The Berkshire Empire: Hidden Truth of Buffett and Munger's Success | 2023 Documentary

After winning a hostile takeover battle against Berkshire Hathaway, Buffett now fully controls the textile company. But he quickly realizes that he has made a grave mistake. Part of the partnership was buying what looked like cheap stocks; Berkshire Hathaway looked like a cheap stock. It wasn't a very good business; the textile industry is headed towards an inevitable decline. Buffett's ownership of the company is bound to be worthless unless he can find someone else to buy it.

He turns to his trusted friend Charlie Munger for help, offering to sell him Berkshire Hathaway for pennies on the dollar. But Munger declines his offer. Instead, he shows Buffett another way out. He presents a new company to Buffett, one that has the potential to change Berkshire's fortunes. The company is called Blue Chip Stamps. Blue Chip Stamps sell stamps at a discount to store owners and marketplaces. These stamps are then given to customers as rewards since customers collect stamps to redeem for rewards at a later time.

Blue Chip Stamps holds on to a substantial amount of cash known as float. For Buffett and Munger, having access to the float will be advantageous. Blue Chip Stamps is kind of like an insurance company; having a large amount of cash can potentially give Buffett and Munger the opportunity to invest the funds in other companies. Buffett and Munger keep buying their shares of Blue Chip Stamps until they have full control of the company.

With his investment in Blue Chip Stamps, Warren Buffett has extended a lifeline to Berkshire Hathaway, but it's not nearly enough to truly save Berkshire Hathaway. Buffett knows he must take decisive actions. He knows it'll be a daunting task, something he can do if he's under constant pressure from the partners of his fund. Then Warren Buffett does the unthinkable. In order to free himself to pursue his vision for Berkshire Hathaway, he shuts down his investment partnership.

For over a decade, Warren Buffett has amassed a fortune for his investment partners, achieving a remarkable annualized return of 23 percent over 13 years. From the dissolution of his partnership, Buffett finds himself with a staggering 16 million dollars in cash. It's a type of money he will use to rebuild Berkshire Hathaway. Determined to not only save Berkshire Hathaway but to transform it into an empire, Buffett goes all in, investing the majority of his net worth into the company that will become his legacy.

It's a gamble that would define his career and reshape the world of finance forever. It's really remarkable because Buffett was again going against what Ben Graham taught, which was to avoid taking on too much risk. But I think what he was really doing was betting on himself. He had similar confidence in his own ability to turn Berkshire Hathaway into a major success that he was willing to put all of his money into the company, although it was facing bankruptcy.

To save Berkshire, Warren is pinning his hopes on cash flow-generating companies like Blue Chip Stamps. But in spite of his seemingly infallible plan, Buffett and Munger's investment in Blue Chip is also turning into a catastrophe. Blue Chip Stamps is accused of colluding with other stamp companies to stifle competition and impose unjust restrictions on merchants. The Supreme Court rules against them, allowing private parties to sue for antitrust violations. Blue Chip Stamps now faces a decline in profit margins; it's a threat to their competitive advantage.

For Munger, who's managing a fund for his partners, the fate of his career rests on the success of Blue Chip Stamps. In a desperate attempt to make up for the potential losses, Munger and Buffett are on a hunt for another company to acquire, one that has stable earnings that can provide a cushion for Blue Chip Stamps' declining business. And it turns out, a small candy store located out in Los Angeles may just be the solution to their problems.

In 1971, See's Candies is the most popular store on the West Coast. So, basically, Buffett and Munger were looking for companies with enduring competitive advantage; they call it a moat. And they found what they're looking for in See's Candies. If you've got an economic castle, people are going to want to take that castle away from you. And you better have a strong moat; you better have a knight in a castle that knows what he's doing. With its unwavering popularity, See's Candies boasts a consistent stream of earnings.

Recognizing the potential for stability among volatility, Warren Buffett and Charlie Munger seized the opportunity to acquire See's Candies with cash from Blue Chip Stamps. And to make sure See's Candies' success continues, Buffett and Munger become personally invested in the business, taking a hands-on approach to its operations. They go so far as to launch a legal defense against competitors seeking to copy the candy store's success.

The acquisition of See's Candies proved to be a monumental success, propelling a business to thrive for the next 60 years, generating billions in profit. But by the mid-1970s, Buffett and Munger's firms are still barely surviving. But they have found a way to keep their companies afloat by acquiring other cash flow-generating companies. Buffett and Munger love insurance companies because they generate stable cash flows that can be used to invest in other companies.

