Buffett Downplays Requirement for Great Administration

A. Frye and D. Campbell; Houston Chronicle; Feb 18, 2011

Investor Says Pricing Energy is Much More Essential

Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway, states he rates companies on its ability to raise costs and occasionally doesn't even think about the folks in control.

"The single most significant choice in evaluating a business is pricing power," Buffett told the Financial Crisis Inquiry Commission in an interview launched by the panel this month.

"If you have the ability to boost costs without losing business to a competitor, you have a very good business. And if you need a prayer treatment before increasing the price by 10 %, then you have a terrible business."

Buffett, 80, accumulated a huge private fortune via a career of stock picks and takeovers.

He has purchased businesses such as railroads and electrical power suppliers, whose pricing energy stems from a scarcity of aggressive options available to clients. Buffett has also built stakes in companies like Coca-Cola Co. and Kraft Foods, that rely on the appeal of their manufacturers to attract and keep customers.

"The remarkable company doesn't need great management," Buffett said in the interview, conducted last year in Omaha, Neb., where Berkshire is based.

The investigators focused on Buffett's investment in Moody's Corp., the bond-ratings company charged by lawmakers for handing out higher credit grades throughout the housing growth.

Buffett said he held inventory in Moody's because the business's leading market share, along with those of rival Standard & Poor's, a additional of McGraw-Hill Cos., gave the two businesses versatility in establishing costs.

"Within the short run, good management can create a stock pop, but I follow what Warren's saying, particularly because his point of view examines the basics," explained Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco and a past managing director at Salomon Brothers. "Good management cannot do anything with a bad situation."