Why Warren Buffett invested in Scott Fetzer. The Warren Buffett Investment in Scott Fetzer is one that Buffett highlighted in his letters to shareholders – it was another quick deal for Warren Buffett, who liked the high return on invested capital Scott Fetzer earned.
Buffett acquired Scott Fetzer for $320 million in 1985. Scott Fetzer was a diversified manufacturing and marketing firm based in Cleveland, Ohio. It made products such as World Book and Kirby vacuum cleaners.
This seems to be a company selling ordinary products, but Buffett admired Ralph Schey’s ability to handle the basics extremely well.
Scott Fetzer’s Competitive Advantages
Specifically, here are the main positives that Buffett liked:
First, one of Scott Fetzer’s businesses, World Book, sold two times as many encyclopedia sets annually as its nearest competitor, and two times in the US than its four biggest competitors combined.
Second, many of Scott Fetzer’s 17 businesses are dominant players in their fields.
Third, the return on invested capital is extremely high for most of those businesses.
Fourth, Ralph Schey (Scott Fetzer’s CEO) was an excellent manager that Buffett greatly admired.
The main negative that Buffett saw was the declining results for many companies in the direct-selling industry. Indeed, twenty years later, we see that this is exactly what happened as Internet commerce took over and direct-selling declined significantly as a marketing channel.