46 THE WARREN BUFFETT WAY
and operates f inancing, loan-servicing, and insurance subsidiaries. The
company went public in 1983, and Berkshire Hathaway acquired it in
August 2003 for $1.7 billion.
James Clayton gained his experience and education the hard way.
Determined to pull himself out of the backbreaking work his parents
endured ( his father picked cotton and his mother worked in a shirt
factory), Clayton f inanced his education at the University of Tennessee
by playing guitar on the radio. He eventually became a part-time host
on Startime,a weekly variety program on Knoxville TV and sang
along with people like Dolly Parton. Then, while in college, he started
a used car business with his fraternity brothers but the business went
bankrupt in 1961 when the bank called his loan. “My parents thought
for sure that we were going to jail and I made a pact with myself that I
haven’t violated: I was never going to be vulnerable to a bank again.”^5
The acquisition of Clayton Homes is a typical Buffett story—
meaning that it is atypical compared with the rest of the business world.
The f irst aspect of the story is that Buffett had some hands-on ex-
perience with the industry. In 2002, Berkshire had purchased junk
bonds from Oakwood Homes, another mobile home manufacturer. As
Buffett has freely admitted, at the time he was not fully aware of the
“atrocious consumer f inancing practices” that were common in the
industry. “But I learned,” he added. “Oakwood rather promptly went
bankrupt.”^6
Fast forward to February 2003. Al Auxier, a professor of f inance at
the University of Tennessee, brought a group of MBA students to
Omaha to meet with Buffett for what Buffett describes as “two hours of
give-and-take.” It was the f ifth time Auxier had made the trip, and it had
become traditional for the visiting students to bring a thank-you gift for
Buffett. This time, the gift was the autobiography of James Clayton, who
had located his company in Knoxville, home of his alma mater.
After he f inished reading the book, Buffett phoned James Clayton’s
son Kevin, who is now CEO. “As I talked with Kevin, it became clear
that he was both able and a straight-shooter. Soon thereafter, I made an
offer for the business based solely on Jim’s book, my evaluation of
Kevin, the public f inancials of Clayton and what I had learned from the
Oakwood experience.”^7 Two weeks later, Berkshire announced its ac-
quisition of Clayton Homes. “I made the deal over the phone,” Buffett
said, “without ever seeing it.”^8