Question: What types of businesses have the highest ROIC? Buffett: You could run Coca-Cola with no capital. There are a number of businesses that operate on negative capital. Great magazines operate with negative capital. Subscriptions are paid upfront, they have limited fixed investments. There are certain businesses like this. Blue Chip Stamps – it got […]
Category: Investing Basics
Buffett on Capital-intensive Businesses
Question: Would you comment on the quality of earnings in capital-intensive businesses, like utilities? Buffett: Capital-intensive industries outside the utility sector scare me more. We get decent returns on equity. You won’t get rich, but you won’t go broke either. You are better off in businesses that are not capital intensive. Munger: A lot of […]
Buffett on Value vs Growth Investing
Question: What is the definition of Value vs. Growth stocks? Warren Buffett: No two distinct categories of business. PV of cash a company generates is what the business is worth. No distinction in our mind between growth & value. All decision you decide how much value you are going to get. When we buy a […]
Buffett: What are the Best Companies to Invest
Question: What is the ideal business? Buffett: The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% […]
Buffett: The Importance of Management
Cap Cities vs. CBS I put one business in here, CBS versus Cap Cities in 1957, when my friend Tom Murphy took over Cap Cities. They had a little bankrupt UHF station in Albany. They ran it out of a home for retired nuns. And it was very appropriate because they had to pray every […]
Buffett on Stock Market Risk
Question: Could you give us your definition of stock market risk Warren Buffett: We think first in terms of business risk. The key to Graham’s approach to investing is not thinking of stocks as stocks or part of the stock market. Stocks are part of a business. People in this room own a piece of […]
Does Buffett Hold Stocks Forever
Short-term investment, long-term investment or hold stocks forever? Buffett tells us how he did it. Question: Why would you hold stocks forever, if the fundamentals change permanently? (Buy and hold) Buffett: We don’t—we sell plenty. If we lose confidence or conditions change, we sell. When in doubt, we keep holding. But for [our wholly-owned] companies, […]
Buffett: It’s Dangerous to Assume High Growth Rate to Infinity
Question: How do you think about growth rates when you value businesses? Buffett: When the [long-term] growth rate is higher than the discount rate, then [mathematically] the value is infinity. This is the St. Petersburg Paradox, written about by Durand 30 years ago. Some managements think this [that the value of their company is infinite]. […]
Buffett: Book Value is Virtually Not a Consideration
Question: What do you think of the use of book values in making investment decisions? Buffett: Book value is virtually not a consideration in investment decision-making at Berkshire. Their pursuit of high return businesses usually leads to companies with minimal book values. He added that the book value approach could work well with small sums […]
Buffett: Cash is Worst Investment
The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Most of you don’t look like you are overburdened with cash anyway. Cash is going to become worth less over time. But good businesses are going […]
What is Economic Franchise
Economic franchise is one of the most important investing concepts used by Warren Buffett. Companies with economic franchise are rare in the business world. They are great businesses which enjoy pricing power and could stand incapable management. In his 1991 letter to Berkshire Hathaway shareholders, Warren Buffett explained the concept of economic franchise: “An economic […]
Warren Buffett on Stock Repurchase
One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment interest is repurchase of their own shares. The reasoning is simple: if a fine business is selling in the marketplace for far less than intrinsic value, what more certain or more profitable utilization of […]