Tuesday, November 29, 2005

Sustainable Competitive Advantage

In response to a question about Harvard Business School Professor Michael Porter, Buffett said, "I've never read Porter, but know enough about him to know we think alike. He's written that durable, sustainable competitive advantages are the core of any business, and that's exactly the way we think. That is the key to investing. The best way to understand this is to study businesses that have achieved it. Ask yourself why there are no new entrants in the razor blade business. Or study Mrs. B. [the founder of the Nebraska Furniture Mart, which Berkshire Hathaway now owns]."

"We like to own castles with large moats filled with sharks and crocodiles that can fend off marauders -- the millions of people with capital that want to take our capital. We think in terms of moats that are impossible to cross, and tell our managers to widen their moat every year, even if profits do not increase every year. We think almost all of our businesses have big and widening moats."

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