if he was going to buy some .”
His weekly telephone calls became regular weekend flights to Omaha to share ideas and potential deals . Buffett recalled that on one weekend trip , “ Sandy arrived about 4 p . m . at my office and we talked nonstop together until 2 a . m . When we finally decided to leave , we discovered that we were locked in the building by a gate . We had to call security , who eventually came and let us out .”
Diversified Retailing
In his interview for the HBO documentary , Gottesman stated that “ in the late ’ 60s , Warren was not so interested in stocks anymore . I called him up and suggested he buy something that belonged to my wife ’ s family , and it was a department store in Baltimore [ Hochschild Kohn ]. Warren and Charlie [ Munger ] flew in , because this was a fairly big deal at the time , and it was the number one department store in Baltimore . Within 24 hours he made up his mind that the price was right , and he would buy .”
Buffett created a new company , Diversified Retailing , owned 80 % by the Buffett Partnership , 10 % by First Manhattan ( Gottesman ’ s company ) and 10 % by Wheeler Munger ( Munger ’ s fund ). They met with the loan officer of First National Bank of Maryland to request a $ 6 million loan for Diversified to finance the purchase of Hochschild Klein . Buffett recalled that the loan officer was very reluctant to make the loan , so he told him they would just get it from another bank . The loan officer changed his mind and made the loan .
A year later , Buffett had second thoughts . The retail business was very competitive , and even though the department store was profitable , it kept expanding and putting money back into new branches . According to Gottesman , Buffett told him , “ I like businesses that throw off cash . I don ’ t like businesses that eat a lot of cash . Why don ’ t you think about selling it ?” And he did . Buffett said , “ Sandy bailed us out of a losing proposition .” There were four department stores , including Hochschild Kohn , in the center of Baltimore . The profitability of all these stores deteriorated over time .
Instead of closing Diversified Retailing , Buffett used the cash from the sale of Hochschild Kohn to invest in other businesses , including Columbia Insurance , Associated Retail Stores , Reinsurance Corp of Nebraska , Blue Chip Stamps ( controlled by Munger ) and Berkshire Hathaway , in a complicated maze of crossholdings . Eventually , in 1977 , Buffett merged Diversified Retailing into Berkshire Hathaway in a stock swap . That is how Gottesman became a shareholder of Berkshire Hathaway . He held on to his holdings and added more , letting the shares compound exponentially over time into billions . By March 2021 , Gottesman had a monetary interest in 6,402 class A voting shares worth $ 2.4 billion .
Buffett recently wrote a dedication to Gottesman in Larry Cunningham ’ s eighth edition of The Essays of Warren Buffett . Referring to the Diversified Retailing era , he wrote , “ Sandy , Charlie Munger and I became financial partners in 1966 … During the next 56 years we remained partners in various ways .” He and Gottesman “ never had an argument of any sort between the two of us . Even more remarkable , Sandy never privately said anything to me about Charlie [ Munger ] that was negative and the same is true with Charlie when he talked with me about Sandy . It ’ s difficult to think of a marriage about which a similar statement could be made , as well as most business relationships .”
At the 1994 Berkshire Hathaway annual meeting , Gottesman took the microphone during the Q & A session and shared a touching tribute on behalf of Berkshire shareholders worldwide . He made the following points :
• Berkshire stands unique in American business as a company whose name has become synonymous with management excellence .
• Unlike many American corporations , we , as stockholders , don ’ t have to worry about reorganizations , large write-offs , massive restructurings , overstated earnings and overpaid executives with strategic visions .
• Instead , year in and year out , we enjoy the benefits of the common sense and brilliance of Charlie and Warren .
• It ’ s easy to take such consistently outstanding results for granted , but we in this room are the direct beneficiaries of their efforts . By our presence here today , we show our appreciation to them for their exceptional performance .
This was one of the few public statements Gottesman made during his career . Buffett then quipped : “ Thank you . That was Sandy Gottesman . We ’ ve worked
The Buffett Group in 1969 . Sandy Gottesman is standing to the right of Benjamin Graham and Warren Buffett , and to the left of Charlie Munger .
Edwin Schloss www . MoAF . org | Fall 2023 | FINANCIAL HISTORY 25