In a recent CNBC special, “Warren Buffett, the Billionaire Next Door: Going Global,” hosted by Becky Quick, Buffet explains his simple philosophy when deciding to acquire companies for Berkshire Hathaway Inc.:  he likes companies with “durable competitive advantage.”  These companies possess enormous competitive strength that will endure over decades.  Some of the companies in Berksire’s stable are Benjamin Moore Paints (founded in 1883), Fruit of the Loom (founded over 150 years ago), and See’s Candies (founded in 1921). 

In one of the interview segments, Buffet points to a picture of the Berkshire Hathaway textile mills, the company that he bought in the 1960s and now the namesake of his investment company.  Buffet recalled that the Berkshire textile mils had great workers, working equipment, and produced cloth and linings for clothing, an essential need.  The critical problem with the Berkshire textile factory?  No competitive durable advantage, which doomed the textile factory.  Buffet explained that industries like textiles, which have high labor costs and turn out a basic commodity product, don’t have competitive durable advantage.  When is the last time you bought an article of clothing that wasn’t made outside the United States?

Buffet summed it up by saying that you always should be looking for the “chinks in the armor” of a company, i.e., something that will make the company vulnerable in the next 10 to 20 years, such as high labor costs.  Buffet says that after World War II, the Berkshire textile business was as profitable as today’s pharmaceutical companies, but because it lacked a competitive advantage, the company is no longer in business.  Buffet’s philosophy is stunningly simple.  However, for today’s average investor, picking and holding a stock of a company that is a good solid business, but unglamorous, is surprisingly more difficult than falling for the stock du jour, whether it be tech, financials, or home builders.  Has anyone come close to emulating Buffet?