Aug

5

 Buffett is a charlatan precisely because he hides his secrets behind his Barnum act of public-spiritedness. One secret has been pretty well outed by now, both here on the site and elsewhere– namely, the man is the Capablanca of the tax code.

The other secret is the one he hides in plain sight. He gets extraordinary earnings out of his headcount. For a sane company that avoids stupid leverage on its balance sheet, the employees are the liability that matters most; and the Oregano manages that liability with the same skill that the 19th century Titans did. BRK-A's known earnings (the average of the current year's report and the consensus prediction for the next 12 months) are roughly $65K/employee. GM has known earnings/employee of $28.5K.

As a number, known earnings/employee may seem bizarre but it is the best predictor of how consistently a company can continue to generate profit.

We have used the same kind of benchmark in our own assessment of our private businesses; and it has never failed. We have, every time we have gone away from it in the name of "investing in growth", etc.

We don't actually know if this really is Buffett's secret sauce; this is likely pure vanity on our part. But, if, like him, you invest by buying stakes in public companies as if they were private businesses


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