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(24-01-2011, 04:26 PM)lonewolf Wrote: I think I am dumb. Cos I keep reading over and over about what Buffet says brilliance management and bad company, and I still dun totally understand what he is trying to say.
'reputation of the business remains intact' seems to imply that its not necessary to put a good management to bad company cos the company will survive intact. Or maybe he is saying that it will be brilliant management that will have its reputation tarnish.
Or is Buffet is saying that, if the company is intrinsically bad, then however good the management team is, it would not make a difference.
With all due respect, I dun agree with the great one 100%. The flip side of what Buffet seems to be saying is that if a company is intrinsically good, then even monkeys can do a decent job running the company. But we have seen many examples of good companies ruined by bad management; and bad company surviving with good management.
I think the point Buffett was trying to make was that even if you have the brightest people in charge of a business with bad economics, it wouldn't help the business in any way.
Example, even if Jack Welch (or some business titan of the time) were put in charge of the horse-drawn carriage business, it still wouldn't have saved the business from being overrun by the introduction of motorcars.
Lonewolf-san, I'm not saying that your view is wrong but perhaps it is the semantics of the language. I think your point on companies surviving is true and I have 2 thoughts on that point:
1) Is the company surviving because it has divested in the original, bad economics business? (ala The Jack Welch way) In this sense, you and Buffett would both be right because both the reputation of the business with bad economics and the company has remained inatact/survived.
2) Is survival merely enough? After all, the Investor's chief concern is a decent rate of return. In this sense, would it be enough to merely bet on a company's survival?