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Collection: Mohnish Pabrai - #131 'Buffett's Investment In Diversified Retailing'


Video Link: https://youtu.be/oE88TrS_3So


In this episode, Mohnish Pabrai talks about why Warren Buffett, Sandy Gottesman and Charlie Munger formed a holding company, Diversified Retailing Company Inc?


In this episode, you’ll learn:

  • Brief history of Diversified Retailing Company Inc.

  • Why Warren Buffett, Sandy Gottesman and Charlie Munger formed Diversified Retailing?

To check out all Collection: Mohnish Pabrai <click here>

 

[Transcript]

(Source: https://youtu.be/bLjoL5zhBxA)

MOHNISH PABRAI 00:00

And one of the things that happened when they took control was one of the entities that bought about $6.5 million about approximately little more than 25-27% of the 60% was a company called Diversified Retailing.


So what happened is that Warren Buffett, a guy named Sandy Gottesman is on the board of Berkshire Hathaway now and Charlie Munger formed this company called Diversified Retailing, 80% was owned by Buffett Partnership, 10% by Gottesman and 10% by the Wheeler, Munger Partnership. And they had raised $5.5 million of debt with the help of Goldman Sachs to buy retail operations and actually bought a department store in Baltimore.


And what ended up happening with the department store, they realized it was a mistake and they were very lucky about 2-3 years later to be able to sell it for what they bought for, but then they raise this debt, the debt didn’t have too many covenants and they took the $6.5 million that originally was meant to go to the department store, and they put that Blue Chip as well.


So basically, there was about $18.5 million of equity and about $5.5 million of debt that went in and it became the 60% of Blue Chip they controlled.


And Blue Chip with this $24 million they invested had well over a hundred million of float and it had another, you know, $40-50 million of equity so that a lot of assets that they got control of without spending that much money.

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