03 March 2018

Warren Buffett prefers monopolies

When I was in my thirties, working 55-60 hours/week, I began to have disposable income.  At that time my role models for investing were Peter Lynch and Warren Buffett.  Both of them were stock-pickers rather than market timers, and both have achieved legendary status in the financial world.

Warren Buffett is often cited as a prime example of the wonders of free-market capitalism and the potential for "everyman" to roll modest investments into enormous wealth.  A recent article in The Nation offers quite a different perspective:
This Nation investigation documents how Buffett’s massive wealth has actually been built: on monopoly power and the unfair advantages it provides. Companies in Buffett’s portfolio have extorted windfall profits, evaded US taxes, and abused customers. In the two specific cases discussed below, in the banking and high-tech industries, Buffett’s investments have prompted federal investigations for anticompetitive or other illegal practices...

Buffett makes no secret of his fondness for monopoly. He repeatedly highlights the key to his personal fortune: finding businesses surrounded by a monopoly moat, keeping competitors at bay. “[W]e think in terms of that moat and the ability to keep its width and its impossibility of being crossed,” Buffett told the annual Berkshire Hathaway meeting in 2000. “We tell our managers we want the moat widened every year.”

America isn’t supposed to allow moats, much less reward them. Our economic system, we claim, is founded on free and fair competition. We have laws over a century old designed to break up concentrated industries, encouraging innovation and risk-taking. In other words, Buffett’s investment strategy should not legally be available, to him or anyone else.

Over the past 40 years, however, the United States has not only failed to build bridges across monopoly moats; it has stocked those moats with alligators. Two-thirds of all US industries were more concentrated in 2012 than in 1997, The Economist has documented. Since the Reagan era, the federal government has abandoned antitrust enforcement, with markets for products like eyeglasses, toothpaste, beef, and beer whittled down to a few suppliers. This consolidation has vastly inflated corporate profits, damaged workers and consumers, stunted economic growth, and supercharged economic inequality.  
It's a well-researched indictment, and worth the read.  For relevant background, see Investopedia's What is an economic moat?


  1. A monopoly is a business with a moat of some type, but a business with a moat is not necessarily a monopoly.

  2. Interesting. My model has always been John Bogle. I'm pretty leery of both stock pickers and market timers.

  3. You cannot become one of the richest man in the world, and not being a vampire at the same time.

  4. Google has a moat, stop using it. Apple has a moat, stop using it. Facebook has a moat, stop using it. Southwest Airlines has a moat, stop using it. Genentech has a moat, stop using it (sorry if that kills you). Really, it's completely immoral to invest in companies that supply something based on patents and good ideas. I would write more, but between the chopping wood for the fireplace and spinning my own thread, who has the time?


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