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William Ackman: The last bit is that you want to invest in a business that you could theoretically own forever.  If the stock market were to close for 10 years you wouldn’t be unhappy.  What do I mean by that?  Again if you’re going to compound your money at a 10 or 15 percent return over a 43 year period of time you really want a business that you can own forever.  You don’t want to constantly have to be shifting from one business to the next.  And what are businesses that you can own forever?  Well there are very few that sort of meet that standard.  Maybe a good example is Coca Cola.  What is good about Coca Cola?  It’s a relatively easy business to understand.  You understand how Coke makes money.  They sell a formula or syrup to bottlers and to retail establishments and they make a profit every time they serve a Coca Cola.  People drank a lot of Coca Cola for a very long period of time.  The world’s population is growing.  They sell it in almost every country in the world and each year people drink a little bit more Coca Cola, so it’s a pretty easy business to understand and it’s also a business that I think is unlikely to be competed away as a result of technology or some other new product.  It’s been around long enough.  People have grown used to the taste.  Parents give it to their children and you can expect it will be around a long period of time.  I think that’s one good example.

Another good example might be MacDonald’s.  You may not love MacDonald’s hamburgers.  You may or you may not, but it’s a business that it has been around for 50 years.  You understand how they make money.  They open up these little—build these little boxes.  They rent them to the franchisees.  They charge them royalties in exchange for the name and they sell hamburgers and French fries and you know what?  People have to eat.  It’s relatively low cost food.  The quality is pretty good and they continue to grow every year.  So I think the consistent message here is try to find a business that you can understand that’s not particularly complicated that has a successful long term track record that makes an attractive profit and can grow over time.

So what are the key things to look for in a business as I say that lasts forever?  Well you want a business that sells a product or a service that people need and that is somewhat unique and they have a loyalty to this particular brand or product and that people are willing to pay a premium for that.  Another good example might be a candy business.  While people are going to buy generic versions of many kind of food products, flour, sugar, they don’t need to have the branded product.  When it comes to candy people don’t tend to like the Walmart version or the Kmart version.  They want the Hershey chocolate bar or the Cadbury chocolate bar or the See’s Candy.  They want the brand and they’re willing to pay a premium for that and so that’s I think a key thing.  You want the product to be unique.  You don’t want it to be a commodity that everyone else can sell because when you sell a commodity anyone can sell it and they can sell it at a better price and it’s very hard to make a profit doing that.

 

Bill Ackman: Invest in the ...

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