Jacob McDonough: What to learn from Warren Buffett’s Capital Allocation?

Jacob McDonough, author of Capital Allocation

“I was very laser-focused on trying to see how capital moved from the textile mill into better businesses.”

[00:00:52]

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The book

Capital Allocation: The Financials of a New England Textile Mill 1955-1985

by Jacob McDonough

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Tilman Versch [00:00:00] Warm welcome to the Good Investing Talks podcast. I’m your host Tilman Versch, and the Berkshire meeting is coming again in a good tradition, I want to use the chance to share interesting events and interesting content about the Berkshire meeting on this channel in the weeks ahead. So here you can find invites to events that are happening on the ground or interesting content. I hope you enjoy it and please RSVP to the many events, thank you.

Dear viewers of Good Investing Talks. It’s great to have you back and also have you back for the first video in my new studio in Berlin and this video is about the Berkshire meeting. I’m very happy to have Jacob here. He’s written a book about Berkshire. Maybe you want to say something about the book. What’s the title? When you’ve written it, and what is it about?

Jacob McDonough [00:00:52] Yeah, Tilman. Thanks for having me. So I wrote the book in May of 2020. And so it’s on Berkshire’s early history from the point of view of what an investor could have seen during that time period, so I was very laser-focused on trying to see how capital moved from the textile mill into better businesses. And so it’s really trying to track that from a financial statement and annual report point of view. And it was a lot of fun to put together.

Tilman Versch [00:01:22] Sounds great. We’re doing this interview in a small series for the Berkshire meeting because we are both there and I’m really looking forward to seeing you again in person after we’ve seen us in the Engelberg Dorf meeting. What drives you to write such a book. It’s not like the usual topic, a young man writes about.

Jacob McDonough [00:01:43] Yeah, it was the book I wanted to read, and I was convinced I would find kind of the data I was interested in if I read more and more books, but I couldn’t find exactly what I wanted, so I had to track down some of the old annual reports of Berkshire, as well as some of the companies they acquired at libraries and through other sources.

And it took quite a bit of time. I figured there might be some people interested in that data who don’t have the time to track it down and analyse it. So that was the inspiration behind it. I also self-published the book so that was also kind of exciting to me not having to go through an editor or a publisher and no gatekeeper. So I was able just to kind of write the book how I wanted and just put it right up to Amazon and see if anyone was interested.

Tilman Versch [00:02:30] And people are interested in it?

Jacob McDonough [00:02:32] It appears so.

Tilman Versch [00:02:33] Yeah, it’s fascinating. We had our Zoom call in the community and five people showed up with your book or something like that. It’s great. And did Berkshire also help you with getting back with feedback on the sources you’re looking for?

Jacob McDonough [00:02:53] Oh, so not really. So I reached out to them just to confirm that it was OK to use certain quotes from the annual reports and from Warren Buffett’s letters to shareholders. So they were very quick and kind to approve my use of the quotes. But after I published the book, I sent copies and a few months later. I received a nice note back, so they did read it, but they didn’t really help with anything on the front end. They more so just approved it and we’re kind to not kind of stand in my way there.

Tilman Versch [00:03:23] So it’s Berkshire proved the book. That’s great. And what is like maybe your key takeaway from writing this book and from learning about Berkshire’s early history?

Jacob McDonough [00:03:37] Yeah. The key takeaway to me is my mind’s still blowing about how great Berkshire is today. It all started from three failed businesses, the original textile mill. Hochschild Kohn was a department store retailer and blue chip stamps, a loyalty programme for retailers, my book ends in 1985, so by that time frame, all three of those businesses basically had failed. And so just trying to track in the early years how they got capital out of those businesses to allow it to survive past 1985. It’s fascinating and it’s a story. I don’t think that’s ever been seen in the business world before this, so it’s definitely worth studying.

And more people are invited to get your book via the link below, or they can get it directly from you with assigning. What are the optionalities for this in Omaha?

Jacob McDonough [00:05:05] Yeah. So in Omaha, I’ll be at the arena on Friday and Saturday. So the books for sale at the Bookworm, it’s a local Omaha bookstore. In the arena, right where See‘s Candy and all the other Berkshire products are for sale. Berkshire also invites the bookworm to sell books there. So I’ll be there signing books on Friday and Saturday. And then Sunday, the book will be for sale in the air or I’ll be there as well signing books if anyone’s interested as they catch their flight out of Omaha Sunday.

Tilman Versch [00:05:35] So for the airport event viewer also add some details in our event schedule and otherwise may I think most people will find the arena. Is there anything you want to add that’s important to know about your book and writing about Berkshire?

Jacob McDonough [00:05:54] Yeah, it’s not too much to add, I think, excited for the event in Omaha and excited to meet people. There are plenty of people in the arena and plenty of events outside of even Saturday, so it will be a lot of fun.

Tilman Versch [00:06:13] Great. And if people want to buy you a book and get it signed. Come to the arena in Omaha. You are there at the bookworms. Thank you.

Jacob McDonough [00:06:24] Thanks, Tilman.

Tilman Versch [00:06:24] And bye-bye to the audience.

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Jacob McDonough

Author of Capital Allocation

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