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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: limtex who wrote (26980)	11/18/2004 5:52:58 AM
From: Dave	Respond to of 60323

Limtex, [T]hats (sic) the pointwhy go into a business were the margins are going to be under constant pressure and it requires more and more capital What you talk about is something Warren Buffett refers to as a "Moat". Buffett learned this lesson the hard way when he acquired the textile mill Berkshire in the early 70's (I believe). He realized that he was in a difficult business since he produced a commodity product. Moreover, other textile mills were kicking his butt since they had to pay their workers lower wages. He also realized that he could pay to upgrade the factory, but since all competitors could do the same, he wouldn't have an advantage. When companies are earning returns over their cost of capital, they are sending a signal to potential competition. That "signal" is basically, "Hey, we are earning great returns selling our widgets....." If there are little to no barriers to entry, competition will enter. Not all businesses or industries are blessed given that they have high profits and low capital re-investment requirements. Really, the goal to investing is to assess and analyze how and why a company's Return on Capital will change in the future and, furthermore, determine whether those changes are "priced" into the stock. Later, Dave