Warren Buffett quotes on business. What Warren Buffett thinks about what it takes to do good business.
Warren Buffett Quote on Berkshire
‘When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’
What is this quote about? The first investment that Warren Buffett made, Berkshire Hathaway. It serves as a reminder of the limits of even the very best managers. When Warren Buffett purchased Berkshire Hathaway, it had an accounting net worth of $22 million. He later realized that its intrinsic business value was considerably less because its textile assets were unable to earn returns commensurate with their accounting value. From 1976-1985, Berkshire’s aggregate sales of $530 million produced an aggregate loss of $10 million.
At first, Warren Buffett thought that the business could be turned around by good managers. However, Berkshire never became a good earner, not even in secular upswings in the business cycle. That led to the Warren Buffett quote above.
Worst kind of business
In his annual shareholders’ meetings, Warren Buffett noted that the worst kind of business is one with tons of receivables and inventories – this is because if
volume stays flat and price level doubles, one needs to come up with double the amount of money to do that kind of business.
Ideal kind of business
What is the ideal kind of business? Warren Buffett frequently cites See’s Candy as such an example of an ideal business. See’s Candy was doing $25 million of business in volume when bought (with $9 million in tangible assets), and now doing $300 million worth of business (with $40 million in tangible assets). Even if the price of candy doubles, See’s has no receivable to speak of and no inventory to store.