In 1985, Warren Buffett had to make an incredibly difficult decision. Which was whether to shut down the textile business Hathaway Mills — the original business Warren acquired, which was where Berkshire Hathaway got half of its name.

In today's episode, I break down that decision and why the ultimately closed the business with a summary of Warren Buffett's Annual Letter from 1985.

Why cover this?

Because it's a fascinating look at how Warren went about making a phenomenally challenging decision — one that was close to his own heart. And I think it offers a lot of insight into how we can all go about analyzing and ultimately making difficult decisions in our own work and lives.

Here's a quick excerpt of that letter:

Over the years, we had the option of making large capital expenditures and the textile operation that would have allowed us to somewhat reduce variable costs.

Each proposal to do so looked like an immediate winner. Measured by standard return on investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly profitable candy and newspaper businesses.

But the promised benefits from these textile investments were illusory.

Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures. And once enough companies did so, their reduced costs became the baseline for reduced prices industry-wide.

Viewed individually, each company's capital investment decisions appeared cost-effective and rational. Viewed collectively, the decisions neutralized each other and were irrational, just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes.

After each round of investment, all the players had more money in the game and returns remained anemic. Thus we faced a miserable choice.

Huge capital investment would have helped to keep our textile business alive, but would have left us with terrible returns on our ever-growing amounts of capital. After the investment, moreover, the foreign competition would still have retained a major continuing advantage in labor costs.

A refusal to invest, however, would make us increasingly non-competitive, even measured against domestic textile manufacturers.

I always thought myself in the position described by Woody Allen in one of his movies. "More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction." Let us pray we have the wisdom to choose correctly.

"The Anxieties of Business Change" by Warren Buffett

Here's the full excerpt from the Berkshire Hathaway's 1985 Shareholder Letter:

In July we decided to close our textile operation, and by yearend this unpleasant job was largely completed. The history of this business is instructive.

When Buffett Partnership, Ltd., an investment partnership of which I was general partner, bought control of Berkshire Hathaway 21 years ago, it had an accounting net worth of $22 million, all devoted to the textile business. The company’s intrinsic business value, however, was considerably less because the textile assets were unable to earn returns commensurate with their accounting value. Indeed, during the previous nine years (the period in which Berkshire and Hathaway operated as a merged company) aggregate sales of $530 million had produced an aggregate loss of $10 million. Profits had been reported from time to time but the net effect was always one step forward, two steps back.

At the time we made our purchase, southern textile plants — largely non-union —opal were believed to have an important competitive advantage. Most northern textile operations had closed and many people thought we would liquidate our business as well.

We felt, however, that the business would be run much better by a long-time employee whom. we immediately selected to be president, Ken Chace. In this respect we were 100% correct: Ken and his recent successor, Garry Morrison, have been excellent managers, every bit the equal of managers at our more profitable businesses.

In early 1967 cash generated by the textile operation was used to fund our entry into insurance via the purchase of National Indemnity Company. Some of the money came from earnings and some from reduced investment in textile inventories, receivables, and fixed assets. This pullback proved wise: although much improved by Ken’s management, the textile business never became a good earner, not even in cyclical upturns.

Further diversification for Berkshire followed, and gradually the textile operation’s depressing effect on our overall return diminished as the business became a progressively smaller portion of the corporation. We remained in the business for reasons that I stated in the 1978 annual report (and summarized at other times also): “(1) our textile businesses are very important employers in their communities, (2) management has been straightforward in reporting on problems and energetic in attacking them, (3) labor has been cooperative and understanding in facing our common problems, and (4) the business should average modest cash returns relative to investment.” I further said, “As long as these conditions prevail — and we expect that they will — we intend to continue to support our textile business despite more attractive alternative uses for capital.”

It turned out that I was very wrong about (4). Though 1979 was moderately profitable, the business thereafter consumed major amounts of cash. By mid-1985 it became clear, even to me, that this condition was almost sure to continue. Could we have found a buyer who would continue operations, I would have certainly preferred to sell the business rather than liquidate it, even if that meant somewhat lower proceeds for us. But the economics that were finally obvious to me were also obvious to others, and interest was nil.

