Think See’s Candies. In his 2007 shareholder letter, Buffett called See’s the model for not just a good, but a GREAT business. Many CEOs would disagree. See’s sales grow only about 2 percent a year. But, says Buffett, See’s is great in his book because it requires very little capital to grow. It doesn’t carry large inventories and it grows steadily every year — it makes great chocolate that customers love. Buffett loves See’s because he can take the cash See’s generates and invest it in other enterprises that grow greater than 2 percent a year.
Unlike other most other CEOs, Buffett doesn’t tell investors what quarterly or even annual earnings are going to be. He is focused on economic or cash results not accounting or short-term earnings results. Instead of casino capitalism, he practices Rock of Gibraltor capitalism. Reading his shareholder letters you begin to see that great CEOs must also be great CCAOs – or great “chief capital allocation officers.” These leaders nurture corporate cultures that are disciplined about spending investor money for long-lasting wealth.