Business And Life Lessons From Nintendo

I do not believe that I have ever written a finance article advocating the purchase of gaming stocks like Activision or Electronic Arts. It’s not that video games aren’t profitable—far from it, intellectual property that costs a few bucks to manufacture per disk and can be sold for $50 is a great way to make money while putting down a small amount of initial capital.

Instead, the challenge is sustainability. When Nestle sells a cookie, I can make intelligent guesses about how many cookies are going to be sold several years into the future. For the past century, the world consumes about 4.5% more cookies each year, and the Nestle Tollhouse usually sells 4% more cookies than the year previous. If someone is in the habit of buying 6-8 cookie rolls per year, that behavior is likely going to continue indefinitely. Through technological advances, boom and bust cycles, and the changing dietary preferences of Americans, it’s still pretty easy to figure out that people will be eating cookies ten years from now.

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My Recommendation: Look To Berkshire Hathaway

Berkshire Hathaway is sitting on an overwhelming amount of cash. It overshadows just about every other company I study in terms of raw, untapped earnings power. As of last quarter, Warren Buffett had $62 billion in cash sitting on Berkshire’s balance sheet. The market capitalization of the stock is $360 billion, meaning 17.2% of your purchase price is sitting in cash alone. If you buy a share of Berkshire for $145, your look-through portion of cash is $24.94 per share. The only other companies in similar situations are tech giants like Microsoft and Apple where the long-term business model is subject to rapid changes in technology in a way that Berkshire Hathaway is not.

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