Thai VI

http://theinvestmentsblog.blogspot.com/ ... iness.html
Buffett: The Test of a Good Business
Some excerpts from a lecture* given by Warren Buffett to Notre Dame faculty, MBA students, and undergraduates in 1991.

In the lecture, Buffett says that one way to test the quality of a business is by asking the following question:

"How long does the management have to think before they decide to raise prices?"

If the answer is "not long" then you've probably got a pretty good business. More from the lecture:

You're looking at marvelous business when you look in the mirror and say

"mirror, mirror on the wall, how much should I charge for Coke this fall?"
[And the mirror replies, "More."] That's a great business.

When you say, like we used to in the textile business, when you get down on your knees... [and say] "just another half cent a yard." Then you get up and they say "We won't pay it."


It's just night and day. I mean, if you walk into a drugstore, and you say "I'd like a Hershey bar" and the man says "I don't have any Hershey bars, but I've got this unmarked chocolate bar, and it's a nickel cheaper than a Hershey bar" you just go across the street and buy a Hershey bar. That is a good business.

The ability to raise prices – the ability to differentiate yourself in a real way, and a real way means you can charge a different price – that makes a great business.

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Buffett Says Pricing Power More Important Than Good Management
By Andrew Frye and Dakin Campbell - Feb 18, 2011 12:00 PM GMT+0700
http://www.bloomberg.com/news/2011-02-1 ... ement.html
..
Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway Inc., said
he rates businesses on their ability to raise prices and sometimes doesn’t even consider the people in charge.

“The single most important decision in evaluating a business is pricing power,”
Buffett told the Financial Crisis Inquiry Commission in an interview released by the panel last week.

“If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
..
“The extraordinary business does not require good management,” Buffett said in the interview, which was conducted on May 26 in Omaha, Nebraska.

Airlines. Air fares are up four straight months.

Delivery services. Year-over-year price jumps double-digit since early 2010.

Prescription drugs. Prices up six consecutive months.

Toys. Prices up 1.1% in the last month, first increase in four months.

Apparel. Prices up three straight months.

Restaurants. Prices up 11 straight months in the face of sharply higher food costs.

Those struggling to raise prices:

Hotels. Prices down six of the last seven months.

Furniture. Prices down five of the past seven months.

New cars. Down four straight months, year-over-year prices negatives. Rising chatter of price wars.

Computers/peripheral. Prices down six straight months.

Appliances. Prices down “significantly” in two of the last four months.

Audio and video equipment. Prices down in five of the last seven months.

***Full Transcript.of Buffett's at NotreDamn lectures 1991***(ครรเก็บไว้อ่าน)
http://www.tilsonfunds.com/BuffettNotreDame.pdf
http://seekingalpha.com/article/77578-b ... ing-prices

I’ll try this on the students later:
What’s the highest price of a daily newspaper in the United States? [Pause]

[This is what he said to the students later: Most of you are familiar with it. The highest priced daily newspaper in the United States, with any circulation at all, is the Daily Racing Form. It sells about 150,000 copies a day, and it has for about 50 years, and it’s either $2.00 or $2.25 (they keep raising prices) and it’s essential. If you’re heading to the racetrack and you’ve got a choice between betting on your wife’s birthday, and Joe’s Little Green Sheet, and the Daily Racing Form, if you’re a serious racing handicapper, you want The Form.

You can charge $2.00 for The Form, you can charge $1.50, you can charge $2.50 and people are going to buy it. It’s like selling needles to addicts, basically. It’s an essential business. It will be an essential business five or 10 years from now. You have to decide whether horse racing will be around five or 10 years from now, and you have to decide whether there’s any way people will get their information about past performances of different horses from different sources.

But you’ve only got about two questions to answer, and if you answer them, you know the business will make a lot of money. The Form has huge profit margins, incidentally. Wider than any other newspaper. They charge what they want to basically. It’s an easy to understand business – so easy to understand.

Again, in 1998 as he lectured students of the University of Florida, Buffett riffed on the brand and pricing power of his favorite purchase - See’s Candies:

"When we looked at that business—basically, my partner, Charlie, and I:

we needed to decide if there was some untapped pricing power there.

Where that $1.95 box of candy could sell for $2 to $2.25. If it could sell for $2.25 or another $0.30 per pound that was $4.8 on 16 million pounds. Which on a $25 million purchase price was fine. We never hired a consultant in our lives; our idea of consulting was to go out and buy a box of candy and eat it. What we did know was that they had share of mind in California. There was something special. Every person in Ca. has something in mind about See’s Candy and overwhelmingly it was favorable. They had taken a box on Valentine’s Day to some girl and she had kissed him.

If she slapped him, we would have no business. As long as she kisses him, that is what we want in their minds. See’s Candy means getting kissed. If we can get that in the minds of people, we can raise prices. I bought it in 1972, and every year I have raised prices on Dec. 26th, the day after Christmas, because we sell a lot on Christmas. In fact, we will make $60 million this year. We will make $2 per pound on 30 million pounds. Same business, same formulas, same everything--$60 million bucks and it still doesn’t take any capital. "

Indeed, I believe that See’s, though it obtains the bulk of its revenues from only a few states, accounts for nearly half of the entire industry’s earnings.