After teaming up with Charlie Munger, Warren Buffett often talked about the importance of an economic moat for companies that he would consider investing in. Just as a moat around a medieval castle kept the castle safe from intruders, an economic moat around a company keeps it safe from competitors and other profit-draining forces.
During the credit boom, some said Warren Buffett had lost his search for economic moats. However, after the promoter of Berkshire Hathaway (BRK.A) clinched a sizeable investment in Goldman Sachs (GS) in 2008, Wall Street's strongest name then, investors knew what the master had been waiting for. Having clinched several successful deals last year in the financial sector in the midst of a subprime catastrophe that saw the demise of Lehman Brothers Inc., Buffett’s Berkshire now seems to be keen to shift its asset allocation to more sustainable businesses.
Although Berkshire Hathaway, which disclosed its December 2008 holdings this week, is not worried about its portfolio size shrinking by 25% in the fourth quarter of 2008, it certainly is adapting to changes. Little wonder then that the firm has reduced its exposure to ratings agency Moody's (MCO) by 25% and instead bought shares in a diversified electric generation company NRG Energy (NRG) and a water treatment company Nalco Holding (NLC).
While the former is a Fortune 500 company with approximately 24,000 megawatts (MW) of power generation capacity, the latter is a global integrated water treatment solution provider. It is certainly not difficult to figure out what kind of ‘moats’ the legendry investor is looking for in such uncertain times.
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MOATS : The Competitive Advantages of Buffett and Munger Businesses discusses the "competitive advantages" of 70 selected businesses purchased by Warren Buffett and Charlie Munger for Berkshire Hathaway Incorporated. This is a very useful resource for investors, managers, students of business around the world. It also looks at the sustainability of these competitive advantages in each of the 70 chapters.
The MOATS book introduction audio mp3 file: http://www.frips.com/moats.mp3
audio file of Wells Fargo, WFC chapter from MOATS book:
http://www.frips.com/wfc.mp3
audio file of the Johnson and Johnson chapter from MOATS:
http://www.frips.com/jnj.mp3
audio file of the Costco chapter in MOATS http://www.frips.com/costco.mp3
audio file of the American Express chapter: http://www.frips.com/axp.mp3
The IBM Chapter from MOATS. Why did Buffett buy into a technology services company after so many years? http://www.frips.com/ibm.mp3
Here is a 1 min : 32 sec audio file of Warren Buffett talking about an economic castle and its moat http://www.frips.com/wbmoat.mp3
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