It is all a matter of trying to find businesses with wide moats protecting a large castle occupied by an honest lord. Moats might be a natural franchise, brand loyalty, or being a low-cost producer. In a capitalistic society, all moats are subject to attack: if you have a good castle, others will want it. What we want to figure out is what keeps the castle standing and how smart is the lord. [Charlie Munger: We also like to look for low agency costs on that lord, economies of scale and “economies of intelligence.”]
Buffett elaborated on the “economies of intelligence”: the idea is to find businesses where you have to be smart only once instead of being smart forever. Retailing is a business where you have to be smart forever: your competitors will always copy your innovations. Buying a network TV station in the early days of television required you to be smart only once. In that kind of business, a terrible manager can still make a fortune. Given the choice between the two (a business where you have to be smart forever or one where you have to be smart once), Buffett advised, pick the great business–be smart once.
Be smart once!
What economic laws have worked best for Berkshire?
[If I could have lunch with one person I’ve never met] I would have to say Isaac Newton or Benjamin Franklin. I’ve met a lot of interesting people and some uninteresting ones, too. The two men had a bigger grasp of the world they lived in. But I don’t think I would pass up an opportunity with Sophia Loren.
Sophia Loren. Rome, June 1961. Photo by Alfred Eisenstaedt.
Warren Buffett plays the ukulele. I’m trying to stagger all the Buffett stuff I’ve found lately, but sometimes it’s really hard to hold back.
Books and other writings by/recommended by/about Warren Buffett.
Bibliography concerning Warren Buffett