Investing Guidelines: Management Tenets 101imperative. Clayton has not been completely immune, but it has
avoided the most egregious faults.
Most importantly, Clayton compensates its salespeople in a different
way. The commissions of sellers and managers are based not only on the
number of homes sold but also on the quality and performance of the
loans made. Sales staff share the f inancial burden when loan payments are
missed, and share the revenue when the loan performs well. Take, for ex-
ample, a sales manager who handles the sale and f inancing of a $24,000
mobile home. If the customer cannot make the payments, Clayton would
typically lose $2,500, and the manager is responsible for up to half the
loss.^20 But if the loan performs, the manager shares up to half of that, too.
That puts the burden to avoid weak loans on the sales personnel.
The methodology paid off: In 2002, “only 2.3 percent of the home-
owners with a Clayton mortgage are 30 days delinquent.”^21 That is
roughly half the industry delinquency rate. In the late 1990s, when more
than 80 factories and 4,000 retailers went out of business, Clayton closed
only 31 retailers and did not shut any factories. By 2003, when Buffett
entered the picture, Clayton had emerged from the downturn in the
economy in general and the mobile home industry in particular stronger
and better positioned than any of its competitors.
Warren Buffett bought Clayton Homes because he saw in Jim
Clayton a hardworking self-starter with strong management skills and a
lot of smarts. Clayton showed not once but twice that he could weather
a downturn in the industry by structuring his business model in a way
that avoided an especially damaging institutional imperative.
The Washington Post Company
Buffett has told us that even third-rate newspapers can earn substantial
prof its. Since the market does not require high standards of a paper,
it is up to management to impose its own. And it is management’s high
standards and abilities that can differentiate the business’s returns
when compared with its peer group. In 1973, if Buffett had invested in
Gannett, Knight-Ridder, the New York Times,or Times Mirrorthe
same $10 million he did in the Post, his investment returns would have
been above average, ref lecting the exceptional economics of the news-
paper business during this period. But the extra $200-$300 million
in market value that the Washington Postgained over its peer group,