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No. of Recommendations: 38
1. 12-yr old: How do you remain friends and how do I choose them?
We have disagreements but never arguments.
Ask yourself these questions: What characteristics do you like in others? Who has them? Do I have them? Do the same with bad characteristics.

2. Gentleman from Chicago: I feel you are not born a great investor but acquire this trait from others. Do you agree? If so, how do you acquire it?
I agree. A great IQ is not needed. Think about a stock as part of a great business and what makes a good business. Always buy with a margin of safety. Temperament is important. Be realisitic and define your circle of competence. Have an interest in money but not greed.
Charlie: A deeper level of generality is important. Why are things happening? Why did some people die financially?

3. Steve from Los Angeles: Why is KO losing to PEP domestically?
KO wants to be where people want them but financially cannot always do this. (Following relates to some of the lost contracts): The tendency is to overbid for next contract after you have lost a big one; however, EK made a huge mistake in letting Fuji outbid them for the Olympics a while back.
PEP has gained primarily due to Mountain Dew. Universally, carbonated and water are up. All else is down. Coffee is way down. SBUX hurting.
(I think RR had some more detail in his notes)

4. Jerry, San Mateo, CA: Is a company born with a moat or are they developed? How do you sustain one? Who is? Who isn't?
MSFT's operating systems developed almost instantaneously. See's took a long time. NetJets is sustainable and growing. KO very slow - almost 60 yrs.from date of invention. Ike gave the moat a big boost in WWII when he wanted all servicemen to have easy access to a Coke.
Charlie: Lots of different models - both sustainable and rapidly lost like Arthur Andersen. WWY is a good one.
WEB: Snickers is one of the best (Charlie: really strong in Russia). This moat won't change in the next 10yrs. Neither will WWY. If you can establish a moat quickly, chances are you can lose it quickly, too.
(My take - watch it, MSFT)

5. Pete, Boulder, CO: Is KO still invincible? How do you view AXP based on last year's result?
G has 71% world razor and blade market. (See below - re: acquisitions. I find it interesting that Q did not include G, but WEB chose to start answer with G. and save the bad stuff for later. - Defensive?)
Corrects questioner by saying inevitable was the term, not invincible. KO volume greater than 5 yrs. ago and sells half of world's carbonated (or did he say soft drink?). World per capita is growing. Units will never grow at 15%. 9-1/2 oz. per day per person is current consumption. This is out of 64 oz daily liquid consumption. WEB said 64oz. annually but later corrected himself!
A company may achieve 15-18% growth for a short period, but it's never sustainable over long periods.
G has not done well with acquisitions (Duracell). At this point there were several more comments about overzealous projections accompanying large corporate acquisitions. Charlie stated generally 2 out 3 don't make their projections.
We don't buy mediocre businesses.
(To the best of my recollection, they never addressed the AXP portion of this question.)

6. Paul from IL: (I may not have this one exactly right) I think Paul stated that logic is not enough in making an investment decision and that you should not fool yourself. He invited WEB and Charlie's comments.
It's good to have a partner who will question your logic. We continuously look back and measuring how we're doing against what we originally thought. Annual reports are good feedback mechanisms. Most corporate staffs and boards are sycophants and don't stand up to or question CEOs. Feedback system in corporate America is not good.
Sometimes you must make tough decisions which we have just done re: GRN's derivative book. Derivative and sewage comment occurred here. Derivative accounting is terrible. There is too much potential for monkey business and the creation of phony income. We have a 40-yr contract on our books now and recognized income at the contract inception. (Anyone got any further insights into this? I cannot imagine what a 40 yr. forward contract could possibly be. If I had the mike, I would have asked for more detail.)

LUNCH BREAK.

7. Morton from Cleveland: This was a statement and not a question. He has been able to accomplish a lot of philanthropic good in Cleveland due to his investing success in BRK.

8. Jennifer from Toronto: Will you revisit pharmaceutical industry?
Over time this will be a very good industry. We understand the industry but not specific companies; therefore, the basket approach to investing here makes sense.

9. Phil from Greenwich, CT: How do you view balance sheets of KO's bottlers and potential SEC and/or FASB requirement to consolidate them?
(This sounds like a poster from the KO board)
The bottlers have a danger of taking on too much debt. If you have 15-16% margin and need 5-6% for CAPEX, doesn't leave much for debt service.
(Again, I'm not sure I have this right.)
Things like weekend specials at WMT further squeeze margins.
There is no big B/S concerns as economics are the same whether or not consolidated. Neither KO or CCE will ever run out of cash. (I feel WEB implied that they could be stronger cash-wise if consolidated.)

10. Adam an OSU student from Columbus, OH: Please comment on the new FASB prounouncements (Goodwill and purchase accounting)
Accounting for these items are now in accord with our thinking. This could cause more competition for us bidding on companies in which we are interested due to goodwill not having to be amortized. (i.e., excess purchase price does not affect future earnings, accounting wise.)

Hopefully, I'll get to round 3 later today.


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