The Perfect Business

The best and easiest way to make money either as a businessperson or an investor is to get hold of an as near to perfect business as possible.The best businesses have the following features:

  1. High profitability. If the business provides customers a product or service they need or want very much, and only this business can provide it, and there are few substitutes available then this firm can charge a premium price far above the costs it incurs.
  2. High returns on capital. A business with high margins ceases to be very attractive if it is very capital intensive and requires massive amounts of capital to launch and/or remain in business. The greatest businesses require little or no money to start, can grow without major additions of capital, and do not require much maintenance cap ex.
  3. An enormous moat. To ensure high margins and return on capital  in the future it’s critical for a business to have major competitive advantages that are unlikely to dissipate over time. The key here is lack of change .Rapid change as in the hi- tech sector,benefits consumers but is very bad for investors. To quote Warren Buffett, “We see change as the enemy of investments… so we look for absence of change. We don’t like to lose money. Capitalism is pretty brutal. We look for mundane products that everyone needs…. I guarantee that CokeWrigley’s , and Gillette will dominate. The Internet won’t change what brands people like.”
  4. Profitable reinvestment opportunities.  The greatest businesses can reinvest their robust free cash flows back into the business at equally high rates of return on capital. Consider this: Warren Buffett has often lamented the fact that See’s Candies has never been able to expand much beyond its historical West Coast markets. It’s a fabulous company and was one of his best acquisitions ever, but the inability to reinvest its free cash flows back into growing its operations makes it an inferior business to, say, Wrigley, which has been able to grow globally over the years. Read more of this post

Silver Investors Beware ! Patra and Gillet

As gold continues to hover round 21,000 Rupees per 10 grams and silver round 50,000 Rupees per kilogram there is a great deal of change taking place in the Indian jewellery market. The following article which appeared in the ‘Times of India’ is a must read for anyone looking to invest in silver jewellery and artifacts.

Now, silver is worth its weight in gold and more

24 Feb, 2011, 0854 hrs IST, Meenakshi Sinha, TNN

wealthymatters.comNEW DELHI: For generations, silver jewellery has been a source of enthrallment for millions of families across India. The exquisite craftwork of an anklet, the sheer weight of a beautiful baazuband (ornate upper arm amulet) — the metal has been a source of pleasure in every way. Its versatility and durability has only added to its allure. While gold has always been the preferred metal for weddings , the cheaper silver has offered more opportunities to indulge.

But now with the sky-rocketing of silver prices, customers are being forced to make adjustments. The traditional heavy silver jewellery is giving way to lightweight varieties. Imitation metals too are making their way in.

Sachin Aggarwal of Mohit Gems and Jewellers, Sector 27, Noida says that the demand for heavy items has gone down.“Silver gift items like statues of gods, bridal jewellery like anklets , maang tika, traditional key rings for household keys or sindoor dani (vermillion container) have gone lightweight. Most show pieces like dolphins or photo frames for gods have now been reduced to being designed in a thin layer called patra,” he says. Read more of this post

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