% of the Nebraska Furniture Mart. This case study has a lot to tell us about recognising strong economic franchises and about the importance of having good people (competent and with high integrity) in charge of the enterprise. And how it’s possible to find good businesses two miles from home – if you can understand what you are looking at.
Remember: “You won’t succeed in making a good deal with a bad person…like, trust admire.” (Warren Buffett)
Summary of the deal
| Deal | Nebraska Furniture Mart | ||||||||||
| Time | 1983 – present | ||||||||||
| Price paid | $55m | ||||||||||
| Quantity | 90% of the share capital | ||||||||||
| Sale price | Part of Berkshire Hathaway today | ||||||||||
| Profit | At least 10-fold | ||||||||||
Berkshire Hathaway in 1983
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One of the great pleasures of visiting Omaha in early May is to join in the tradition of those attending Berkshire Hathaway’s AGM to round off the day by enjoying an evening BBQ and Country music at the Nebraska Furniture Mart; an opportunity to chat with fellow shareholders, to wonder at the size of the store and the brilliance of this 1983 investment.
When Berkshire Hathaway bought it, NFM had only one outlet. But it was the biggest furniture store for hundreds of miles. Since then it has grown even bigger, now covering 1,689,000 square feet on 77 acres only two miles from Buffett’s home, selling, not only furniture, but computers, TVs, household appliances, in fact, over 85,000 items.
In terms of geographical expansion it has grown a bit – opening giant stores in Kansas City, Dallas-Fort Worth and in Des Moine. But that is it, only three new stores in four decades. As always, Buffett and Munger only allowed large capital investments where they think they will create or enhance a competitive advantage, where they can build an economic franchise. No empire-building for its own sake is allowed, no assumption that what is working in one location can be replicated in hundreds of other places. Only thoroughly thought-through plans to capture customer interest, where competitors can be beaten and a good return on capital employed obtained.
The success of NFM is all the more remarkable if you consider that it was created by a lady who came to the US an almost penniless 24-year old with precious little English; she had never spent a day in school. Mrs Rose Blumkin, or Mrs B as she was known in Omaha, escaped from Belarus during the Russian Revolution, bribing guards as she went. It wasn’t until 1937 that she set up a tiny shop in the basement, juggling looking after four children with running the store. The motto she adopte
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