Billionaire Warren Buffett really doesn’t think twice about who’s in charge of a company when he invests; he rates businesses on their ability to raise prices.
That’s what he told the FCIC in an interview last year about what caused the financial crisis.
Buffett explained his motivation to get involved in a company like this:
The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 per cent, then you’ve got a terrible business.
Of course if the business is stellar, we assume that means management must be doing something right. We’d assume the two go hand in hand.
Buffett doesn’t see things that way though. He says, “extraordinary business does not require good management.”
One example is his stake in Kraft. While he thinks that two decisions made by the food conglomerate’s CEO, Irene Rosenfeld “were dumb,” Berkshire still maintains majority shareholder status in Kraft with a stake work $3.3 billion. He described Rosenfeld as a “perfectly capable” manager — hardly a glowing assessment, yet Buffett shows no signs of getting out.