Monday, February 13, 2006

Warren Buffett on Cost Structures

“The businesses have different characteristics: Service businesses such as Executive Jet have costs that are human-resource and capital heavy. The carpet company has a large raw-material-buyer cost, and only 15% human-resource cost. The costs vary by business. The retail business costs include purchased goods and labor, and insurance has claims costs that can extend out over years. The important part of knowing the business is that we understand the cost structure and that the company has an enduring competitive advantage with top-notch management.”

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