Edo Investment Monthly Operating Report (September 2020)
Buffett said: What is good business?
The following is taken from Buffett's letter to shareholders over the years:
Our investment in Coca-Cola proves how quickly your chairman (i.e. Buffett himself) grasps investment opportunities, and I remember drinking Coca-Cola for the first time in 1935, and I remember that I had been selling Coca-Cola for 25 cents and a half since 1936 and then selling it to neighbouring neighborhoods for 5 cents a can, which was the beginning of my personal career in high-margin retailing, and at that time I was deeply aware of the unique appeal of the product to consumers and the huge business opportunities it represented.
- Letter to shareholders in 1989
I can't help but want to quote a 1938 Fortune report: It's hard to find something like Coca-Colacompanies that can maintain the same product pattern for a decade while maintaining such a large scale of sales. Now, 55 years later, Coca-Cola's product line has expanded s little, but Fortune's description of Coca-Cola still applies.
In the long run, Coca-Cola and Gillette's competitiveness is evident to industry watchers, who face much smaller industrial risks than any computer company or sales channel, and Coca-Cola, which accounts for the world's beverage salesForty-four percent, Gillette has 60 percent of the razorsMarket shareI don't see any other company like Wrigley that dominates chewing gumIt.as long as we have enjoyed global competitiveness.
What's more, Coca-Cola and Gillette have been increasing their market share in recent years, and the strength of their brands, the quality of their products and the advantages of their channels make them highly competitive, like they are establishedTowering moats to defend their economic castles, the average company, by contrast, runs out every day to fight pointless guerrilla warfare, and as Peter Lynch says, for companies that sell only homogenized products, one should have this warning on their stock: competition is bad for human interests.
There is nothing more difficult in America than running an airlineCareer.Although.People willA lot of money went into the industry, butSelf -.The Kitty Hawk was bornSince.the cumulative losses in the history of the aviation industry are staggering.
For those who are competingSleepy.industry（Such as American Airlinesindustry)need to be moreLiang.Good management skills, but the benefits of such skills are simply to keep the company alive, not to keep it aliveReal.landFlying yellow Tengda.
——1991 letter to shareholders
Before making this investment（Means.Invested in American Airlines in 1989）I didn't even pay attentionput itin had been for aviationIndustry.deeplyTired.And perenn year-on-year high cost issues。In the early years, high costs were not a major threat, as the airline industry was regulated by law at the time, and airlines were able to reverse costsit's on top of the ticket price and passed on to consumers.
There was no immediate reaction from industry in the early days of the decree, mainly due to low-cost participantsRules.The model is still small, and most high-cost participants are still urging the maintenance of the existing fare structure. But as time edested, problems that had been looming for a long time surfaced, and the cost structure of high-cost participants has long since accumulated. In an unregulated, non-differentiated commodity industry, a company is either reducing costs to increase competitiveness or being forced to close its doors.
——1994 letter to shareholders
One.A truly great company must have a strong and durable one"Moth" to protect its high returns.But the "dynamics" of capitalism determine that competitors will continue to attack high-return commercial "castles".As a result, an insurmountable barrier, such as becoming a low-cost provider, such as the car insurance company GEICO,、Good things multi-supermarket (COSTCO），Or to have a world-renowned brand like Coca-Cola, Gillette, American Express, is the foundation of the company's continued success.Business history is rife"Roman pyroteks" as dazzling companies, their so-called "long ditch deep" turned out to be an illusion, quickly crossed by opponents.
Our criteria for "continuity" have led us to exclude many companies in fast-growing and changing industries.Although capitalism's "sabotage innovation" is good for social development, it excludes investment certainty.A moor that needs to be dug repeatedly, and in the end there is no moth at all.
If a business relies on a superstar to produce good results, it is not a good business in itself.A medical partnership led by your region's chief brain surgeon may have significant and growing profits, but that doesn't mean anything for its future.With the surgeon's departure, the partnership's "barriers" disappeared.However, you can be sure that the success of the Mayo Clinic, one of the best hospitals in the United States, will continue, even though you don't even know the name of its CEO.
A truly great business not only makes a huge profit from tangible assets, but also does not have to re-invest a large portion of the proceeds internally during its life to maintain its original high returns.A growing business will need more working capital and more investment in fixed assets as sales rise.