I won’t close down businesses of sub-normal profitability merely to add a fraction of a point to our corporate rate of return. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition, and Karl Marx would disagree with my second; the middle ground is the only position that leaves me comfortable.

I should reemphasize that Ken and Garry have been resourceful, energetic and imaginative in attempting to make our textile operation a success. Trying to achieve sustainable profitability, they reworked product lines, machinery configurations and distribution arrangements. We also made a major acquisition, Waumbec Mills, with the expectation of important synergy (a term widely used in business to explain an acquisition that otherwise makes no sense). But in the end nothing worked and I should be faulted for not quitting sooner. A recent Business Week article stated that 250 textile mills have closed since 1980. Their owners were not privy to any information that was unknown to me; they simply processed it more objectively. I ignored Comte’s advice — “the intellect should be the servant of the heart, but not its slave” — and believed what I preferred to believe.

The domestic textile industry operates in a commodity business, competing in a world market in which substantial excess capacity exists. Much of the trouble we experienced was attributable, both directly and indirectly, to competition from foreign countries whose workers are paid a small fraction of the U.S. minimum wage. But that in no way means that our labor force deserves any blame for our closing. In fact, in comparison with employees of American industry generally, our workers were poorly paid, as has been the case throughout the textile business. In contract negotiations, union leaders and members were sensitive to our disadvantageous cost position and did not push for unrealistic wage increases or unproductive work practices. To the contrary, they tried just as hard as we did to keep us competitive. Even during our liquidation period they performed superbly. (Ironically, we would have been better off financially if our union had behaved unreasonably some years ago; we then would have recognized the impossible future that we faced, promptly closed down, and avoided significant future losses.)

Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businesses.

But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industrywide. Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic.

Thus, we faced a miserable choice: huge capital investment would have helped to keep our textile business alive, but would have left us with terrible returns on ever-growing amounts of capital. After the investment, moreover, the foreign competition would still have retained a major, continuing advantage in labor costs. A refusal to invest, however, would make us increasingly non-competitive, even measured against domestic textile manufacturers. I always thought myself in the position described by Woody Allen in one of his movies: “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly.”

For an understanding of how the to-invest-or-not-to-invest dilemma plays out in a commodity business, it is instructive to look at Burlington Industries, by far the largest U.S. textile company both 21 years ago and now. In 1964 Burlington had sales of $1.2 billion against our $50 million. It had strengths in both distribution and production that we could never hope to match and also, of course, had an earnings record far superior to ours. Its stock sold at 60 at the end of 1964; ours was 13.

Burlington made a decision to stick to the textile business, and in 1985 had sales of about $2.8 billion. During the 1964-85 period, the company made capital expenditures of about $3 billion, far more than any other U.S. textile company and more than $200-per-share on that $60 stock. A very large part of the expenditures, I am sure, was devoted to cost improvement and expansion. Given Burlington’s basic commitment to stay in textiles, I would also surmise that the company’s capital decisions were quite rational.

Nevertheless, Burlington has lost sales volume in real dollars and has far lower returns on sales and equity now than 20 years ago. Split 2-for-1 in 1965, the stock now sells at 34 — on an adjusted basis, just a little over its $60 price in 1964. Meanwhile, the CPI has more than tripled. Therefore, each share commands about one-third the purchasing power it did at the end of 1964. Regular dividends have been paid but they, too, have shrunk significantly in purchasing power.

This devastating outcome for the shareholders indicates what can happen when much brain power and energy are applied to a faulty premise. The situation is suggestive of Samuel Johnson’s horse: “A horse that can count to ten is a remarkable horse — not a remarkable mathematician.” Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company — but not a remarkable business.

My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Some years ago I wrote: “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.

***

There is an investment postscript in our textile saga. Some investors weight book value heavily in their stock-buying decisions (as I, in my early years, did myself). And some economists and academicians believe replacement values are of considerable importance in calculating an appropriate price level for the stock market as a whole. Those of both persuasions would have received an education at the auction we held in early 1986 to dispose of our textile machinery.

