Jump to content

Of all the businesses you've looked at - what's the best one and why?


LongHaul
 Share

Recommended Posts

China National Tobacco Corporation - It enjoys a virtual monopoly in China, which accounts for roughly 30% of the world’s total consumption of cigarettes.  China Tobacco caters to its customer base of 350 million smokers, who consume 1.7 trillion cigarettes every year. Unbelievable!

Link to comment
Share on other sites

BRK - Holding co that deploys capital where it is most attractive.  Partially funded by float.

 

Consumer goods (Unilever, PG, MDLZ, DEO, KO) - Population growth plus wealth growth in developing markets plus inflation protection = highly predictable single digit earnings growth for the foreseeable future.

 

Basically, the companies and industries WEB likes.

Link to comment
Share on other sites

Wrigley. Gum has the highest gross margin per linear inch of shelve space of any item in the grocery store.

 

Where did you get that data? I'm not saying you're wrong. I'm just curious. It'd be cool if you had some big trove of data on the industry.  ;D

Link to comment
Share on other sites

Wrigley. Gum has the highest gross margin per linear inch of shelve space of any item in the grocery store.

 

Where did you get that data? I'm not saying you're wrong. I'm just curious. It'd be cool if you had some big trove of data on the industry.  ;D

 

No, I don't have the data for that. I believe Nielsen (Nielson?) has some of this data. It was in an old credit suisse report that I have on the company.

Link to comment
Share on other sites

No, I don't have the data for that. I believe Nielsen (Nielson?) has some of this data. It was in an old credit suisse report that I have on the company.

 

Could you post that report here? Or PM it to me? I'd love to read it over.

Link to comment
Share on other sites

The best businesses are the ones that governments take the time to dismantle / destroy:

 

- Standard Oil (why: economies of scale leading to monopoly)

- Pre-1984 Bell (why: network effect leading to monopoly)

- Microsoft (why: network effect leading to monopoly)

 

Link to comment
Share on other sites

A colleague and I once met a man in an airport who sold after-market warranties for Harley-Davidson motorcycles.

 

When these bikes are modified, it voids the warranty.  It turns out that most of the bikes are modified in-house at the Harley-Davidson factory, but the warranties are still voided.  This gentleman used to work for H-D, and he further explained that the best and most experienced mechanics would be promoted off the line to work on the after-market modifications.

 

The bottom line was that he was selling warranties on brand new bikes, which the very best H-D mechanics worked on during final assembly - so they actually had a lower rate of failure than the bikes under warranty.  Also, riders who spend a lot of money on after-market customization, take much better care of their bikes. 

 

At the time, he said he was in 32 states with thousands of policies written a year and was yet to have a single claim.

Link to comment
Share on other sites

Real Estate in markets that are geographically constrained are great businesses.  I'm not saying that they are cheap.  For example, RE in Manhattan, San Francisco, Hong Kong, etc.  There literally aren't anymore land on the island of Manhattan to build anymore buildings.  In general, real estate are very high margin businesses.  Assuming there is no debt on the asset, it's almost impossible for RE owners in these markets to go under.  If privately owned, most RE have cashflow/revenue margin of 50+%.  Obviously, interest rates and the cost of financing will dramatically affect the value of the owned RE.  Things to watch out for with RE is changes in the demographics and crime (or perception of crime).  While most assets depreciate in value over time, RE assets actually appreciate while allowing the owner to take tax writeoffs via depreciation on the building.  Financing also allows one to take on an immense amount of leverage (4-8x).  There's a quote out there saying something along the line that real estate is the only business where dumb people can become rich over time.

 

With all of that said, I believe that many of the REITs are overvalued because people are chasing yield.  REITs in the late 90s were paying 10+% dividends because rates were higher.  Despite RE being great businesses, I'm not quite ready to dip my toes into them due to the low rates. 

Link to comment
Share on other sites

I am not quite sure how you came to the conclusion that RE is a high margin business.

 

It can be a high margin business. I know a guy who has owned some properties forever and has 70%+ net profit margins because he no longer pays a mortgage on them. That being said, I know another guy who developed a big apartment complex that didn't work out and he went bankrupt and the property sold for ~38% what it cost to build 5 years prior. It goes both ways. Be sure to have a margin of safety.

Link to comment
Share on other sites

The best businesses are the ones that governments take the time to dismantle / destroy:

 

- Standard Oil (why: economies of scale leading to monopoly)

- Pre-1984 Bell (why: network effect leading to monopoly)

- Microsoft (why: network effect leading to monopoly)

 

What about a business the gov't runs? Selling lottery tickets?

Link to comment
Share on other sites

 

It can be a high margin business. I know a guy who has owned some properties forever and has 70%+ net profit margins because he no longer pays a mortgage on them.

 

But the ROE must be terrible right?

Link to comment
Share on other sites

 

It can be a high margin business. I know a guy who has owned some properties forever and has 70%+ net profit margins because he no longer pays a mortgage on them.

 

But the ROE must be terrible right?

 

I assume the ROE was pretty decent. I don't know the details of his purchases, but it was probably financed conventionally (20% down) and he didn't blow up. So he had decent leverage combined with good operations so he probably made decent money in the early years and now that his mortgages are paid off, his profits are very high. He has done well on these investments.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...