2020: How are Berkshire's small subsidiaries handling the pandemic?
BECKY QUICK: This is a similarly related question. It comes From Seth Freiden, who says, “As a long-term shareholder of Berkshire B shares, I’d like to know Warren’s viewpoint around smaller holdings, specifically Oriental Trading Company and Nebraska Furniture Mart, that are based in your hometown of Omaha.”
He imagines that those smaller business units have been adversely impacted by COVID shelter-in-place mandates. So he would like to know if Oriental Trading, or other small business units, applied for PPP (Small Business Administration Paycheck Protection Program) loans or participated in those acts?
And if they didn’t qualify for a loan or didn’t participate, then how will Berkshire support those smaller businesses to make sure that they can continue to employ their employees?
WARREN BUFFETT: Well, to my knowledge, none of them have gone in for government money and —
The two that are mentioned — I don’t like to get into specific companies — but I can assure you that the Nebraska Furniture Mart and Oriental Trading, in my view, have a fine future.
But I — I don’t want to talk about — go down the list, obviously, of every single company, because some of them I don’t know the answer to.
You know, we actually decided some time ago that our newspapers would have a much better chance of surviving if they were run as part of Lee, than if we ran them independently. And, as I said earlier, we actually put considerably more money — we probably put more money in the newspaper business than virtually anybody in the country in the last six months, because we took over a loan that would have been a problem in the year — whatever it might have been, maybe, a year and a half — and we enable them to just deal with one lender rather than a group. And they are doing a better job with the newspapers then we would do.
And that’s always our preference. If we’ve got a business that’s — that does not have — looks like it is not going to sustain itself over time in our hands, if we can find somebody else that we think will do a better job, we’d love to have them run it.
So, if we have a problem business, we would prefer to find somebody that thinks they can do a better job, and probably can do a better job, of running it than we can.
But some businesses just disappear.
We — we started with a textile business. We started a company called Diversified Retailing, which merged into Berkshire — became part of Berkshire — and it started with a department store in Baltimore. And department stores looked good in 1966, but the world has gone against them.
And we had a trading stamp business at one time, and we stayed longer than anybody else, but the world left trading stamps behind.
And that’s going to happen with some businesses. That’s capitalism. And it will happen to some Berkshire businesses over the next 10 years, in the next 50 years.
We think we’ll find more of them that will grow and, net, that Berkshire will grow, but we do not think if you own a great many businesses, that everyone is destined for success.
That’s why I suggest to people they buy an index fund. I do not — with the exception of Berkshire — I would not want to put all my money in any one company, although there’s a few I wouldn’t mind being very close to that. But —
I don’t think — you know — you get surprises in this world. And there will be businesses that we think are very good that turn out not to be so good. And there will be other businesses that turn out better than we think. And It’s up to the world to judge our batting average over time. Greg?
GREG ABEL: Well, I would just add, and echo again, that when it comes to the PPP loans, we’re not aware of any of our businesses taking them. And, you know, as I said, we encouraged them, if they were ever thinking that there is going to be a dialog, and we’re not aware of any businesses pursuing them.
I would also just add that when you look at our businesses as we went into the crisis, they responded very well.
So, as we look at our businesses — and Warren touched on this — our large businesses, our mid-sized businesses, and even as you go down from there, they’re in very sound shape as we go through the pandemic, and are really preparing to emerge now.
So, they’re evaluating, they listen. They’re going to have a different customer. There’s going to be different consumer behaviors — how our employees work, i.e., a lot of them work at home now — does that make sense?
And the communities we’re operating in have all changed. But we’re literally moving from the point of — OK, we’re making it through the crisis, and really planning to reemerge now. And I would say our businesses are in an extremely sound place.
WARREN BUFFETT: We don’t know when the —
BECKY QUICK: This next question —
WARREN BUFFETT: Well, I just — what we don’t know — we don’t — we don’t know how long this period lasts. And nobody knows.
You know, we don’t know whether the — most people think — and they know more about it than I do — that the virus will, you know, to some extent, decline in its spread during summer months.
And I would say — but many think that it will come back at some later date. And how the American public reacts, if they get their hopes up through some reopening — some through — through some summer diminution — and how they would react to a second attack, in effect, by the virus — it’s like Dr. Fauci — you know, the virus is going to determine our behavior. You know, we — and we’re doing a lot of smart things, and we’ve got a lot of very smart people, but there are unknowns. And the unknowns that apply to the health aspect create unknowns in the economy.
And we will — we’ll have to keep evaluating things as we go along.
I hope, like crazy, obviously, that — that once suppressed, it doesn’t come back and that we readjust. But things don’t always work perfectly.
That doesn’t mean there was a better course of action that would not — I would not go around criticizing people at all for what they’ve done, or anything of the sort.
I just think you’re dealing with a huge unknown. And I think that the degree to which it’s disturbed the world, and changed habits, and endangered businesses, in the last couple of months, indicates that you’d better be — not be too sure of yourself about what will — what it’ll do in the next six months or year or whatever.