Soon, they began looking for a different kind of company but with the same business model. In 1973, Munger and Buffett discovered Wesco Financial, a savings and loans holding company in Pasadena, California. But a bidding war ensues, pitting them against the Financial Corporation of Santa Barbara, a company with greater resources. Despite the challenge, Buffett persuades the owner to sell Wesco to him and Munger. The announcement causes Wesco's stock to plummet from 16 to 11 per share, presenting an opportunity for profit.

Instead of taking advantage of the situation, Buffett and Munger decide to purchase the stocks at 17 per share, foregoing five dollars per share of potential profit due to their sense of integrity. Now with Blue Chip Stamps owning over half of Wesco Financial, Munger assumes the position of chairman for the newly acquired company. The future of Berkshire is finally looking up as Buffett's ownership of numerous cash-generating businesses mitigates the impact of a declining textile industry.

Ironically, by trying to save both of their firms, they stumbled upon a very ingenious business model. This model involves purchasing companies with a lot of cash reserves, or floats, and then utilizing the funds to purchase other companies. The Buffett and Munger's victory is short-lived. Their unique approach to business attracts the attention of the SEC and a tough prosecutor who's ready to come after everything Buffett and Munger own.

The stock market toppled to new lows for the year again yesterday, that concluded one of the most adverse weeks in Wall Street history. The Dow Jones Industrial Average plunged 15.57 points to 922.19. After the market crash, Berkshire's stock drops in half during a bear market. The SEC tends to face a lot of pressure to calm the public's frustration, and they tend to increase their efforts in prosecuting companies and individuals. An formidable up-and-comer in the SEC is on his way to becoming one of the toughest prosecutors in the government: Stanley Sporkin.

He has been looking into Buffett and Munger's takeover of Wesco Financial. Sporkin could not understand why Buffett and Munger would overpay for a deal when there's a clear opportunity to make a profit. With a keen eye for deception, he suspects that Buffett and Munger have constructed a complex web of acquisitions and business dealings to conceal their illegal activities. For Buffett and Munger, who value their reputation more than anything else, the potential of getting indicted is their worst nightmare.

In the end, the very thing they're afraid to lose ends up becoming the thing that saves them. Buffett and Munger have cultivated an impeccable reputation among their business associates, leading many of them to come to their defense. In fact, many individuals have come so far as to contact Stanley Sporkin to vouch for Buffett and Munger and plead with him to not indict them. Ultimately, the substantial support extended by the colleagues and associates of Buffett and Munger successfully persuaded the SEC to abstain from pressing charges against them.

Their reputation is intact and their business is back to usual. Buffett evades catastrophe with his reputation intact. For years, he has been steadily acquiring newspaper companies, including the Washington Post, but now more than ever he's convinced of the long-term value of owning media companies. He's ready to go back. Buffett really likes media companies. I think it's because he understands the power and influence of media. In a groundbreaking move, Buffett acquires the Buffalo Evening News for a record-breaking 35 million dollars, a daily newspaper tailored to conservative readers.

But Buffett doesn't stop there. He realizes the complexity of his investment deals has gotten him into trouble. The time has come to consolidate businesses. After years of struggling to revitalize the textile department, Buffett makes a decision that is all but inevitable. He shuts down all textile mills, and to further streamline the business, Buffett and Munger merge Berkshire Hathaway with Blue Chip Stamps, employing Munger as Vice Chairman.

Finally, the new Berkshire Hathaway is born. Step by step, we've created something that we might create over time, but it took a lot of time to do it. It never seemed like we were making much progress, only one day, but compound interest works. And with the dawn of a new decade, Buffett and Munger cement their partnership and discover a business model that will propel their snowball to epic proportions, securing their legacy for decades to come.

In the 1980s, the U.S. economy reaches unprecedented heights, and Warren Buffett's business is no exception. Through strategic acquisitions of firms like the Furniture Mart and ABC News, Buffett has elevated his business to new levels. As a result, Berkshire Hathaway's stock has soared to two thousand dollars per share, making Buffett a billionaire. Warren Buffett of Omaha, Nebraska, if you had put ten thousand dollars in 1965 into his company Berkshire Hathaway, you would have one million today.

In general, Buffett's investment strategy is very event-driven. He typically invests in a company when there is a catalyst, like a lawsuit or a takeover. However, the '80s are also characterized by a culture of corporate raiders and junk bond financing. Despite this environment, Buffett manages to avoid getting caught up in the fray. Whenever he engages in takeover deals, he always appears as the white knight, the one companies turn to for help in fending off hostile takeovers.

