Warren Buffett's View On Business Fair Price

In this video, Warren Buffett talks about the fair price for a business. Someone in the public asks him how to determine the fair price for a business.

He uses See's Candy as an example. Back in 1972, See's Candy sold 16 million pounds of candy for $1.95 a pound. Warren Buffett and Charlie, his partner, agreed that it was some untapped pricing power there. Those candies could sell as well for $2.25 a pound, so a 30% increase for every pound. Berkshire Hathaway Inc. paid $25 million for it. The 30% increase in pricing means more $5 million for this profitable company.

People view it to be a high end product. Warren Buffett compares See's Candy with Coke. See's Candy doesn’t require a lot of capital expenditures. You may raise prices every year, people are buying candies before Christmas, for Valentine's Day... This is a common gift for your friends. So, See's Candy will make money in 10 years also.

Warren Buffett says that he never hired a consultant in his life, his idea of consulting is to buy a box of candy. He talks then about Disney, every people in the world have an idea about Disney, it is the same vision in their minds. This is not true for Universal Pictures or 20th Century Fox. So, when someone wants to buy a video for a child, that person will buy a video from Disney, knowing that it is appropriate for children, instead of watching 20 videos to choose an appropriate one. Disney brand is Disney's moat.

Buffett gives another example, saying that if you have a Disney video for $17.95 and another video for $16.95, you will buy the Disney video. Coca Cola's moat is associated with happiness in the world. Everywhere people are happy, Coke is sold.

This video is Part 4 of 10 videos of this MBA Q&A Lecture with Warren Buffett. Watch Part 5 of Warren Buffett's Lecture.

Warren Buffett Quotes from this Video:

  • I don't want to buy any business that I'm sure of. If I am sure, it probably doesn't offer incredible returns.
  • We have in mind never loosing anything
  • If someone gives a box of candies to his girlfriend, and he slaps him, then we have no business
Submitted by YouTube Trader on Sun, 04/04/2010 - 09:46

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