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Gin Rummy Managerial Behavior
Gin Rummy Managerial Behavior refers to the corporate practice of "discarding your least promising business at each turn" to optimize short-term results.
📍 Origin
Buffett formally rejected this style in the 1983 Letter, contrasting it with Berkshire’s long-term partnership approach.
"Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in it." — 1983 Letter
🧠 The Philosophy
Buffett and Munger are notoriously reluctant to sell businesses, even those that are sub-par, provided:
- They expect the business to generate at least some cash.
- They feel good about the managers.
- Labor relations are satisfactory.
Reasons for Rejection
- Loyalty: Treating managers as partners rather than "disposable cards" attracts better managers.
- Transactional Friction: The "invisible foot" costs of selling and buying new businesses often exceed the benefits of the "discard."
- Reputation: Being a "permanent home" for family-owned businesses like Nebraska Furniture Mart is a competitive advantage in the acquisition market.
🔗 Connections
- Source: 1983 Letter
- Concept: Owner-Related Business Principles (Principle 11)
- Concept: The Invisible Foot
- Entity: Rose Blumkin (A manager you would never discard)
📚 Historical Mentions & Citations (1)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜1983 LetterExcerpt Available▼
1983 LetterExcerpt Available
You should be fully aware of one attitude Charlie and I share that hurts our financial performance: regardless of price, we have no interest at all in selling any good businesses that Berkshire owns, and are very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations. We hope not to repeat the capital-allocation mistakes that led us into such sub-par businesses. And we react with great caution to suggestions that our poor businesses can be restored to satisfactory profitability by major capital expenditures. (The projections will be dazzling—the advocates will be sincere—but, in the end, major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand.) Nevertheless, gin rummy managerial behavior (discard your least promising business at each turn) is not our style. We would rather have our overall results penalized a bit than engage in it.