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At the recent Berkshire Meeting a shareholder asked if Buffett and Munger agreed with Elon Musk that the concept of the moat was “lame” or “nice in a sort of quaint, vestigial way”, and that, these days, innovation was the key, because if you rely on moats to defend you against invading armies, you will not last long. “What matters is the pace of innovation. That is the fundamental determinant of competitiveness”, says Musk.
This is a very serious challenge to people who had built Berkshire by finding moats giving pricing power; and it comes from a well-respected industry disrupter. Have all the advantages of moats been swept away by the pace of change?
Buffett started the response by accepting that the pace of change has accelerated in recent years, and more moats have become susceptible to invasion. But that here and there, are places where the moat is as strong as ever.
“Elon may turn things upside down in some areas. [But] I don’t think he’d want to take us on in candy. And we’ve got some other businesses that wouldn’t be so easy. You can look at something like Garanimals out there in the other room. It won’t be technology that takes away the business in Garanimals. Maybe something else that catches the young kid’s fantasy or something.” [Garanimals is a range of children’s clothes that sell on design, not technology].
“There are some pretty good moats around. Being the low-cost producer, for example, is a terribly important moat. And something like GEICO – technology has really not brought down the cost that much. There is a couple of companies that have costs as low as ours, but among big companies, we are a low-cost producer, and that is not bad when you’re selling an essential item.”
Horses for courses, then. There are some industries ripe for disruption by innovation, but many others where new technology will make little difference, and the moat remains strong. Examine each company or industry on its own merits.
Later in the Meeting Munger point
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