The equipment sold (including some disposed of in the few months prior to the auction) took up about 750,000 square feet of factory space in New Bedford and was eminently usable. It originally cost us about $13 million, including $2 million spent in 1980-84, and had a current book value of $866,000 (after accelerated depreciation). Though no sane management would have made the investment, the equipment could have been replaced new for perhaps $30-$50 million.

Gross proceeds from our sale of this equipment came to $163,122. Allowing for necessary pre- and post-sale costs, our net was less than zero. Relatively modern looms that we bought for $5,000 apiece in 1981 found no takers at $50.  We finally sold them for scrap at $26 each, a sum less than removal costs.

Ponder this: the economic goodwill attributable to two paper routes in Buffalo - or a single See’s candy store - considerably exceeds the proceeds we received from this massive collection of tangible assets that not too many years ago, under different competitive conditions, was able to employ over 1,000 people.

Daniel Scrivner (00:01.354)
Over the years, we had the option of making large capital expenditures and the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return on investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly profitable candy and newspaper businesses. But the promised benefits from these textile investments were illusory.

Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures. And once enough companies did so, their reduced costs became the baseline for reduced prices industry-wide. Viewed individually, each company's capital investment decisions appeared cost-effective and rational. Viewed collectively, the decisions neutralized each other and were irrational, just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes.

After each round of investment, all the players had more money in the game and returns remained anemic. Thus we faced a miserable choice. Huge capital investment would have helped to keep our textile business alive, but would have left us with terrible returns on our ever-growing amounts of capital. After the investment, moreover, the foreign competition would still have retained a major continuing advantage in labor costs. A refusal to invest, however, would make us increasingly non-competitive, even measured against domestic textile manufacturers.

I always thought myself in the position described by Woody Allen in one of his movies. More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly. That was an excerpt from what the short read that I'm going to read to you today, which is the anxieties of business change, which is part of Warren Buffett's shareholder letter from 1985, as well as a snippet from 2006.

This is in the essays of Warren Buffett, which was written by Lawrence A. Cunningham. The reason I wanted to cover this is a couple fold. One, you know, I think anyone that studied has studied Berkshire Hathaway knows that it was built on the back of basically a failed textile business, which is an interesting fact. So the largest, most profitable conglomerate in history was built on the back of a failed business. But what's also interesting about this is this is Warren. This is Warren's essay about effectively making the decision to shut down that business.

Daniel Scrivner (02:20.85)
and why he made that decision and why that was such a difficult decision. I think it's really interesting. I think you will as well, too. So I'm going to go ahead and read through this. It's a relatively short read. If you're interested, the transcript for this, as well as my highlights, as well as the full text that I'm going to read today, is available at outlieracademy.com slash business change. OK, let's go ahead and jump in. In July, we decided to close our textile operation. And by year end, this unpleasant job was largely completed.

The history of this business is instructive. When Buffett Partnership LTD, an investment partnership of which I was partner, bought control of Berkshire Hathaway in 1965, it had an accounting net worth of 22 million, all devoted to the textile business. So the entire business as of 1965 was in this business that he's about to make the decision to shut down. The company's intrinsic business value, however, was considerably less because the textile assets were unable to earn

returns commensurate with their accounting value. Indeed, during the previous nine years, the period in which Berkshire and Hathaway operated as a merged company, aggregate sales of $530 million has had produced an aggregate loss of $10 million. So total sales, $530 million loss of $10 million. Just staggering. Profits have been reported from time to time, but the net effect was always one step forward, two steps back, which is a brutal.

business reality to face. At the time we made our purchase, Southern textile plants, largely non-union, were believed to have an important competitive advantage. Most northern textile operations had closed, and many people thought we would liquidate our business as well. We felt, however, that the business would run much better by would be run much better by a longtime employee whom he immediately selected to be president, Ken Chase. In this respect, we were 100% correct.

