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Buffett breaking down some very important concepts via KHC example
1) returns on tangible capital (core business quality)
2) returns on total capital (what you pay as an investor)
3) importance of reinvestment opportunities (what drives future value)
1) returns on tangible capital (core business quality)
2) returns on total capital (what you pay as an investor)
3) importance of reinvestment opportunities (what drives future value)
then Buffett contrasts KHC's lack of reinvestment opportunities w COST, who has successfully reinvested into its business (using private label as an example) & created an order of magnitude higher value for shareholders
Buffett: "it depends on interest rates. We've talked about that before. If you tell me that 3% long bonds will prevail over the next 30 years, stocks are incredibly cheap."
