I am still intrigued by Buffett’s all in purchase, because it would imply that BNI is the perfect stock in his 70 years of investing. This is the man that waits for fat pitches, hence this must be the mother of all fat pitches.
Here are the 4 criteria that Buffett tries to satisfy before he invests.
1. Do I understand the business.
2. Does the firm have a sustainable business with a strong competitive advantage.
3. Do I trust the management.
4. Is the valuation of the company such that I have a margin of safety.
BNI must have satisfied all the above beyond any reasonable doubt for him to go all in. On the fourth point about a reasonable margin of safety, why pay substantially above market value mystifies me, though that is frequently a necessary premium when taking full control of a firm. Buffett does frequently say that he would rather pay a reasonable price for a great business rather than a great price for a bad business, so this is what a great business looks like and he does not mind overpaying for it. It would appear that he is being true to his beliefs. However, if you do not understand him, then go back to the old standby, “ life is a mystery, just accept it”.
In my view he is very right on the first 3 criteria, though the valuation issue is more subjective. He must have a much deeper understanding of the growth rate of that business and the profitability that lies ahead and so feels comfortable paying up for it.
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