Kin and his recent successor, Gary Morrison, have been excellent managers, every bit the equal of managers at our more profitable businesses. We're going to get to this a little bit later. This is part of the excerpt from the 19, sorry, 2006 annual letter, but you know, Warren Buffett has this adage that if you want to be viewed as a successful CEO, you first need to choose a successful business. I think this is a fascinating reflection. So he's basically recounting some of the decisions they've made. The right decision was putting Kin,

Daniel Scrivner (04:42.646)
Chase and his successor Gary Morrison in charge, that doesn't mean that the business ever succeeded. You know, and I love, you know, they've been excellent managers, every bit the equal of managers at our more profitable businesses. This is an important insight. Okay, let's keep going. In early 1965, cash generated by the textile operation was used to fund our entry into insurance via the purchase of National Indemnity Corporation.

Some of the money came from earnings and some from reduced investment in textile inventories, receivables and fixed assets. This pullback proved wise. Although much improved by Kinn's management, the textile business never became a good earner, not even in cyclical upturns. Further diversification for Berkshire followed and gradually the textile operations' depressing effect on our overall return diminished as the business became a progressively smaller portion of the corporation.

We remained in the business for reasons that I stated in the 1978 annual report and summarized at other times also. Number one, our textile businesses are very important employers in their communities. Pause for a second. Fascinating that is the top reason that he continued to run this loss making business is because it's a very important employer in their communities. Number two, management has been straightforward in reporting on problems and energetic and attacking them.

3. Labor has been cooperative and understanding in facing our common problems. 4. The business should average modest cash returns relative to investment. I further said, as long as these conditions prevail, and we expect that they will, we intend to continue to support our textile businesses despite more attractive alternative uses of capital. It turned out that I was very wrong about number 4.

the business should average modest cash returns relative to investment. So again, 530 million in, uh, in sales, aggregate sales, $10 million loss. Number four definitely wasn't realized though. 1979 was moderately profitable. The business thereafter consumed major amounts of cash by mid 1985. It became clear even to me that this condition was almost sure to continue. Could we have found a buyer? Uh, could we have found a buyer who would continue operations? I would have.

Daniel Scrivner (06:54.342)
certainly preferred to sell the business rather than liquidate it, even if that meant somewhat lower proceeds for us. But the economics that were finally obvious to me were also obvious to others and interest was nil. I won't close down businesses of subnormal profitability merely to add a fraction of a point to our corporate rate of return. This is something Warren Buffett has actually stated many times that they will almost never sell one of their businesses, except for the case when it has no prospects of ever being profitable.

is kind of the one basically caveat that he cited. However, I also feel it inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect. Adam Smith would disagree with my first proposition and Karl Marx would disagree with my second. The middle ground is the only position that leaves me comfortable. I should reemphasize that Ken and Gary have been resourceful, energetic, and imaginative in attempting to make our textile operation a success.

trying to achieve sustainable profitability. They reworked product lines, machinery configurations and distribution arrangements. We also made a major acquisition, Wombeck Mills, with the expectation of important synergy, a term widely used in business to explain an acquisition that otherwise makes no sense. But in the end, nothing worked and I should be faulted for not quitting sooner. A recent Businessweek article stated that 250 textile mills have closed since 1980.

Their owners were not privy to any information that was unknown to me. They simply processed it more objectively. I ignored Comte's advice. The intellect should be the servant of the heart, but not its slave, and believed what I preferred to believe. Pause for a second. You know, this is why it's so fun to read Warren's writing. He takes responsibility for his decisions. You know, in many ways, I think he exemplifies exactly the leader that we all aspire to be for our companies, for our teams, for our businesses.

And he's also extremely logical. You know, he has like this wonderful ability to toggle back and forth between logic and philosophy and his logic is always extremely sound. But he's also, you know, you can tell that his heart's just as involved in the decisions he's making as his mind. Just a bunch of things that, you know, as I've read this book hundreds of pages now of his annual letters, it's striking. It's really striking. Okay, back to the text.

Daniel Scrivner (09:15.666)
The domestic textile industry operates in a commodity business competing in a world market in which substantial excess capacity exists. Much of the trouble we experienced was attributable both directly and indirectly to competition from foreign countries whose workers are paid a small fraction of the U.S. minimum wage. But that in no way means that our labor force deserves any blame for our closing. In fact, in comparison with employees of American industry generally, our workers were poorly paid, as has been the case throughout the textile business.

