One Characteristic Buffett’s Holdings All Have in Common

Warren Buffett’s Berkshire Hathaway holdings (both subsidiaries and stocks) are all very different types of businesses. Consider these different industries which Berkshire has holdings in:

  • Insurance
  • Manufactured Homes
  • Jewelry
  • Fast Food
  • Aviation
  • Chemical
  • Underwear
  • Journalism
  • TV Networks
  • Furniture
  • Banking
  • Kitchenware
  • Railroad

This list, of course, is only touching the surface.

Point being, Berkshire owns businesses in many different industries.

How, then, does Buffett still claim to stay within his “circle of competence”?

There must be some common factor among his holdings. As successful as Buffett has been during his investing career, the common factor should be regarded with great reverence. So what is it?

Many of you, I’m sure, have already guessed it. There is nothing complicated here. The answer is so simple that it almost seems like a waste of time. But perhaps there is power in simplicity.

This time, take a look at a list of actual businesses in Berkshire’s portfolio (subsidiaries and stock). The list is made up of many of Berkshire’s largest holdings:

  • GEICO Auto Insurance
  • Coca-Cola
  • IBM
  • American Express Co
  • Burlington Northern Santa Fe Railroad
  • Wells Fargo & Co
  • Wal-Mart
  • Procter & Gamble
  • ConocoPhillips
  • Dairy Queen
  • Nebraska Furniture Mart

While I am sure it is possible to argue that there is more than one common characteristic between these businesses, the one screaming similarity is that they all have some sort of durable competitive advantage. None of these businesses would easily lose its competitive advantage overnight. Warren Buffett has clearly explained that he only invests in companies with an economic moat (his term for durable competitive advantage).

Recently, as Warren Buffett was justifying his $10 billion purchase of IBM stock, he used another word in place of economic moat. He explained that IBM has “continuity”. A close look at the definition shows a great resemblance to “economic moat” or at least it portrays the reason an economic moat is so necessary.

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continuity: the unbroken and consistent existence or operation of something over a period of time

So for those of us Value Investors that are trying to emulate Warren Buffett, perhaps the most important question we could ask ourselves when considering our next purchase of a stock is

  • Do the economics and competitive landscape of this investment allow for continuity?
  • Does this business possess a wide and deep economic moat?

Answering this question, of course, is not easy. Two of the most common approaches include:

1. Looking for businesses that have higher gross margins than their competitors

2. Taking a good look at the business’ revenue stream, looking for (1) continuing demand, and (2) a promise of continuity. The best way to do this is to break down a business revenue stream by major products or services. Then you can get a better idea of where the revenue is coming from, how much demand there really is, and how sustainable it is.

Sometimes, however, just sitting back and thinking after you have done your research on the company might be your best option on deciding whether you think the competitive advantage is sustainable or not.

Warren Buffett and Charlie Munger have often said they spend much of their time simply thinking and reading. If the economic moat isn’t obvious, perhaps there is a good chance it doesn’t have an economic moat at all. That is at least the feeling I get when I look over Warren Buffett’s holdings.

About the author: Daniel Sparks is an MBA student at Colorado State University. He has a passion for value investing and runs a value investing blog at ValueFolio. He can be reached at [email protected]

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14 responses to “One Characteristic Buffett’s Holdings All Have in Common”

  1. A great book to read on competitive advantages is competition demystified check it out

  2. Daniel says:


    That one is actually on my wish list on Amazon. I’m a huge believer of investing in stocks with a durable competitive advantage. I believe too many investors ignore this part of the Buffett equation.

  3. Jae Jun says:

    To get it right now, go to http://csinvesting.wordpress.com/about/ and sign up for the guys “value vault”. You should find it there I think.

  4. One would have thought Sears had a durable competitive advantage, before Walmart came along. GM too. Durable competitive advantage can be squandered by ineptitude.

    There are many more examples, I would think, of once seemingly impenetrable business “moats” that have fallen to changing times, sloth, government regulatory whim, political insensitivity and more besides.

    Some of us who have been around for a long time remember when Big Blue was unassailable in computers. There was IBM, and everyone else. Go around the modern office and see what brand of computer sits at nearly every desk, running whose software. The last time I owned a genuine IBM computer, it wouldn’t run some IBM compatible software. IBM wasn’t IBM compatible!!!

    Remember, too, that one durable competitive advantage the Berkshire Hathaway companies have is virtually unlimited financing.

  5. Durable competitive advantage isn’t as durable as one might think sometimes. Sears would have been seen as having durable competitive advantage, before Walmart came along. GM, too. There are a great many others, I would think, that once seemed impenetrable businesses that were laid low by ineptitude, sloth, changing times, political insensitivities and more besides.

    Those of use who have been around a while remember when IBM seemed in that category. There was Big Blue, and Not Exactly. Go into a modern office and see whose computers are sitting on the desks, running whose software. The last genuine IBM computer I had wouldn’t run some IBM compatible software. Imagine… an IBM computer that wasn’t IBM compatible!

    One durable competitive advantage the Berkshire Hathaway owned companies have is access to essentially unlimited financing, no small worry off the CFO’s plate and a lot cheaper than other forms of raising capital.

  6. Good work Daniel.
    Adding you to our rss reader!

  7. Jalleninvest,

    Thats the point though. If you look at the list most of those companies are in industries that doesnt change over night. Also most companies that say they have advantages actually dont barriers to entry is the most important factor in looking at competitive advantages

  8. Daniel says:


    You are right that it is very difficult to identify the perfect durable competitive advantage, it is, however, possible to identify a business that is more likely to possess a durable competitive advantage than another. For example, consider ON Semiconductor Corp. versus, say, Burlington Northern Santa Fe Railroad. it is pretty obvious here to see which one would be around the longest and which one has assets that would be worth something in the case of obsolescence.

    It is one thing to have a competitive advantage, and quite another to have one that is durable. I think we can all agree that it is quite obvious that a company like Coca Cola has a competitive advantage that is more durable than Sears. Perhaps this is why Coke represents Berkshire’s largest securities holding?

  9. Graeme says:

    Nice post. Value Folio is now on my reading list.

  10. Daniel says:

    Glad you liked it Graeme and Stable Investor.

  11. Another test of durable competitive advantage is Pricing Power. Buffett has mentioned it on several occasions.

  12. MOATS : The Competitive Advantages of Buffett and Munger Businesses (my new book) 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.

    find it here: http://www.lulu.com/spotlight/4filters

    The MOATS book introduction audio mp3 file: http://www.frips.com/moats.mp3

  13. richard gordon says:

    Really excellent article! Simply put, as an investor, you want all of the companies that you invest in to be monopolies. Of course, there is a negative connotation to monopolies, but as an investor that’s the type of company you would ideally be invested in.

  14. Yup Daniel Sparks writes great engaging content.
    Buffett’s style is simple, yet so difficult to emulate.

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