FINANCIAL FILE
Castparts Corp (an Aerospace contractor), GEICO Insurance, Acme
Brick, Duracell or Burlington Northern Railway. It is a reminder that
business exists and profits no matter what happens in stock markets.
What does this mean to investors and business owners? Buffet
and Munger have assembled the most valuable collection of busi-nesses
in history by studiously ignoring the media and hype sur-rounding
capital markets. Instead they search out great businesses
that have unique characteristics and buy them at a price they have
determined to be reasonable through their valuation process.
As investors and business owners (I think the two are the same),
if we are acquiring all or part of a business, we need to be certain
of a number of things, such as:
• Is the business difficult to live without? In other words, are its
products or services so vital to its customers or so entrenched
in their psyche that they would truly miss it if it were gone?
• Is the business difficult to compete with? Does it
have a distinct advantage either through brand, pro-cess,
patents, location or some other combination of at-tributes
that would prevent another business from
taking its customers or harming the profit margin?
• Is it difficult to replicate? Are there infrastructure, geo-graphical
or capital features to this business that pre-vent,
discourage or eliminate new entrants?
And finally, and perhaps the most difficult to determine, is the
price we are paying at or below the intrinsic value of the business?
Buffet has built a fortune for himself and his shareholders by ap-plying
these principles. Shouldn’t you do the same?
Business exists and profits
no matter what happens
in stock markets.
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