Saturday 25 February 2012

Why Warren Buffet does not Invest in Companies he does NOT Understand


COMPLEX COMPANIES


Take however, a company like Unilever NV. This is a corporation that has been around a long time, has a worldwide reputation and market, and is successful. But how easy is it to understand the way it operates?

According to Value Line, it has two parent holding companies, one in Great Britain, and one in The Netherlands. It operates as one company but each of the two holding companies owns shares in operating subsidiaries. The director component of both holding companies is the same and there are agreements that equalise dividends and set trading ratios for their respective shares. The business may be good but this complex structure is just too difficult for the average person to understand.


WHY WARREN BUFFETT DOES NOT INVEST IN MICROSOFT

As Warren Buffett has said, he knows and admires Bill Gates and the Microsoft Corporation but has never invested in it because he does not understand the way that the company works.

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