3M Essay

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12 Basic Immutable Tenets

     
     As we all know Warren Buffett may be the most successful investor in the world. Some people try to dismiss Buffetts’ prowess of picking successful securities on the basis of a certain degree of luck or inside information that the regular small investor could never hope to have. However what many people do not understand is that, according to Robert G. Hagstrom, Buffett does not invest in stocks but in companies and their underlying businesses. and instead of luck Buffett uses his twelve immutable tenets. These twelve tenets are broken into four sections of the companies: 1) Business, 2) Management 3) Financial and 4) Market. By analyzing 3Ms’ annual
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3M can be characterized as what Buffett refers to as a “franchise” or a company that provides a product that is needed, has no close substitutes, and is not regulated. 3M’s core products are household products that are perpetually in demand with substitutes that are considered inferior by many because of the strength of the 3M brand name. Also 3Ms’ outlook is attractive because of it’s’ position in overseas markets. In 2003 58% of all of 3M’s sales were attributed to its international operations. With developing markets in Eastern Europe and its revenues from China and Korea growing 3M sees its international organizations as a major strength in the foreseeable future.
     The second characterization of the immutable tenets is the management tenets. Management tenets are broken down into three sections: Rational Management, Candid Management, and the Institutional Imperative (or Lemming behavior). Rationality represents the most important aspect of management; the allocation of the firm’s excess capital. Instead of spending capital on projects that don’t earn a return in excess of the cost of capital or buy growth the managers at 3M decided to increase the quarterly dividends by 9%, in effect giving the companies shareholders money to invest themselves as they see fit to earn higher returns. Another tenet of business rationality is the resistance of the institutional imperative

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