The Sure Bet of Corporate Morticians By Mohnish Pabrai RealMoney.com Contributor 3/25/2003 7:53 AM EST
Most start-ups are high-risk ventures with a strong likelihood that the business won't be around in a few years. Predictably, restaurants have among the highest rate of business failure.
However, it's intriguing to note that the industry with one of the lowest rates of failure is the funeral home business. Here are some reasons why that makes perfect sense:
Families want the last rites of their loved ones to be done right. They don't go shopping for the low bid. They're likely to follow tradition and use the services of the same funeral home that the family has used in the past.
I don't know anyone who aspires to become a tycoon in the funeral business. The morbid nature of the industry serves to keep upstarts down to a trickle.
As Warren Buffett stated, industries with rapid change are bad for the investor. The choices that most humans consider for their last rites are pretty set and slow to change over hundreds of years. Even the growing preference for cremations over burials is a gradual shift that existing players have easily adapted to.
The population of the U.S. continues to grow and is expected to for the coming decades, leading to an increasing revenue stream for years to come.
While increased life expectancy puts a damper on near-term revenue, pre-need sales counterbalance this trend. Pre-need sales make up about 25% of total revenue for many operators. How would you like to be in a business where your customers pay you today for a service you might not deliver for 40 years?
Mohnish Pabrai is the managing partner of Pabrai Investment Funds, an Illinois-based value-centric group of investment funds. At time of publication, Pabrai held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback at mpabrai@thestreet.com. You can access his Web site at www.pabraifunds.com.
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