Warren Buffett's Investing Secret? Great Companies Don't Require Good Management

Bloomberg:

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.

Read the whole story: Bloomberg

Comments

[Dr Juan]

10:30 PM on 02/20/2011

Management doesn't matter? So why do they get paid so much?

Lets have cuts on upper level salary or at lease jack up taxes.

[Old Claudius]

08:47 PM on 02/20/2011

Yesiree-bob, there ain't no doubt that, as Bloombergs quotes Mr. Buffet saying,

"“If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business."

And when you have rating-agency businesses like Moody's or Standard and Poore's, and they have customers coming to them and saying,

"If you will rate these guilded and brick-shaped lumps of dog-doo we are putting together as gold bullion, you can name your own price, and have a share in the proceeds of the insurance pay-offs if you buy policies on this sh*t, too."

Well, with that kind of power to "raise prices", you have got a "very good business"...

Or do you?

You certainly have a lucrative one.

But it's one that might could use, as Mr. Buffet also says,

""a prayer session before..."”

That is, if prayer sessions reflect a connection to ethics, rather than just another gimmick to lull the trusting...

[peowlemeow]

05:54 PM on 02/20/2011

America should nationalize its energy and transportation industries.If management doesn't matter the corporate structure should not be used to define and distribute Americas energy and transportation needs.If market needs are defined by the industrys ability to set the price without management then that price should be available for Americans to set for themselves.America should put a hold on leases and starve out management.Then buy the industries for itself and run it at a profit without management.

[Derek Spisak]

06:11 AM on 02/20/2011

Looks like the Monsanto folks took this lesson. Unfortunately, if they starve their consumers, they don't come back for more.

[guveqzero]

11:04 PM on 02/19/2011

You don't want good managers so that you can steal their money. Buffet knows the secret bankers know. They keep people weak so that you can take what they want from you.

[WorldisMorphing]

11:21 AM on 02/19/2011

Wise old man.
What counts is the product, the producing employee and the relative market position of the company.
What matters the most is: intellectual capital, know-how, and dominance...

...the funny thing is what all this implies.... --But very few understand...many willfully won't.

[EuropeWindAndFire]

04:28 PM on 02/21/2011

Pierre Bourdieu? A bit of an unknown for me, but I can see the where you are hinting at: a somewhat "habitus" minded Marxism. Which does sound a lot like the Teaparty.

Most people do not know that Marx did not condemn capitalism, but did mention capitalism as a needed phase for finally reaching the hallibot-state.

The Bolsjewiks in Russia (litteral meaning Bolsjewiks: "minority-party") blotted the entire idea of Marxism ever since the first world war. But Marxism doesn't need frontrunners. It is a inevitable result of unregulated free-style capitalism.

But because Bourdieu is an unknown for me, I cannot say anything approving nor disproving "habitus"

[WorldisMorphing]

10:59 AM on 02/23/2011

What it implies is what everyone thought (secretly or not) all along...
Capitalism is an engine of growth where progress is an incidence rather than a goal in itself. Contrivance by a power structure where money, the medium, is (and actually, quite often) not necessarily allocated to the most deserving, or the ones with the expertise to lead the technical endeavors that enables progress.
(Some clueless "conservative" once said to me "your argument about 'inheritance' is not valid as it only accounts for about half of the wealthy population...--> to which I replied....yeah ! only half ! ... !)
Competition is merely the clueless "managers", henchmen of the owners aristocracy, prodding the engineers to achieve improvements that time, collegial effort and human natural tendency to ameliorate things would have done anyway. But it's also prodding technicians and workers to achieve short term m i n u t e productivity gain often at the cost of business depth and cohesion---always at the expense of workers time, health and quality of life. All the more exacerbated by the ultra-division of labor...and the concept of mean & lean...

["But Marxism doesn't need frontrunne­rs. It is a inevitable result of unregulate­d free-style capitalism­."]
The beautiful irony in all this is just that; the hyper financialization of the economy and the subsequent crash has revealed that the only remedy to parasitical speculation is at least -- s o m e -- central planning.

[diffrntdrummr]

11:10 AM on 02/19/2011

Gee Warren...Why is it then that they are paid so much money?? And how do we change that? That's what really needs to be addressed.

[Chicagowill]

10:30 PM on 02/20/2011

Uh, he has always agreed that executive pay is too high and that taxes on the highest earners are too low.

[sloreader]

09:46 AM on 02/19/2011

He looks for businesses with a tail wind. Who can disagree with that philosophy?

[olddognewtrick]

11:45 PM on 02/18/2011

AT&T?

[Erdgeist]

10:38 PM on 02/18/2011

If companies were a novel, Warren's world would begin in the middle chapters when companies had already shown some measure of success but could really grow a lot more. I agree, management is not so important at this stage. However, starting at chapter one is the really difficult part for any company. If you have bad management, the company likely won't survive.

[MilesToGo]

04:50 PM on 02/18/2011

Leadership dysfunction in America is rampant. Buffet knows this, and considers other factors mentioned, such as an organization's ability to price goods & services. We rarely hear anything at all about strengthening ethical and moral rectitude in the business and government milieu.

[Zilo]

06:39 PM on 02/18/2011

Sadly I think you're right. Most companies I know of (through people who work there) and that I frequent have unhappy workers and its usually because of absolutely terrible management. Yet the companies manage to still profit so it never gets cured. They just continue to have extremely high turnover. Can you imagine the profit they could make if they decided to fix some of their issues?

[rikster]

04:32 PM on 02/18/2011

I learned that a long time ago....!

[moose and squirrel]

04:21 PM on 02/18/2011

i like the way guy kawasaki puts it in this speech he did a number of years back. it is at 32:59 but if you have time to watch the whole vid you will have wisely invested 40 minutes of your time

http://video.google.com/videoplay?docid=-3755718939216161559#

[GeorgeBurnsWasRight]

03:36 PM on 02/18/2011

I'm pretty sure that it's easier for a bad manager to screw up a good company than for a good manager to fix a bad company.

[Aneesia]

03:00 PM on 02/18/2011

I worked for a small company in California,. When the owner became ill, the employees had to do everything........and we did it well....it saved the company's life.
When you are in a company with good management that cares about people, you are fortunate. Many of the Corporations in the USA have only contempt for the employees. If they can ship jobs overseas and screw the workers...that is exactly what they will do.

[Dnietz]

03:33 PM on 02/18/2011

agreed

[Zilo]

06:44 PM on 02/18/2011

Yep. That's why workers really are a good investment. You treat them well and they can save your business.

Had a thing like that happen --the manager landed in the hospital for some life-threatening illness. The place pretty much fell apart within weeks. It was sad...but the workers weren't paid enough to care, they were treated pretty poorly (some weren't told for weeks that the manager was even in the hospital so it seemed like he just disappeared without reason) and it was painfully obvious no one in management gave a damn about anything but complaints and profits. So people just started to walk away, look for other jobs. Wasn't worth their time...

I just don't know when some of these corporations are going to get the memo...your workers matter if you actually care about your profit.