I was reading The Wall Street Journal recently, and I have a theme that I want to talk about today. I want to talk about cash, and I want to talk about what does Berkshire Hathaway have to do with The Pampered Chef. What does that have to do with having cash on hand? When we’re reading the Business and Finance Section of The Wall Street Journal, we’re reading about people in here that have a lot of cash. But it’s interesting, the lessons learned by people with a lot of cash, and I mean A Lot A Lot of cash, like Warren Buffet of Berkshire Hathaway. As of today, this is the Tuesday, March 22nd issue of the Wall Street Journal, Berkshire Hathaway has agreed to buy another insurance company by the name of Alleghany Corporation for about $11.6 billion. In fact, not only are they saying we want to buy all the stock, but we’re going to give you an opportunity to see if you can get a better deal elsewhere because we’re willing to buy your stock at its current price plus an extra 25.3% premium above and beyond because we want it. So, they are going to pay the price that you and I can purchase their stock for, plus they’re willing to go an extra 25.3% above and beyond.
Warren Buffet’s company, which holds a giant portfolio, in fact you probably know them from one of the other companies that they own, Geico, the little Geico Gecko guy. They also own railroads, energy, and consumer businesses. They did not make any large acquisitions during 2021. But they’re sitting on a bunch of cash because where do you come up with $11.6 billion to buy an insurance company? You get it because they ended last year, cash in the bank, with $146.7 billion in cash. The saying goes, if you have cash, opportunities will come your way. Warren Buffet has cash, an opportunity came his way, he wanted it as part of his portfolio and was willing to pay an extra 25% above and beyond to be able to get that.
Now, what does that have to do with The Pampered Chef? I have never been to a Pampered Chef party in my lifetime. My spouse has. Many friends have. These are the kitchen gadget people. What a lot of people don’t realize is that the Pampered Chef company is now a part of the Berkshire Hathaway company. It was actually sold to them some years ago. I happened to buy this book. For reference, this book was written by Doris Christopher, the founder of The Pampered Chef. This book has a forward by Warren Buffet. This was published in 2005. I’m not going to read to you the entire book, but I will say this whole story began in the summer of 1980 when Doris Christopher was just 35 years of age.
I’m going to paraphrase from the forward- The Pampered Chef was founded in 1980 by Doris Christopher, who was 35 years old at the time. She was a suburban, former home economics teacher with a husband and two little girls. In fact, this story is amazing. They started this in the basement of their home. To launch the company, she borrowed against her husband’s life insurance policy $3,000. Here’s the amazing thing. When she needed cash, she used a whole life insurance policy to borrow against and Warren Buffet goes on to say It was all the money that was ever injected in to the company. Working with her husband, they did $50,000 worth of business the first year. In 2005, the 25th Anniversary, The Pampered Chef has tens of thousands of kitchen consultants serving 12 million customers at 1 million kitchen shows per year. Warren Buffet goes on to say that he would challenge anyone on Wall Street to take $3,000 and to do what Doris Christopher had done. In September of 2002, Doris Christopher, the founder of The Pampered Chef, came to Warren in Omaha about selling her company. Right on the spot, he knew he wanted The Pampered Chef in the Berkshire Hathaway family. So, they immediately made a deal.
Curiosity…What was that deal?
I did research. This is actually a little bit of old news. I am going back to 2008, and I had a compliance person put this information together and it came from an annual report from Berkshire Hathaway. It says that Warren seems to have made a great deal when acquiring The Pampered Chef. Now remember, a $3,000 loan against her husband’s life insurance policy. The Pampered Chef, the Fortune article indicates that The Pampered Chef pre-tax profit margins were above 25% so it looks like The Pampered Chef, and again this goes back to 2002, The Pampered Chef was making $185 million per year pre-tax. Warren Buffet was able to acquire the company for $900 million.
Here’s the key that I want you to take away from this. It’s about cash. So many people are investing in the stock market with the ups and the downs like this is where we’re going to be taking our ride on the roller coaster, up and down, because they believe that that is where the money is. You’ve got to have cash. You’ve got to have cash in the event of emergencies because we’re all told to have an emergency fund. We recommend six months or nine months of a years’ worth of income. In case you are out of a job, it makes life a lot easier if you have cash because now you can choose your next job without feeling the pressure. But more importantly or as important, what about just having cash for the opportunities that come your way?
Berkshire Hathaway did it. Going to the Wall Street Journal they were sitting on $146 billion giving them an opportunity that when this insurance company came their way they could go and buy it. $11.6. In fact, they paid an extra 25% just to be able to have it. Opportunities come your way if you have cash. If you don’t have cash, you will watch them march by like a parade you were not able to participate in.
But I’m not Warren Buffet you might say. You know, neither was Doris Christopher. She had cash. She had cash that had accumulated in their family’s life insurance and that $3000 was the cash that they needed in 1980 to propel her dreams to become The Pampered Chef and to one day sell her company for $900 million. What are you doing to get cash that is safe, sound, and secure? Cash that will be doing double-duty that in the event that if something bad happens along the way, because bad things in my experience always happen along the way. By using a permanent life insurance policy, a whole life insurance policy the cash was there (for Doris) and the death benefit was also there in the event that there could have been a death before she was able to make her millions.
You’ve got to be able to win whether you live or die because crap happens. I don’t want to be thinking about the crap, I want to be thinking about the opportunity, but if you love your family and if you care about yourself, you also want to make sure that you have the crap factor taken care of as well. Stop gambling with your money, but make yourself available for opportunities. If you have cash, opportunities will find you. You don’t have to look for them because it changes your way of thinking, it changes your thoughts, it changes your perspective versus if you have a scarcity mindset where you’re never going to have enough money, you’re never going to have enough cash. Today’s the day to start implementing strategies to have the cash and then the opportunities will find you and in the event of an emergency, you’ll be able to say to yourself “it’s not that big of a deal, we’ll be okay, because I did the right things along the way”.
I discuss this and more in my book Investments Don’t Hug: Embracing the Life Insurance Asset. It is available on Amazon, Barnes and Nobles, iTunes, and Audible. If you would like to work with me, with us, and our team, nothing happens until it’s implemented. Cash does not happen until you have a plan, a strategy of implementation. Today is the day that you can make that happen. For more information, simply explore our website, www.investmentsdonthug.com.