Is the demand for capital rising for a company to meet its growth needs? This can be used to determine whether it can be a satisfactory investment.It's great to have a business that doesn't require a lot of capital investment to bring in a lot of money!If you don't believe it, ask Microsoft or Google.
- Letter to shareholders in 2007
"Buy goods, sell brands" has long been a successful formula for business.It is this formula that has made Coca-Cola a huge and sustainable profit since its founding in 1886.Since we bought Magpies Candy 40 years ago, we've also enjoyed the high returns that Magpies Candy has created using this approach, even though Magpies' business is much smaller than Coca-Cola's.
My own most bullish investment meets two criteria:One is the ability to create a steady stream of products in times of inflation, which themselves can raise prices while keeping the purchasing power value of their businesses the same, and the other is to require only a minimum level of new capital investment.Many of the best companies, such as Coca-Cola, IBM, and the Magpies Candy Company we own, meet both criteria.Of course, other companies, such as government-controlled utilities, do not meet the second criterion because inflation places a heavy burden on them to invest additional capital.To be more profitable, shareholders in these companies must invest more capital.
- Letter to shareholders in 2011
Even a valuable product can self-destruct because of the wrong business model. Newspapers, big and small, have made mistakes in this matter over the past few decades. Publishers, including Berkshire's Buffalo Evening News, have offered their newspapers free of charge on the Internet, while charging for paper newspapers. How can this not lead to a significant drop in the circulation of paper newspapers? Falling circulation further reduces its appeal to advertisers. In.It's a "vicious circle" that keeps repeating it.
- Letter to shareholders in 2012
One of the reasons we're attracted to the property/accident insurance business is the industry's business model:The insurance company collects the premium in advance and then pays the claim.In extreme cases, claims arising from exposure to asbestos or serious workplace accidents can last for decades.
This model of collecting money now and paying later allows companies to hold large amounts of floating deposits, which companies invest in.Although individual policies and claims come and go, the floats held by insurance companies are usually fairly stable relative to the premium amount.As a result, our floats grow as our business grows.
- Letter to shareholders in 2018
We don't predict future macroeconomic trends, but we have a clear understanding of whether we can still find a number of attractive opportunities in the current market, which is more relevant than the grasp of market sentiment and where we are really focused. At present, we can still find a number of better opportunities and sufficient to accommodate the current management scale. These opportunities are mainly reflected in those with clear competitive landscape, significant competitive advantage and stable businesscompanies that have advantages may have much greater growth opportunities than the average company and will be able to return investors better on their results.
Steve.·Jobs' last words:Where my passion lies
Inscription:This article is taken from "Steve Jobs's Biography", a biographer's record of Jobs' last words to the world, and here's what Jobs said:
My passion is to build a company that can pass on the world, where people are motivated to create great products.Everything else is second.Of course, it's great to make money, because then you can make great products.But the power comes from the product, not the profit.Scully was turned upside down and made money a target.The difference is subtle, but it affects everything:Who do you hire, who you promote, what you discuss at the meeting?
Some people say, "Consumers give them what they want." "But that's not my way." It is our duty to figure out what they want in the future one step ahead of time. I remember Henry Ford saying, "If I had started."Ask consumers what they want, and they should tell me, 'Want a faster horse!' "People don't know what they want until you put it in front of them. That's why I never rely on market research. Our task is to read what hasn't fallen on paper yet.
Paulie's Edwin E. Rand has talked about the intersection of humanities and science.I like that intersection.There's a kind of magic there.There are a lot of people who innovate, but innovation is not the main difference in my career.Apple resonates with people because there is a human spirit deep in our innovation.I think great artists and great engineers are similar, they all have a desire to express themselves.In fact, some of the first people to do Mac were poets and musicians.In the 1970s, computers became a way for people to express their creativity.Some great artists, like Leonardo A. Da D'A. Finch and Michelangelo are also science-savciding people.Michelangelo knows a lot about quarrying, and he doesn't just know how to sculpt.
People pay us to integrate things for them because they can't think about it 24 hours a day, 7 days a week. If you have a great passion for producing great products, it will push you to pursue integration, to put your hardware, hardware and softwareintegration of content management. If you want to open up new areas, you have to do it yourself. If you want to make your product open to other hardware or software, you'll have to give up some vision.