In contract negotiations, union leaders and members were sensitive to our disadvantageous cost position and did not push for unrealistic wage increases or unproductive work practices. To the contrary, they tried just as hard as we did to keep us competitive. Even during our liquidation period, they performed superbly. Ironically, we would have been better off financially if our union had behaved unreasonably some years ago. We then would have recognized the impossible future.

that we faced promptly closed down and avoided significant future losses. Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return on investment tests, in fact, these proposals usually promise greater economic benefits than would have resulted from comparable expenditures in our highly profitable candy and newspaper businesses.

obviously to pause for a second, that is highly suspect. So you have a business that is failing, that is effectively losing money, even over the course of many, many years. They have blips of profitability, but the bottom end math is still the same. You're still losing money on an annual basis. And yet, the proposals for investments that have attractive looking numbers, and this is something that appears in another of Warren's essays, just this idea that, and I don't think this obviously is not,

putting any of this on Ken or Chase or the management team, but it's very easy for us to mislead ourselves in our own analysis and for that often to be wildly unrealistic and not tethered to reality. And I think what he's highlighting here is more of a cognitive issue that we all have of being able to see things clearly and being able to make the most logical kind of conscientious decisions, difficult problems. Difficult problems where it's actually very difficult to discern.

Daniel Scrivner (11:38.658)
the reality and what would be the reality a couple years out in time. But the promised benefits from these textile investments were illusory. Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures. And once enough companies did so, their reduced costs became the baseline for reduced prices industry wide. So if they were to make this change, were to make these investments, well, their competitors are doing the same thing. It's all going to net out and be a complete wash. So why at the end of the day, would this make any sense?

Viewed individually, each company's capital investment decision appeared cost-effective and rational. Viewed collectively, the decisions neutralized each other and were irrational, just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes. After each round of investment, all the players had more money in the game and returns remained anemic. Thus, we faced a miserable choice. Huge capital investment would have helped to keep our textile business alive.

but would have left us with terrible returns on ever growing amounts of capital. After the investment moreover, the foreign competition would still have remained a major continuing advantage in labor costs. So it sounds like a key part of this equation was the fact that global competition was stepping up. You're competing not just domestically now, but internationally and globally. And there's many different advantages that come from not operating in the United States. And one of the best ones is lower cost of.

you know, lower wages, which is obviously going to be an input into operating expenses, variable expenses that you're going to want to pay. And so it's interesting to recognize that I would assume that that's a key part of the story is that, you know, the business, the competitive landscape changed from one that was mostly domestically oriented to one that was globally oriented. Refusal to invest, however, would make us increasingly non competitive even measured against domestic textile manufacturers. I always thought myself in the position described by Woody Allen in one of his movies.

More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray we have the wisdom to choose correctly for an understanding of how the to invest or not to invest dilemma plays out in a commodity business. It is instructive to look at Burlington Industries, by far the largest U.S. textile company, both 21 years ago and now. Again, just pause for a second.

Daniel Scrivner (13:57.926)
Warren's, you know, this one of the things that's staggering is he has always done his homework. And so here not only has he done basically a complete teardown of The decisions that they've made The reasons they should have been the reasons they should have shut down the company earlier Basically just complete teardown of how they've approached the situation, but not only that he's studied the largest US textile company Over a period of multiple decades because he's quoting, you know numbers 21 years ago and now

It's just, it's staggering the amount of just research and depth of thinking that Warren does. It's a bar we should all aspire to. In 1964, Burlington had sales of 1.2 billion against our 50 million. It had strengths in both distribution and production that we could never hope to match. And also of course had an earnings record far superior to ours. Its stock sold at 60 at the end of 1964, ours was 13.

Burlington made a decision to stick to the textile business and in 1985 had sales of about 2.8 billion. During the 1964 to 85 period, the company made capital expenditures of about $3 billion, far more than any other U.S. textile company and more than $200 per share on that $60 stock. That's staggering, staggering. Just the fixed costs, the amount of investment, the capital intensive nature of this business is just incredible.

