Charlie and I look for companies that have:
- a business we understand
- favorable long-term economics
- able and trustworthy management; and
- a sensible price tag.
A truly great business must have an enduring “moat” that protects excellent returns on invested capital.
But if a business requires a superstar to produce great results, the business itself cannot be deemed great.
There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so.
[Talking about investments in different types of companies] To sum up, think of three types of “savings accounts.” The great one pays an extraordinarily high interest rate that will rise as the years pass. The good one pays an attractive rate of interest that will be earned also on deposits that are added. Finally, the gruesome account both pays an inadequate interest rate and requires you to keep adding money at those disappointing returns.
[On buying Dexter, a shoe business with Berkshire stock] In essence, I gave away 1.6% of a wonderful business – one now valued at $220 billion – to buy a worthless business.
[On buying Amazon bonds at 57% of par] Yes, Virginia, you can occasionally find markets that are ridiculously inefficient – or at least you can find them anywhere except at the finance departments of some leading business schools.