Investment manager Mark Sellers recently wrote in a piece for the Financial Times that his firm researches two kinds of companies:
- Those with wide economic moats. These are companies who have competitive advantages that are practically unassailable. The best example is a company with a strong consumer brand. As Warren Buffett said about Coca Cola (NYSE: KO): "If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done."
- Companies with hidden assets trading below the value of those assets. Companies with huge real estate assets that are understated on the balance sheet would fall into this category.
What's interesting is that these are basically the two kinds of stocks with which Warren Buffett built his fortune. Early in his career, with the Buffett Investment Partnership, he focused on the latter, inspired by the work of Benjamin Graham, the father of value investing. Later in his career, inspired by the writings of Phil Fisher, he started to look for companies with moats.
So when you're looking at potential investments, look for stocks that one of those two things going for them: Hidden assets or a very wide moat. Otherwise, they may not be worth bothering with.
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Reader Comments (Page 1 of 1)
6-21-2007 @ 3:36PM
MD Marcus said...
Mr. Buffett was influenced by Philip Fisher, author of "Common Stocks and Uncommon Profits," not Ken (though Ken is Philip's son).