Berkshire Hathaway's Version of the 1927 New York Yankees

1 minutes reading time
Published 12 Jun 2024
Reviewed by: Peter Westberg

The 1927 New York Yankees, featuring the “Murderers Row” of batters, is considered by many to be the greatest baseball team ever. The roster included nine Hall of Famers: pitchers Herb Pennock and Waite Hoyt, infielders Lou Gehrig and Tony Lazzeri, outfielders Babe Ruth and Earle Combs, manager Miller Huggins, team president Ed Barrow, and owner Colonel Jacob Ruppert. But what can we as investors learn from this?

Well, in his 1989 letter to shareholders, Warren Buffett introduces us to his and Berkshire Hathaway’s Hall-of-Fame-packed team of managers – their version of the 1927 Yankees – as he puts it himself. The introduction includes not only updates on all of Berkshire’s then-non-insurance operations but also incredible stories about each company and its high-achieving managers. Buffett also shares insights into the success formula of Nebraska Furniture Mart (NFM) and See’s Candies, offering fantastic insights into his strategic thinking at the time.

“Most of these managers have no need to work for a living; they show up at the ballpark because they like to hit home runs. And that’s exactly what they do.”

So, let’s turn back the time to 1989 and explore through Buffett’s lens, for example, why Ike Friedman at Borsheim’s brought $20 million of fancy merchandise to a Santa Fe gathering, the reason behind Rose “Mrs. B” Blumkin quitting after 52 years at NFM (but still continuing to work seven days a week at age 96), and much more.

Here’s Buffett in his 1989 letter to shareholders, introducing us to Berkshire’s version of the 1927 Yankees:

In the past, we have labeled our major manufacturing, publishing, and retail operations “The Sainted Seven.” With our acquisition of Borsheim’s early in 1989, the challenge was to find a new title both alliterative and appropriate. We failed: Let’s call the group “The Sainted Seven Plus One.”

This divine assemblage – Borsheim’s, The Buffalo News, Fechheimer Bros., Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing Group, See’s Candies, and World Book – is a collection of businesses with economic characteristics that range from good to superb. Its managers range from superb to superb.

Most of these managers have no need to work for a living; they show up at the ballpark because they like to hit home runs. And that’s exactly what they do. Their combined financial statements (including those of some smaller operations), shown on page 49, illustrate just how outstanding their performance is. On an historical accounting basis, after-tax earnings of these operations were 57% on average equity capital. Moreover, this return was achieved with no net leverage: Cash equivalents have matched funded debt. When I call off the names of our managers – the Blumkin, Friedman, and Heldman families, Chuck Huggins, Stan Lipsey, and Ralph Schey – I feel the same glow that Miller Huggins must have experienced when he announced the lineup of his 1927 New York Yankees.

Let’s take a look, business by business:


In its first year with Berkshire, Borsheim’s met all expectations. Sales rose significantly and are now considerably better than twice what they were four years ago when the company moved to its present location. In the six years prior to the move, sales had also doubled. Ike Friedman, Borsheim’s managing genius – and I mean that – has only one speed: fast-forward.

If you haven’t been there, you’ve never seen a jewelry store like Borsheim’s. Because of the huge volume it does at one location, the store can maintain an enormous selection across all price ranges. For the same reason, it can hold its expense ratio to about one-third that prevailing at jewelry stores offering comparable merchandise. The store’s tight control of expenses, accompanied by its unusual buying power, enables it to offer prices far lower than those of other jewelers. These prices, in turn, generate even more volume, and so the circle goes ‘round and ‘round. The end result is store traffic as high as 4,000 people on seasonally-busy days.

Ike Friedman is not only a superb businessman and a great showman but also a man of integrity. We bought the business without an audit, and all of our surprises have been on the plus side. “If you don’t know jewelry, know your jeweler” makes sense whether you are buying the whole business or a tiny diamond.

A story will illustrate why I enjoy Ike so much: Every two years I’m part of an informal group that gathers to have fun and explore a few subjects. Last September, meeting at Bishop’s Lodge in Santa Fe, we asked Ike, his wife Roz, and his son Alan to come by and educate us on jewels and the jewelry business.

Ike decided to dazzle the group, so he brought from Omaha about $20 million of particularly fancy merchandise. I was somewhat apprehensive – Bishop’s Lodge is no Fort Knox – and I mentioned my concern to Ike at our opening party the evening before his presentation. Ike took me aside. “See that safe?” he said. “This afternoon we changed the combination and now even the hotel management doesn’t know what it is.” I breathed easier. Ike went on: “See those two big fellows with guns on their hips? They’ll be guarding the safe all night.” I now was ready to rejoin the party. But Ike leaned closer: “And besides, Warren,” he confided, “the jewels aren’t in the safe.”