In the past, different companies at different stages have become models for Silicon Valley.For a long time, it was HP.Later, in the semiconductor era, it was Fairies and Intel.I think there was a time when it was an apple, and then it fell.And today, I think Apple and Google -- Apple is a little more.I think Apple has stood the test of time.It has had ups and downs, but it is still at the forefront of the times.
It's easy to point out Microsoft's shortcomings. They have clearly lost their dominance and have become largely irrelevant. But I appreciate what they're doing and I know how hard it is. They are very good at business. They have never had the ambition they deserve in terms of products. Bill likes to describe himself as a product man, but he really isn't. He is a businessman. Winning business is more important than making great products. He ended up being the richest man, and if that was his goal, he achieved it. But that was never my goal, and I wonder if that was his goal in the end. I admire him, I admire the company he founded, it's great for meI also like to followHe cooperates. He is very clever and actually has a good sense of humor. But Microsoft's genes have never had a humanistic spirit or artistic temperament. Even after seeing Macs, they didn't imitate well. They had no idea what was going on with it.
I have my own opinion on why companies like IBM or Microsoft are in decline.Such companies do a good job of innovating, becoming or nearly monopolizing a field, and then the quality of the product becomes less important.These companies are starting to value good sales people because they're driving sales and rewriting revenue figures, not product engineers and designers.So the salesp staff eventually becomes the operator of the company.IBM's John Ekes is smart, eloquent, great salesman, but knows nothing about the product.The same thing happened to Xerk.The person who does the sales runs the company, the person who does the product is less important, and many of them lose the passion to create.That's what happened to Apple when Scully joined, and that was my mistake;The same is true of Ballmer after he took over Microsoft.Apple is lucky to be back at the helm, but I don't think Microsoft will make much difference as long as Ballmer is at the helm.
I hate people who call themselves "entrepreneurs" and what they really want to do is start a business and sell it or go public, and they can cash in and walk away. They don't want to work hard to build a real company, and that's the hardest job in business. Only by doing so can you really contribute and add to the legacy of your forethought. You're going to build a family that's still standing for another generation or twocompany. That's Walter M. Disney, as well as Hewitt and Pakad, and the people who created Intel did it. They created the company, not just made the money. That's what I expect from Apple.
I don't think I'm harsh on people, but if anyone messes up something, I'll talk to him in front of my face.It is my duty to be honest.I know what I'm talking about, and it turns out that usually I'm right.That's the culture I'm trying to create.We were honest with each other to the point of cruelty, and anyone could tell me that they thought I was a pile of, and I could say that about them.We had some heated arguments and yelled at each other, which was arguably my best time.I didn't feel bad when I said to people, Ron, that store looks like.Or I'd say, "Oh my God, we really messed up this craft", in front of the person in charge.Here's our rule:You have to be super honest.Maybe there's a better way, like a gentleman's club, where everyone wears a tie, speaks a good word of respect, and has a gorgeous euphemism, but I'm not very good at it because I'm middle class from California.
I'm sometimes tough on others, maybe not so hard. I remember Reed at 6When he came home, and I had just fired a man that day, I was wondering how a man was going to tell his family and young son that he was unemployed. It's not good. But someone has to do it. I think it's always my responsibility to make sure the team is good, and if I don't do it, no one will.
You have to keep pushing for innovation.Dylan could have been singing protest songs and might have made a lot of money, but he didn't.He had to move on, and in 1965 he alienated a lot of people when he incorporated electronic music into his ballads.The 1966 European Tour was his pinnacle.He would play the acoustic guitar on stage first, and the audience would love it.Then he would bring out the Band band, all playing electronic instruments, and the audience would sometimes cheer.Once he was about to sing "Like a Rolling Stone" and someone in the audience shouted "Traitor!"Dylan said:him deafening!"They did that.So did the Beatles.They have evolved, kept going, and improved their art.That's what I've been trying to do - keep moving forward.Otherwise, as Dylan says, if you're not busy living, you're busy dying.
What's my motivation?I think most creators want to express their gratitude for what we have achieved.I didn't invent the language or math I used.My food is basically not made by myself, the clothes are not done.Everything I do depends on the rest of us as human beings and on their contributions and achievements.Many of us want to give back to society and add another to the long history.We can only express it in a way that most people know - because we don't write about Bob Dylan. Dylan's song or Tom Brady's. Tom Stoppard's play.We try to express our deep feelings with our only naturality, to express our gratitude for all the contributions of our foremans, and to add a little to the long history.That's what drives me.(Complete)
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