Bondi: Okay. What kind of due diligence did you and your staff do when you first purchased Dun and Bradstreet in 1999 and then again in 2000?
Buffett: Yes. There is no staff. I make all the investment decisions, and I do all my own analysis. And basically, it was an evaluation of both Dun and Bradstreet and Moody’s, but of the economics of their business. And I never met with anybody.
Dun and Bradstreet had a very good business, and Moody’s had an even better business. And basically, 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 a tenth of a cent, then you’ve got a terrible business. I’ve been in both, and I know the difference.
Bondi: Now, you’ve described the importance of quality management in your investing decisions and I know your mentor, Benjamin Graham – I happen to have read his book as well – has described the importance of management.
What attracted you to the management of Moody’s when you made your initial investments?
Buffett: I knew nothing about the management of Moody’s. I’ve also said many times in reports and elsewhere that when a management with reputation for brilliance gets hooked up with a business with a reputation for bad economics, it’s the reputation of the business that remains intact.
“If you’ve got a good enough business, if you have a monopoly newspaper, if you have a network television station (I’m talking of the past) you know, your idiot nephew could run it. And if you’ve got a really good business, it doesn’t make any difference.”
Bondi: What about any board members? Have you pressed for the election of any board member to Moody’s –
Buffett: No, no –
Bondi: – board?
Buffett: – I have no interest in it.
Bondi: And we’ve talked about just verbal communications. Have you sent any letters or submitted any memos or ideas for strategy decisions at Moody’s?
Buffett: No.
Bondi: In –
Buffett: If I thought they needed me, I wouldn’t have bought the stock.
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