But despite his soaring net worth and fame, Buffett struggles to find attractive investments. All things being equal, a high level of optimism will cause things to be priced high relative to their fair value, or what we call the intrinsic value. So we have to figure out the intrinsic value, but clearly, in a period of great optimism regarding the future, prices will tend to be high relative to the intrinsic value. And I'd like to buy when the price is below the intrinsic value and sell when it's above.

Under the pressure to outperform, Buffett does the unthinkable: he invests in a Wall Street firm, the Solomon Brothers. Many years back, when Warren Buffett was trying to turn around Geico, Solomon Brothers was the only Wall Street firm willing to underwrite bonds for the company. So Buffett thought to himself, this could be a good company to invest in. Solomon Brothers started as a bond trader in 1910 and came to prominence during the Roaring Twenties. In 1985, the firm made a profit of 500 million dollars, establishing its position as one of Wall Street's most profitable companies.

Warren Buffett sees Solomon Brothers as a great business with an excellent management team in place. Despite this, he believes the company is overvalued. For the Oracle of Omaha, he still manages to find a way to profit from the situation. He presents Solomon with a proposal: if they want his money, they must create a security for him that guarantees a 15 percent return. You see what he did there? Buffett was leveraging his brand in exchange for riskless profit. He was almost acting like DJ Khaled: “You can use my name, but for a fee.”

For Solomon Brothers, having Buffett as an investor is a huge boost of confidence for the company's stock. They manage to create a preferred stock designed specifically for him. This security would generate a 15 percent return for Buffett in the long run, but with an unlimited upside should Solomon's stocks soar. And Buffett buys 700 million dollars of them.

"I would like to say that Berkshire Hathaway was a large customer of Solomon long before we bought the preferred, and that we've had marvelous service over the years. I think Solomon's going to be around for a long time," Buffett says. So in this scenario, the only risk Warren Buffett has is that Solomon Brothers goes bankrupt. But that event is just virtually impossible, right?

Good evening. The stock market today crashed, the Dow Jones Industrials and every other major index breaking records in its plummet downward. On October 19, 1987, the world watched in shock as the stock market crashed in what became known as Black Monday, with billions of dollars evaporating. Buffett watches as Solomon Brothers begins to crumble. For the first time, he starts to worry that a bankruptcy of Solomon is becoming likely. But the crash also presents an opportunity for Buffett to invest in a company that he has been watching for a while: Coca-Cola.

"For many, many months, we were buying as much Coca-Cola as we could buy, roughly a third of the volume trading every day for months. We were very aggressive in buying into Coca-Cola." Buffett's name and status also allowed him to buy Coca-Cola without disclosing it to anyone for more than a year because the SEC gives special privilege to withhold that information. Warren Buffett continues to leverage his unique brand to get special deals from companies such as Gillette, where he obtained a nine percent preferred stock.

As the shares of Solomon Brothers make a remarkable recovery following Black Monday, Warren Buffett thinks the worst is behind him. Little does he know, the storm is far from over.

Good evening, it is the kind of scandal that rocks Wall Street and raises questions about the integrity of our financial institutions. The giant securities firm of Solomon Brothers is under investigation for improper trading of treasury bonds. Ultimately, like many other Wall Street firms, Solomon Brothers was like a casino. It had one of the largest bond trading departments in the world, but that department was known for its aggressive trading strategies and risk-taking appetite.

When bond trader Paul Moser is found to have manipulated a treasury auction to make a huge profit, Solomon Brothers' reputation is severely damaged. In finance, losing reputation means losing confidence. Within weeks, the company is on the verge of bankruptcy. Solomon Brothers is under investigation by the Treasury Department, the Federal Reserve, the SEC, and the Justice Department.

But more important than the fate of the firm itself is the impact their actions could have on the public trust and the credibility of the American market worldwide. The CEO is desperate to restore the public's trust. Here's hoping there's one man that can help boost the confidence of the market, and if he says Solomon Brothers is fine, maybe other investors will follow. Buffett is called upon to save Solomon Brothers. But instead of engaging in an illegal battle, Buffett takes a completely different approach.

He turns Solomon Brothers inside out, making the company completely transparent to lawmakers and giving prosecutors access to any and all documents. "I would do whatever was needed, dig out any bit of information about what's happened in the past, and do everything I could to make sure that things are exactly right in the future." This move is designed to show the public and the government that Solomon Brothers has learned from its mistakes and will be an honest institution going forward.

