At Berkshire we much prefer owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business.
So what’s a “wonderful business” according to Buffett?
Put simply, it’s a company that has consistently performed strongly within a particular industry. It’s an industry leader. And, most importantly, as a stockholder you’d be as comfortable owning a wonderful business ten years from now as you would today.
A “wonderful business” has certain things (e.g people, knowledge, processes, technology, size and scale, money, brand, trust, goodwill etc.) about it that cannot be easily duplicated. And these things act as barriers to the competition (Buffett often uses the metaphor of a defensive moat for a castle to describe this).
In “NERDSPEAK” business terms, this is what some call a sustainable competitive advantage (I much prefer Buffet’s metaphor, however).
One thing to note — Buffett only buys “wonderful businesses” when they are temporarily going through tough times. For example, the stock price of Coke sank after they introduced the “New Coke” in the 1980s. As did General Electric’s during the financial crisis in 2008. More recent examples (Note — Berkshire does not have these stocks in their portfolio) would be BP after the oil spill or Netflix after people thought they would split into two companies.
To help improve the meaning of these lyrics, visit “Letter To Shareholders 2012” by Warren Buffett and leave a comment on the lyrics box