WARREN BUFFETT: Yeah, I’ve never really read Porter, although I’ve read enough about him to
know that we think alike, in a general way. So I can’t refer you to specific books or
anything. But my guess is that what he writes would be very useful for an investor to read.
I mean, I — again, I’ve never — I’ve just seen him referred to in some commentary. But I think
he talks about durable or sustainable competitive advantage as being the core of any business.
And I can tell you that that is exactly the way we think.
I mean, that — in the end, you — if you are evaluating a business year-to-year,
you want to — the number one question you want to ask yourself
is whether the — could the competitive advantage have been made stronger and
more durable before — and that’s more important than the P&L for a given year.
So I would suggest that you read anything that you find that’s helpful or —
Actually, the best way to do it is study the people that have achieved that and ask yourself
how they did it and why they did it. I mean, why is it that in razor blades, which could —
I mean, everybody grows up
in business school hearing that as a great example of a product that’s very profitable and why —
With it obvious that there’s going to be no reduction in demand for the next hundred years
for the product, why are there no new entrants into the field? What it is that gives you
that moat around the razor blade business?
Normally, if you’ve got a profitable business, you know, a dozen people
want to go into it. If you’ve got a dress shop here in town and it looks like it’s doing well,
you know, a couple of other people are going to want to open up a shop next door to it.
And here’s a worldwide business,
nothing can go wrong with the demand, to speak of. And yet, people don’t go into it.
So, we like to ask ourselves questions like that. We like to ourselves, “Why was State Farm
successful, you know, against people that had incredible agency plants and lots of capital?”
And here’s some farmer out in Bloomington, Illinois named George Mecherle , you know,
who’s in his forties. And he sets up a company that defies capitalistic imperatives.
I mean, it has no stock, it has no stock options, it has no big rewards. It’s,
you know, it’s kind of half socialistic. And all it does is take 25 percent of the market
away from all of these companies that had all these characteristics.
We believe you should study things like that. We think you should study things like Mrs. B
out at the Nebraska Furniture Mart, who takes $500 and turns it, you know, over time,
into the largest home furnishing store in the world. There has to be some lessons in things
like that. What gives you that kind of a result and that kind of competitive advantage over time?
And that is the key to investing. I mean, if you can spot that — particularly if
you can spot it when others don’t spot it so well — you’re on the — you know,
you will do very well. And we focus on that.
Charlie?
CHARLIE MUNGER: Yeah, it
— these factors — every business tries to turn this year’s success
into next year’s greater success. And they all use pretty much every advantage they
have in every direction from this year to make next year’s better.
Microsoft did exactly that, year after year after year and happened to win big.
And it’s hard to see — for me at least — to see why Microsoft is sinful because they tried to
improve the products all the time and make next year’s business position
stronger than last year’s business position.
(Applause)
If that’s a sin, every subsidiary at Berkshire is a sinner, I hope. (Laughter)
WARREN BUFFETT: Yeah, yeah, yeah. We declare ourselves for sin.
(Laughter)
WARREN BUFFETT: At this moment, I think we have a small interruption in the program here.
Charlie, on your left. (Laughs)
It’s just a sample of what it’s like to be an officer at Berkshire.
(Laughter)
Oh, OK.
This is the new See’s Barbie doll. And — never before seen,
it will be in the exhibitors section, lower level.
And believe it or not, we’ve come up with three more just like this young woman. And they will
be down there to take your orders. We can’t ship them now, we won’t charge your credit card until
they — until they’re available for shipment, which will probably be, I guess, around September or so.
But we wanted our shareholders to be the first ones to have a shot at this new product, and —
The model is not included in the — (laughter) — delivered price.