Interviewer:
What kind of due diligence did you and your staff do when you first purchased Dun and Bradstreet [and Moodys] in 1999 and then again in 2000?

Warren Buffet:
There is no staff.  I make all the investment decisions and I do all my own analysis.  And basically it was an evaluation both of 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.  You’ve got the power to raise prices without losing business to a competitor, and 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 (laughs), then you got a terrible business.  And I’ve been in both and I know the difference.

Interviewer:
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?

Warren Buffet:
I knew nothing about the management of Moody’s.  I’ve also said many times in annual reports and elsewhere that when a manager with a reputation for brilliance gets hooked up with a business with a reputation of 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 in 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.  It makes some difference maybe in capital allocation or something of the sort, but the extraordinary business does not require good management.

I’m not making any reference to Moody’s management, I didn’t know them, but it really, you know, if you own the only newspaper in town up till the last five years or so, you have pricing power and you didn’t have to go to the office.

Interviewer:
And do you have any opinion, sir, of how well management of Moody’s has performed?

Warren Buffet:
It’s hard to evaluate when you have a business that has that much pricing power.  I mean, they have done very well in terms of huge returns on tangible assets, almost infinite.  And they have, they have grown along with a business that generally capital markets became more active and all that.  So in the end–and they’ve raised prices–we’re a customer of Moody’s too so I see this from both sides and an unwilling customer, but we’re a customer nevertheless.  And what I see as a customer is reflected in what’s happened in their financial record.