More Praise for The Warren Buffett Way, First Edition

parted,” Buffett wrote, “was ‘if you have the lowest price, customers will
find you at the bottom of a river.’ Our store serving greater Kansas City,
which is located in one of the area’s more sparsely populated parts, has
proved Mrs. B’s point. Though we have more than 25 acres of parking,
the lot has at times overf lowed.”
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In January 1986, Buffett paid $315 million in cash for the Scott &
Fetzer Company, a conglomerate of twenty-one separate companies, in-
cluding the makers of Kirby vacuum cleaners and 
World Book
encyclo-
pedia. It was one of Berkshire’s largest business acquisitions up to that
point, and has since exceeded Buffett’s own optimistic expectations. It is
a model of an organization that creates a large return on equity with
very little debt—and that is one of Buffett’s favorite traits. In fact, he
calculates that Scott Fetzer’s return on equity would easily place it
among the top 1 percent of the Fortune 500.
Scott Fetzer’s various companies make a range of rather specialized
(some would say boring) industrial products, but what they really make
is money for Berkshire Hathaway. Since Buffett bought it, Scott Fetzer
has distributed over 100 percent of its earnings back to Berkshire while
simultaneously increasing its own earnings.
In recent years, Warren Buffett has turned more and more of his at-
tention to buying companies instead of shares. The story of how Buffett
came to acquire these diverse businesses is interesting in itself. Perhaps
more to the point, the stories collectively give us valuable insight into
Buffett’s way of looking at companies. In this chapter, we have space
for an abbreviated visit to just three of these acquisitions, but that is by
no means all. To illustrate the wide range of industries within Berk-
shire, here are a few examples of recent acquisitions:
• Fruit of the Loom, which produces one-third of the men’s and
boys’ underwear sold in the United States. Purchased in 2002 for
$835 million, which, after accounting for the earned interest on
assumed debt, was a net of $730 million.
• Garan, which makes children’s clothing, including the popular
Garanimals line. Purchased in 2002 for $270 million.
• MiTek, which produces structural hardware for the building in-
dustry. Purchased in 2001 for $400 million. An interesting as-
pect of this deal is that Berkshire now owns only 90 percent of

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B u y i n g a B u s i n e s s
4 5
the company. The other 10 percent is owned by 55 managers
who love their company and wanted to be part owners; this en-
trepreneurial spirit among management is one of the qualities
Buffett looks for.
• Larson-Juhl, the leading supplier of framing materials to custom
framing shops. Purchased in 2001 for $225 million.
• CORT Business Services, which leases quality furniture to offices
and corporate-owned apartments. Purchased in 2000 for $467
million, including $83 million of debt.
• Ben Bridge Jeweler, a West Coast chain owned and operated by
the same family for four generations. A requirement of the pur-
chase was that the Bridge family remain to manage the company.
Purchased in 2000 for a price not disclosed publicly.
• Justin Industries, which makes Western boots ( Justin, Tony Lama,
and other brands) and, under the Acme brand name, bricks. Pur-
chased in 2000 for $600 million.
• Benjamin Moore, which has been making paint for 121 years.
Purchased in 2000 for $1 billion.
• Shaw Industries, the largest manufacturer of carpeting in the
world. Purchased 87 percent of the company in 2000 and the re-
mainder in early 2002, for a total of $2 billion. Currently, Shaw is,
except for insurance, Berkshire’s largest business, with 2003 earn-
ings of $436 million.
C L AY T O N H O M E S
In 1966, James Clayton, the son of a Tennessee sharecropper, started a
mobile home business with $25,000 of borrowed money. Within four
years, Clayton Homes was selling 700 units annually. Clayton is now
one of the largest makers of manufactured homes in the United States,
with about $1.2 billion in sales in 2003. Home models range from
modest (500 square feet, priced at $10,000) to luxury ($100,000 for
1,500 square feet, with hardwood f loors, stainless steel appliances, and
island kitchens).
Clayton has about 976 retailers in the United States, including 302
company-owned stores, 86 company-owned community sales off ices,
and 588 manufactured housing communities in 33 states. It also owns

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4 6
T H E W A R R E N B U F F E T T W AY
and operates f inancing, loan-servicing, and insurance subsidiaries. The
company went public in 1983, and Berkshire Hathaway acquired it in
August 2003 for $1.7 billion.
James Clayton gained his experience and education the hard way.
Determined to pull himself out of the backbreaking work his parents
endured ( his father picked cotton and his mother worked in a shirt
factory), Clayton f inanced his education at the University of Tennessee
by playing guitar on the radio. He eventually became a part-time host
on