Buffett knows this may be the only way to prevent Solomon Brothers from going bankrupt. But it's more important that he preserves his own reputation, and to do that, he needs to be on the side of the people fighting corporate greed. Buffett's crusade to eradicate any bad apples in the company results in Solomon Brothers being reduced in size, and many employees lose their jobs. More importantly, Buffett's investment in Solomon Brothers remains intact. The Treasury modified its order and, in effect, of course, it was quite an endorsement; it was huge.

Buffett has turned a pretty nasty situation to his favor. He was able to use the opportunity to reinforce the image that he is the conscience of American finance. With the salvation of Solomon Brothers, Buffett's business soared, making him the richest man in America. And with that momentum, he buys the rest of Geico, as insurance companies continue to be his biggest cash cows. After all, Buffett's number one rule is to never lose money, and the 700 million dollar bet is a quarter of Berkshire Hathaway's entire portfolio at the time.

But we'll see that Buffett learns a valuable lesson, one still serving him well in 2023, as we're grappled with mass layoffs, inflation, and now bankruptcies. Unsurprisingly, Warren Buffett maintains a cautious approach, holding a sizable 130 billion dollars in cash, almost 20 percent of his total assets. Now, from Buffett to retail investors, all seek to safeguard and expand their wealth, leading top financial institutions like Goldman Sachs to invest billions in real assets and recommend them to their key clients.

In fact, in 2022, amid the stock market's worst year since 2008, real asset prices surged by 29 on average, according to Barron's. That asset includes museum-quality, multi-million dollar fine art. That's why since 2021, I have been investing with a company called Masterworks that offers investment in art from legends like Picasso and Banksy. While previously only accessible to high net worth individuals, Masterworks manages everything from acquisitions to sale, and they've already exited 11 paintings, all of them for a profit. In fact, their last three exits returned net profits of 10, 13, and 35 percent directly to investors like us. With contemporary art's low correlation to stocks and attractive historical appreciation, I'm happy that I've been invested with Masterworks. And with my link in the description, you can skip the waitlist and join me.

Fueled by technological innovation and globalization, the mid-1990s in America were a time of great economic growth for the newly crowned America's richest man. It's not necessarily good news; an overheated stock market means fewer investment opportunities. But Buffett ultimately succumbed to the pressure and temptation to invest. He acquires a giant insurance company called General Re for 22 billion dollars. He pays for it using Berkshire Hathaway stock—something Buffett has never done before.

"In my experience, most deals where equity is offered as the primary source of consideration seller accepts that because they believe that there's significant upside to that equity, acquire insists on that because they think the marketplace is probably overvaluing the equity." Buying something with stocks could be interpreted that Warren Buffett thought Berkshire Hathaway was too inflated, but buying the company during the height of the dot-com bubble is going to be a mistake that Buffett comes to regret.

Stocks ended mixed as Coca-Cola joined the list of companies warning that profits would not meet forecasts. Earnings growth expectations have just been too high, said Robert Natali, a portfolio manager at Bear Stearns Asset Management Inc. A mystic turmoil of a scandal sent Coca-Cola shares plummeting. Warren Buffett's recently acquired company, General Re, also faces a disaster of its own. In 1999, the company was defrauded out of a staggering 275 million dollars, jeopardizing Buffett's investment and threatening to undermine his reputation as one of the world's most successful investors.

As the bull market charges ahead, producing new millionaires at a breakneck pace, Warren Buffett's legendary investment record appears increasingly ordinary. To make matters worse, Buffett's personal life takes a dark turn. In the early 2000s, Buffett finds a tumor in his colon and is hospitalized for surgery. While Buffett recovers from the surgery, the stock market takes a nosedive, and the dot-com bubble finally bursts. They are already calling it Black Friday; it was the worst single-day point loss ever for both exchanges.

After the dot-com bubble, Buffett's reputation revives. He's not ready to re-enter the game and start scouting for companies selling at a discount. But there's a problem. Less than two years after the dot-com bubble, another major disaster hits the American finance industry. 9/11 was particularly bad for Warren Buffett because guess what? He owned a lot of insurance companies that had to pay billions in damages.

"Everyone," the Aztec Phil 47, "today was another volatile day with huge price swings for the Blue Chips as investors pondered the implications of President Bush's address to the nation last night." The 9/11 attacks shook the economy, but Buffett is determined to make a comeback. He sees an opportunity to buy companies at a steep discount, including the McLean Company and Business Wire. As Buffett's investment portfolio begins to bounce back by 2005, Buffett is back on the top of the business world again.