How can we miss with a fellow like that – particularly when he comes equipped with a talented and energetic family, Alan, Marvin Cohn, and Don Yale.

Quartr Pro is revolutionizing professional public market research

Request a personal demo to learn why Quartr Pro is quickly being adopted by leading asset managers, hedge funds, investor relations departments, and sell-side analysts worldwide.


See’s Candies

At See’s Candies we had an 8% increase in pounds sold, even though 1988 was itself a record year. Included in the 1989 performance were excellent same-store poundage gains, our first in many years.

Advertising played an important role in this outstanding performance. We increased total advertising expenditures from $4 million to $5 million and also got copy from our agency, Hal Riney & Partners, Inc., that was 100% on the money in conveying the qualities that make See’s special.

In our media businesses, such as the Buffalo News, we sell advertising. In other businesses, such as See’s, we are buyers. When we buy, we practice exactly what we preach when we sell. At See’s, we more than tripled our expenditures on newspaper advertising last year, to the highest percentage of sales that I can remember. The payoff was terrific, and we thank both Hal Riney and the power of well-directed newspaper advertising for this result.

See’s splendid performances have become routine. But there is nothing routine about the management of Chuck Huggins: His daily involvement with all aspects of production and sales imparts a quality-and-service message to the thousands of employees we need to produce and distribute over 27 million pounds of candy annually. In a company with 225 shops and a massive mail order and phone business, it is no small trick to run things so that virtually every customer leaves happy. Chuck makes it look easy.

Nebraska Furniture Mart

The Nebraska Furniture Mart had record sales and excellent earnings in 1989, but there was one sad note. Mrs. B – Rose Blumkin, who started the company 52 years ago with $500 – quit in May, after disagreeing with other members of the Blumkin family/management about the remodeling and operation of the carpet department.

Mrs. B probably has made more smart business decisions than any living American, but in this particular case I believe the other members of the family were entirely correct: Over the past three years, while the store’s other departments increased sales by 24%, carpet sales declined by 17% (but not because of any lack of sales ability by Mrs. B, who has always personally sold far more merchandise than any other salesperson in the store).

You will be pleased to know that Mrs. B continues to make Horatio Alger’s heroes look like victims of tired blood. At age 96 she has started a new business selling – what else? – carpet and furniture. And as always, she works seven days a week.

At the Mart Louie, Ron, and Irv Blumkin continue to propel what is by far the largest and most successful home furnishings store in the country. They are outstanding merchants, outstanding managers, and a joy to be associated with. One reading on their acumen: In the fourth quarter of 1989, the carpet department registered a 75.3% consumer share in the Omaha market, up from 67.7% a year earlier and over six times that of its nearest competitor.

NFM and Borsheim’s follow precisely the same formula for success: (1) unparalleled depth and breadth of merchandise at one location; (2) the lowest operating costs in the business; (3) the shrewdest of buying, made possible in part by the huge volumes purchased; (4) gross margins, and therefore prices, far below competitors’; and (5) friendly personalized service with family members on hand at all times.

Another plug for newspapers: NFM increased its linage in the local paper by over 20% in 1989 – off a record 1988 – and remains the paper’s largest ROP advertiser by far. (ROP advertising is the kind printed in the paper, as opposed to that in preprinted inserts.) To my knowledge, Omaha is the only city in which a home furnishings store is the advertising leader. Many retailers cut space purchases in 1989; our experience at See’s and NFM would indicate they made a major mistake.

The Buffalo News

The Buffalo News continued to star in 1989 in three important ways: First, among major metropolitan papers, both daily and Sunday, the News is number one in household penetration – the percentage of local households that purchase it each day. Second, in “news hole” – the portion of the paper devoted to news – the paper stood at 50.1% in 1989 vs. 49.5% in 1988, a level again making it more news-rich than any comparable American paper. Third, in a year that saw profits slip at many major papers, the News set its seventh consecutive profit record.

To some extent, these three factors are related, though obviously a high-percentage news hole, by itself, reduces profits significantly. A large and intelligently-utilized news hole, however, attracts a wide spectrum of readers and thereby boosts penetration. High penetration, in turn, makes a newspaper particularly valuable to retailers since it allows them to talk to the entire community through a single “megaphone.” A lowpenetration paper is a far less compelling purchase for many advertisers and will eventually suffer in both ad rates and profits.

