Not all businesses are created equal
Buffett is often heard saying that of the thousands of businesses around, there are only a handful of businesses that pass through his screen test. He calls these businesses 'franchises' and believes they should have the following attributes
Buffett says, "An economic franchise arises from a product or service that:
(1) Is needed or desired,
(2) Is thought by its customers to have no close substitute, and
(3) Is not subject to price regulation."
If the company under evaluation has enjoyed a long track record of greater than average returns on capital as well as profit margins then there is a good chance that the company qualifies for the definition of a 'franchise.'
Image: Gold bullion bars and coins. | Photograph: Mario Tama/Getty Images
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