Buffett Beyond Value: Why Warren Buffett Looks to Growth and Management When Investing

Chapter 20. M = Monopoly = Money

Amonopoly exists when a company controls the entire market for a specified product or service and when there are significant barriers to entry in that market. We can debate whether Microsoft or Google have monopolies in their respective markets, but we will certainly agree that they have large market shares in personal computer operating systems and Web-based search, respectively. Much has been written about monopolies and near-monopolies, but one thing is clear: Almost all of them make good money. There have been large monopolies such as Standard Oil and Microsoft and small monopolies such as tollbooths across bridges. In the minds of investors, the letter M should stand not only for "money" but also for "monopoly." So, start searching for near-monopolies or companies with what Buffett refers to as wide moats around them.

Widen the Moat

Buffett has often discussed the idea of a moat around a company, which means an enduring competitive advantage for the company, or a means of protection to maintain the company's profitability for a long time. He fully understands the power of earning superior returns through such businesses. This is evident in a memo he wrote shortly after September 11, 2001, urging Berkshire managers to remain focused: "What should you be doing running your businesses? Just what you always do: Widen the moat, build enduring competitive advantage."^[169]

You don't have to identify and invest in a monopoly in its early stages of development. ...