A very large part of the expenditures, I'm sure, was devoted to cost improvements and expansion. Given Burlington's basic commitment to stay in textiles, I would also surmise that the company's capital decisions were quite rational. Nevertheless, Burlington has lost sales volume in real dollars and has far lower returns on sales and equity now than 20 years ago. So despite investing $200 per share on their $60 share price, you know, this is total capital expenditures.

over a two decade period from 1964 to 85 of $3 billion. So $3 billion invested over 21 years. They're earning, they're earning far lower returns on sales and equities now than 20 years ago. Split two for one in 1965, the stock now sells at 34. On an adjusted basis, just a little over its $60 price in 1964. They've invested $3 billion and the stock is effectively flat over a 21 year period.

Daniel Scrivner (16:19.758)
It's staggering. Meanwhile the CPI is more than tripled. Therefore each share commands about one third the purchasing power it did at the end of 1964. Again, something I love about Warren. Tear down of his, of their approach and the decisions that they've made. Then corollaries drawn to a competitor over a 21-year period. Then realizing that it's not enough to just analyze the stock and realize that it was little changed over a 21-year period.

Daniel Scrivner (16:51.535)
you know, CPI inflations always eating away purchasing power. And so actually, it even you know, it's bad enough that the stock would be flat over a 21 year period. Actually, it's declined in value by two thirds. Regular dividends have been paid out, but they too have shrunk significantly in purchasing power. Just a terrible, terrible situation. This devastating outcome for the shareholders indicates what can happen when much brain power and energy are applied to a faulty premise.

The situation is suggestive of Samuel Johnson's horse. A horse that can count to 10 is a remarkable horse, not a remarkable mathematician. Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company, but not a remarkable business. I'm gonna read this paragraph again. This is pure gold. The devastating outcome for the shareholders indicates what can happen when much brain power and energy are applied to a faulty premise.

The situation is suggestive of Samuel Johnson's horse. A horse that can count to 10 is a remarkable horse, not a remarkable mathematician. Likewise, a textile company that allocates capital brilliantly within its industry is a remarkable textile company, but not a remarkable business. Very important distinction. My conclusion from my own experiences and from much observation of other businesses is that a good managerial record measured by economic returns is far more a function of what business boat you get into.

than it is of how effectively you row. It's more a function of what business boat you get into than it is of how effectively you row. Though intelligence and effort help considerably, of course, in any business, good or bad, should you find yourself in a chronically leaking boat, energy devoted to changing vessels is far, is likely to be more productive than energy devoted to patching leaks.

And then this is just a short excerpt from the 2006 annual letter that I thought was kind of an interesting way to end it. Reiterates some of the exact same ideas. I think, you know, one of the things that's powerful about this book is you're seeing these connected ideas that are happening over decades, which is, you know, just, just fun. It's fun at this point to be able to go back through six, nearly 60 years of annual letters and connect it up. Not all of our businesses are destined to increase profits.

Daniel Scrivner (19:08.654)
When an industry's underlying economics are crumbling, talented management may slow the rate of decline. Eventually, though, eroding fundamentals will overwhelm managerial brilliance. As a wise friend once told me long ago, if you want to get a reputation as a good businessman, be sure to get into a good business. And fundamentals are definitely eroding in the newspaper industry, a trend that has caused the profits of our Buffalo News to decline. The skid will almost certainly continue.

That was an excerpt from the anxieties of business change. This is taken from Warren Buffett's shareholder letters, primarily in 1985. And then I read a small excerpt from 2006. And again, you can purchase the book. This is in the incredible, I highly, highly recommend this. I have an entire episode dedicated to this, episode 165, 166, The Essays of Warren Buffett written by Lawrence Cunningham. What's incredible about this book really quickly is

I think for many people, we all aspire to read Warren Buffett's shareholder letters. Typically the approach to do that is you want to go to the website, you can print them out chronologically and you can read them chronologically. Great way to see the changes year over year. But what's amazing about this is it completely breaks from chronological order, takes the shareholder letters and breaks them apart and groups them and clusters them by ideas. And so again, you can connect the dots between now the nearly six decades that Warren's been writing shareholder letters.

You can see his combined thinking on a given topic. It's amazing. If you want to read the transcript for this episode, read the full text of this, you can also see my selected quotes and a lot more. Go to outlieracademy.com slash business change.