Warren Buffet On Inflation

May 17, 2011

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Contrarian Edge’s Vitaliy Katsenelson returned from Buffet’s annual shareholder meeting.

When [Buffet] was asked what businesses do best in an inflationary environment, he answered, “The ones that have royalty on someone else’s revenue.  You don’t have to invest any more capital, no receivables, no fixed costs.  Your revenues keep growing with inflation as long as the product remains viable.” 

Here are some businesses that came to mind that for the most part fit that criterion: McDonalds (they receive a percentage of franchisee sales; in fact almost any company that receives significant income from franchising fits that category), credit card companies like Amex and Discover, and payment processors like Visa and Mastercard (Amex and Discover are actually both a credit card and a payment processor), and companies that just own brands, like Iconix Brands and Cherokee, etc.

Source : Contrarian Edge

Further Reading : Notes from Warren Buffet’s Annual Presentation (25 pages)

 

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