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Collection: Warren Buffett - #234 'Are Moats Harder To Find?'



Good afternoon, Mr. Buffett, Mr. Munger. My name is George Brumley from Durham, North Carolina.

We often consider evaluating companies in the context of Michael Porter’s model of position relative to competitors, customers, suppliers, substitute products. You state that much more simply when you say you seek for companies with the protection of wide and deep moats.

To complete the valuation of a company, we all seek to choose the appropriate future cash flow coupons. A qualitative assessment of the protected competitive position is required to precisely forecast those future coupons.

In your opinion, are the dynamic changes in the nature of competition, distribution systems, technology, and even changes in customers, making it more difficult to accurately forecast those future cash flow coupons?

Are good, protected businesses going to be more rare going forward in — than they have been in the past? And if so, does that make the few that do exist more valuable?


Well, you’ve really described the investment process well. I can’t see from here, but which George are you? Are you the — are you Fred’s brother-in-law or are you one generation down?


George III. My father is here as well.


OK, good. The questions you ask are right on the mark. And we do think, to the extent I understand what — or have read what Porter has written, we think alike, basically, in terms of businesses.

And we do call it a moat. And he makes it all into a book, but that’s the difference between the businesses we’re in.

I — and Charlie may have a different view on this. I don’t think that the quantity or sustainability of moats in American business has changed that dramatically in 30 or 40 years.

Now, you can say that Sears and General Motors and people like that thought there were some very wide moats around their businesses, and it turned out otherwise when, in the case of Sears, Walmart, for example, came along.

But, I think — the businesses we think about, I think the moats that I see now seem as sustainable to me as the moats that I saw 30 years ago.

But I think there are many businesses — industries where it’s very hard to evaluate moats. There — those are the businesses of rapid change.

And are there fewer businesses around where change is going to be relatively slow than previously? I don’t think so, but maybe Charlie does.



No, I would argue that the old moats, some of them are getting filled in. And the new moats are harder to predict than some of the old moats. No, I would say it’s getting harder.


Well, there you have it. (Laughter)

Unanimity at Berkshire. OK.

I think it’s a very good question. And I really don’t — you know, Charlie may be right, I may be right. I think it’s a very tough one to figure.

But regardless of whether there are fewer or that — harder to find, that’s still what we’re trying to do at Berkshire. I mean, that is what it’s all about.

Our instructions to our managers — we don’t have budgets and we don’t have all kinds of reporting systems or anything else. But we do tell them to try and not only protect, but enlarge, the moat. And if you enlarge the moat, everything else follows.

Area 5?


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