Warren Buffett Bought A $1.7 Billion Business 'Over The Phone' Without Meeting Founder By Using What He Calls The 'Most Important' Skill
Warren Buffett's knack for understanding the intricacies of business and using that knowledge to build an empire is nothing short of legendary. With a portfolio that has bolstered Berkshire Hathaway to nearly a trillion-dollar value, his approach isn't just sound; it's awe-inspiring. But what does Buffett think is the secret ingredient for success in the business world? If you guessed ‘accounting,' you'd be right on the money.
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"People ask me what they should take in business school," Buffett once shared during a speech to graduates at his alma mater, the University of Nebraska-Lincoln. "You have to understand accounting. It's the language. It's like being in a foreign country without knowing the language if you're in business and you don't understand accounting." He emphasized, "There is nothing more important."
For Buffett, accounting is more than just numbers on a page. It's a tool kit, a lens through which he evaluates potential investments. He doesn't just stop at understanding financial statements; he uses them as a window into the soul of a business.
His ability to read between the lines of 10-Ks, 10-Qs and annual reports has fueled some of his most legendary deals, often with just a few key insights tipping the scales in his favor.
One of the best examples? In the University of Nebraska-Lincoln speech, Buffett recounted a 2003 moment when he was considering an acquisition of Clayton Homes, a leader in the manufactured home sector.
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"We agreed to pay $1.7 billion for it," Buffett said, emphasizing that accounting insights guided the decision. He explained, "I made that deal over the phone without ever meeting the people there, but I had seen enough through reading 10-Ks, 10-Qs and annual reports." Buffett continued, "By looking at figures, I could discern what they told me in terms of the kind of people running the place and the kind of accounting decisions they made." His confidence in understanding the numbers allowed him to execute the transaction successfully, demonstrating the critical role that thorough financial scrutiny plays in high-stakes business decisions.