Berkshire Hathaway: Capital Allocation as the Job

Berkshire Hathaway began as a failing textile company. Warren Buffett took control in the mid-1960s, slowly realized the textile business was a poor use of capital, and shut it down, replacing it with something stranger: a capital allocation machine. The engine was insurance. Companies like GEICO collected premiums before paying claims, and the gap, the "float," became an effectively interest-free loan Buffett could invest. For decades that float wasn't just free, it was profitable, and he and Charlie Munger deployed it into businesses that compounded book value past the S&P 500 for most of the company's history.

Most operators pour their energy into running the business they have. This case argues the higher-leverage decision is what you do with the cash it throws off, a decision most companies make by default rather than design. It sharpens how founders should think about where their capital actually goes, and it leaves the discipline behind Buffett's deployment choices for the reader to uncover.