Warren Buffett, Diversified Retailing And Capital Allocation

In 1966, Warren Buffett, Charlie Munger, and their partner, Sandy Gottesman, formed a holding company, Diversified Retailing Company, Inc., to "acquire diversified businesses, especially in the retail field."

According to Alice Schroeder in The Snowball, soon after the deal was agreed, Buffett, who owned 80% of the company, went over to his bank to try and borrow $6 million to fund the purchase of the department store Hochschild-Kohn.

The deal was an absolute failure. However, the investment is an interesting case study into Buffett's investing style.

An absolute failure

The partners soon realized that they had bought a company, which looked cheap, but...