【C:W.B Ep.159】Warren Buffett on the importance of Moat & Management. | Berkshire Hathaway 1999

[Join YAPSS Membership, For Early Access to New Videos]
https://www.youtube.com/channel/UCpzAAXa2cvyEnfc7rurcCcQ/join

In this episode, Warren Buffett was asked when he value companies does he put a dollar value on management, moats and other intangibles?

In this episode, you’ll learn:
- Why you need to look at moats and management during valuation?
- What is an economic moat?
- Why having a terrific moat is important in business?
- Warren Buffett on Coca-Cola's moat.
(https://www.yapss.com/post/collection-warren-buffett-159-moat-and-management)

#WarrenBuffett #CharlieMunger #BerkshireHathaway

[Transcript]
(Source: https://buffett.cnbc.com/video/1999/05/03/morning-session---1999-berkshire-hathaway-annual-meeting.html)
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

AUDIENCE MEMBER 00:08
Hi. My name is David Zelker (PH) and I currently live in Redmond, Washington where I work for one of your good friends. So if I get into trouble for having taken a busy Monday off work, maybe if I give you a call you could put in a word for me.

WARREN BUFFETT 00:20
If it’s without pay, we won’t complain. (Laughter)

AUDIENCE MEMBER 00:26
It’s vacation, yeah.

My question is about how you two assign value to certain intangibles that I know you look at when you value companies.

Anyone who’s read your writings knows that you look for great management and economic moats, as you call them, that enable companies to raise prices and margins.

I’d like you to drill down with us and tell us what, to you, are the signs of great management and economic moats.

And furthermore, do you try to put a dollar value on those management and moats and other intangibles when you value companies? And if so, can you guide us through your thinking there?

And lastly, I’m interested in how you pick your discount rate. I’m actually a — an alma mater of yours from business school and I learned a bunch of junk about beta, too.

I read that you just assign the Treasury rate. And I’m not sure if that’s right, but I’d love for you to talk about your discount rate. And I’d really appreciate as much detail about your thinking as you can give us, please.

WARREN BUFFETT 01:21
Yeah. We do — we think, in terms of the Treasury rate, but as I said earlier, that doesn’t mean we think once we’ve discounted something at the Treasury rate, that that’s the right price to pay. We use the Treasury rate just to get comparability across time and across companies.

But a dollar earned from a horseshoe company is the same as a dollar earned from an internet company, in terms of the dollar.

So it is not worth more, based on whether somebody — it comes from somebody named dot-com, you know, or somebody that — named, you know, the Old-Fashioned Horseshoe Company. The dollars are equal.

And our discount rates, they reflect different experience, different expectations about future streams of income, but they don’t reflect any difference in terms of whether it comes from something that the market is all enthused about or otherwise.

The moat and the management are part of the valuation process, in that they enter into our thinking as to the degree of certainty that we attribute to the stream of income — stream of cash, actually — that we expect in the future and the amount of it.

I mean it is, you know, it is — it’s an art, in terms of valuation of businesses. The formulas get simple at the end.

But if you and I were each looking at the chewing gum business — we own no Wrigley, so I use Wrigley fairly often in class — pick a figure that you would expect unit growth of chewing gum, you know, to grow in the next 10 or 20 years.

Give me your expectations on how much pricing flexibility you have, how much danger there is that Wrigley’s share of market is dramatically reduced. You can go through all of that. That’s what we go through.

That is — and in the — in that case, we are evaluating the moat. We are evaluating the price elasticity, which interacts with the moat in certain ways. We’re evaluating the likelihood of unit demand changing in the future. We’re evaluating the likelihood of the management being either very bright with the cash that they develop, or being very stupid with it.

And all of that gets into our evaluation of what that stream of money looks like over the years.

But the value of — how the investment will — works out depends on how that stream develops over the next 10 or 20 years.

We had a question earlier today that made certain suppositions about what could happen at Berkshire. And the formulation was exactly right. The question of what numbers to use is another question, but the formulation was proper. And that formulation — the moat enters into that. If you have a big enough moat, you don’t need as much management.

[DUE TO LIMITED WORDINGS, FOR FULL TRANSCRIPT VISIT YAPSS.com]

CHARLIE MUNGER 06:20

WARREN BUFFETT 06:53

CHARLIE MUNGER 07:34

WARREN BUFFETT 08:43

Видео 【C:W.B Ep.159】Warren Buffett on the importance of Moat & Management. | Berkshire Hathaway 1999 канала YAPSS