主题： Other Businesses

We do no due diligence. My due diligence is to look into their eyes, basically. We went into department stores—but we didn’t think of ourselves as department store guys, or we didn’t think of ourselves as steel guys, or tire guys, or anything of that sort. So we’ve thought of ourselves as having capital to allocate. If you start with a given industry focus and you spend your whole time working on a way to make a better tire, or whatever it may be, I think it’s hard to have the flexibility of mind that you have if you just think you have a large—hopefully large—and growing pile of capital, and trying to figure out what is the … best next move that you can make with that capital. And I think we do have a real advantage that way.

We are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.

You need a genuine desire, day in, day out, to delight the customer. I’ve never seen a business—and I’ve seen a lot of businesses—but I’ve never seen one that delights the customer that doesn’t succeed.

If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. The single most important decision in evaluating a business is pricing power. You’ve got the power to raise prices without losing the business to a competitor, and you’ve got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.

A truly great business must have an enduring moat that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business castle that is earning high returns. Therefore a formidable barrier such as a company’s being the low-cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with Roman candles, companies whose moats proved illusory and were soon crossed.

We don’t do due diligence or go out kicking tires. It doesn’t matter. What matters is understanding the competitive dynamics of a business. We can’t be taken by a guy with a sales pitch.… What really counts is the presence of a competitive advantage. You want a business with a big castle and a moat around it, and you want that moat to widen over time.

My job is to look at the universe of things I can understand—I can understand Ike Friedman’s jewelry store—and then I try to figure what that stream of cash, in and out, is going to be over a period of time, just like we did with See’s Candies, and discounting that back at an appropriate rate, which would be the long-term government rate. [Then] I try to buy it at a price that is significantly below that. And that’s about it. Theoretically, I’m doing that with all the businesses in the world—those that I can understand.