It's a status he's achieved through years of business acquisitions and brand building. Soon, his name and brand will be used to save Wall Street yet again from an impending financial catastrophe. The most expensive stock in the United States passed an unusual plateau yesterday as the price for a class A share of Berkshire Hathaway Inc. briefly surpassed one hundred thousand dollars.

In 2006, Warren Buffett's investment in January finally becomes profitable, bouncing back from earlier struggles. Above his senses that the market is overheated, he struggles to find new profitable investments. "It's a terrific game that way because you can sit there and wait and wait and wait for the right pitch, and there are not many things in life where you get that option. And that's exactly what you're doing now; that's what I do now. I've done it before."

In anticipation of this annual meeting, he has to say to the stockholders, "I've been waiting for the right pitch, and I haven't seen it." "That's right," he responds. "And some pitch somebody else can hit out of the park, you know, but I don't think I can. You know, that's my problem. But I'm not gonna, you know, I'm not gonna think I can hit a pitch that I can't."

But what he doesn't know is that a cataclysmic economic event is just two years away, poised to unleash financial destruction on a scale that is unheard of. "Right now, we're sitting down 875 points; we've now broken down ten thousand." The Dow Jones Industrial Average dropped more than 900 points as the housing crisis deepens. Berkshire's once impregnable fortress begins to crumble. One of the industry's most legendary firms suddenly finds itself on the precipice of ruin.

Desperate to restore confidence in the market and fend off financial disaster, Goldman Sachs turns to Warren Buffett. "You know, give us a chance to use that cash sensibly, and this was a five billion dollar opportunity to deploy cash sensibly." While bailing out Goldman Sachs, Buffett makes sure he gets a favorable deal from the bank that guarantees him a huge profit once the firm survives the crash.

He employs the same strategy with General Electric, investing three billion dollars in preferred stock that offers unlimited upside and no downside. 2008 was one of the best periods of time for Warren Buffett. He invested in a lot of troubled companies and even in distressed debts. Berkshire Hathaway was so invested that he ran out of cash for the first time ever.

While the housing crisis of 2008 becomes a thing of the past, the American economy has seen a remarkable resurgence, with the market experiencing one of the longest periods of prosperity. Shares of Berkshire Hathaway have soared to incredible heights. But now Buffett has a new problem. Warren Buffett has talked in the past or spoken about the difficulties of Berkshire Hathaway becoming so large. He says it's becoming increasingly difficult to find businesses that he can purchase or invest in that will move the needle in a dramatic fashion for Berkshire.

In 2016, his attention was drawn to an unexpected company: Apple. A long-standing avoided investment for Buffett, Berkshire Hathaway has taken in a one-billion dollar stake in Apple. According to a regulatory filing released today, Berkshire held almost 10 million shares of Apple in its first quarter. The company is possibly betting that the tech giant will rebound after a slowdown in iPhone sales. Despite his large investments in behemoth companies like Apple, Berkshire Hathaway's stock price remains stagnant.

If you look at Berkshire Hathaway's stock price for the past 15 years, until 2022, it behaved very similarly to the S&P 500. For the past five years, Buffett has been content to sit on the sidelines and observe the market's unprecedented boom driven by retail investors and cryptocurrencies. But after years of going through market cycles, Buffett and Munger are convinced that the time will come for the market to fall.

Bidding adieu to 2022 with a big good riddance, major averages all officially close out the year with their worst losses since the financial crisis. The NASDAQ down for four straight quarters for the first time since the dot-com bust. The year 2022 draws to a close, and the financial world is on the brink of a reckoning. The market has faltered, and the S&P 500 has plunged by 19 percent from the previous year.

At the same time, the once booming cryptocurrency market is cut in half, leaving investors reeling and unsure of what the future holds. While the rest of the market struggles to stay profitable, Buffett and Munger see the opportunity they have been waiting for. Over the course of eight intense months, Buffett and Munger make bold moves, investing in major companies such as Activision Blizzard and Celanese.

One should not just listen to what Warren Buffett says but actually study what he does. I think what Warren Buffett does better than a lot of other investors is that he puts in a lot of effort into building a brand, and that brand helps him make outsized returns that other investors simply can't do. He has such a status that he can move the market with his words alone.

With his unparalleled ability to steer the course of markets, Warren Buffett lives up to his name: the Oracle of Omaha.