Bussinesses that Buffett Avoid

People spend a lot of time discussing the companies 

Buffett buys. But in the spirit of not losing money, 

it's equally worthwhile to understand the types of 

businesses that Buffett does not buy, in order to 

steer clear of potential duds. I see five main 

categories:

1. Businesses that bet the farm

2. Businesses dependent on research

3. Debt-burdened companies

4. Companies with questionable management



5. Companies that require continued capitalinvestment

Over the long term, shareholders make spectacular returns by buying businesses that are able to achieve extraordinary returns on capital. This leads to excess capital that the company can use to repurchase shares, pay dividends to shareholders, or reinvest in further growth. Companies that constantly need to make additional capital investments to keep the business going are the antithesis of this ideal -- the main beneficiaries will be employees, management, suppliers, and government. In other words, everyone except shareholders.

Semiconductor companies, because of the huge expense 

of building and maintaining chip-fabrication 

facilities, also suffer from this disadvantage. 

Chartered Semiconductor Manufacturing (Nasdaq: CHRT) for 

example, has found profits and free cash flow hard to 

come by while spending the majority of its revenue 

over the past few years on capital expenditures.

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