It should be emphasized that our excellent penetration is neither an accident nor automatic. The population of Erie County, home territory of the News, has been falling – from 1,113,000 in 1970 to 1,015,000 in 1980 to an estimated 966,000 in 1988. Circulation figures tell a different story. In 1975, shortly before we started our Sunday edition, the Courier-Express, a long-established Buffalo paper, was selling 207,500 Sunday copies in Erie County. Last year – with population at least 5% lower – the News sold an average of 292,700 copies. I believe that in no other major Sunday market has there been anything close to that increase in penetration.

When this kind of gain is made – and when a paper attains an unequaled degree of acceptance in its home town – someone is doing something right. In this case major credit clearly belongs to Murray Light, our long-time editor who daily creates an informative, useful, and interesting product. Credit should go also to the Circulation and Production Departments: A paper that is frequently late, because of production problems or distribution weaknesses, will lose customers, no matter how strong its editorial content.

Stan Lipsey, publisher of the News, has produced profits fully up to the strength of our product. I believe Stan’s managerial skills deliver at least five extra percentage points in profit margin compared to the earnings that would be achieved by an average manager given the same circumstances. That is an amazing performance, and one that could only be produced by a talented manager who knows – and cares – about every nut and bolt of the business.

Stan’s knowledge and talents, it should be emphasized, extend to the editorial product. His early years in the business were spent on the news side and he played a key role in developing and editing a series of stories that in 1972 won a Pulitzer Prize for the Sun Newspaper of Omaha. Stan and I have worked together for over 20 years, through some bad times as well as good, and I could not ask for a better partner.


At Fechheimer, the Heldman clan – Bob, George, Gary, Roger, and Fred – continue their extraordinary performance. Profits in 1989 were down somewhat because of problems the business experienced in integrating a major 1988 acquisition. These problems will be ironed out in time. Meanwhile, return on invested capital at Fechheimer remains splendid.

Like all of our managers, the Heldmans have an exceptional command of the details of their business. At last year’s annual meeting I mentioned that when a prisoner enters San Quentin, Bob and George probably know his shirt size. That’s only a slight exaggeration: No matter what area of the country is being discussed, they know exactly what is going on with major customers and with the competition.

Though we purchased Fechheimer four years ago, Charlie and I have never visited any of its plants or the home office in Cincinnati. We’re much like the lonesome Maytag repairman: The Heldman managerial product is so good that a service call is never needed.

World Book, Kirby, and the Scott Fetzer Manufacturing Companies

Ralph Schey continues to do a superb job in managing our largest group – World Book, Kirby, and the Scott Fetzer Manufacturing Companies. Aggregate earnings of these businesses have increased every year since our purchase and returns on invested capital continue to be exceptional. Ralph is running an enterprise large enough, were it standing alone, to be on the Fortune 500. And he’s running it in a fashion that would put him high in the top decile, measured by return on equity.

For some years, World Book has operated out of a single location in Chicago’s Merchandise Mart. Anticipating the imminent expiration of its lease, the business is now decentralizing into four locations. The expenses of this transition are significant; nevertheless profits in 1989 held up well. It will be another year before costs of the move are fully behind us.

Kirby’s business was particularly strong last year, featuring large gains in export sales. International business has more than doubled in the last two years and quintupled in the past four; its share of unit sales has risen from 5% to 20%. Our largest capital expenditures in 1989 were at Kirby, in preparation for a major model change in 1990.

Ralph’s operations contribute about 40% of the total earnings of the non-insurance group whose results are shown on page 49. When we bought Scott Fetzer at the start of 1986, our acquisition of Ralph as a manager was fully as important as our acquisition of the businesses. In addition to generating extraordinary earnings, Ralph also manages capital extremely well. These abilities have produced funds for Berkshire that, in turn, have allowed us to make many other profitable commitments.

And that completes our answer to the 1927 Yankees.

Ending Thoughts

Whether your interest lies in business, investing, personal development, leadership, or somewhere else, you should not miss the immense opportunity to learn from history’s greatest. Warren Buffett’s annual letters to Berkshire Hathaway’s shareholders are a prime example of this, where we get to follow the thinking and reasoning behind what made Berkshire Hathaway the largest and most coveted holding company worldwide.

Why are finance professionals around the world choosing Quartr Pro?

With a broad global customer base spanning from equity analysts, portfolio managers, to IR departments, the reasons naturally vary, but here are four that we often hear:

Increase productivity

Eliminate hours of searching for specific data points buried deep inside company material.

Get a one-stop-shop solution

Everything you need for qualitative public market research in one single platform.

Uncover rare insights

Understand the qualitative aspects of entire industries or specific companies.

Leverage the power of AI

Incorporate AI functionality into your daily workflow.