Warren Buffett has historically shied away from investing in tech companies. In May 2018, Buffett laid into Bitcoin buyers to say that, unlike stocks, bonds, or real estate, buying Bitcoin is not a true investment because it has no intrinsic value.

"If you buy something like Bitcoin or some cryptocurrency, you don't have anything that is producing anything," Buffett told Yahoo Finance. "You're just hoping the next guy pays more. You aren't investing when you do that" said Buffett, "you're speculating."

Getting back to investing basics.

Buffett advises staying away from companies that are too complex to understand or businesses where you cannot predict long-term direction. And you shouldn't strictly be looking at its innovative or growth potential, or how a business model will become "revolutionary" or disrupt its industry.

Plain and simple, it's a competitive advantage you're after. And Buffet's best and simplest strategy for this was explained in a 1996 Berkshire Hathaway shareholders letter. Buffet wrote:

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, 10, and 20 years from now."

That means picking winners with a sustainable and defensible competitive advantage--even unglamorous companies that develop everyday products people need. 

Take the Coca-Cola Company (minority ownership) and See's Candies (100 percent ownership) as clear examples of his investing philosophy: they have been around for over 100 years and will likely be around for your grandchildren's investment options.

"I should emphasize that, as citizens, Charlie and I welcome change: fresh ideas, new products, innovative processes and the like cause our country's standard of living to rise, and that's clearly good," Buffett shares in his 1996 letter.

"As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration. We applaud the endeavor but prefer to skip the ride."

He adds, "A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek."

The overarching theme of his investment philosophy remains: Invest in businesses that are sure to "possess enormous competitive strength 10 or 20 years from now." 

As whoever has bought a box of chocolates from See's Candies will attest, while the assortment of candy and distribution channels have certainly evolved since Buffett purchased the company in 1972, "the reasons why people today buy See's chocolates," says Buffet, "are virtually unchanged from what they were in the 1920s... [and] these motivations are not likely to change over the next 20 years, or even 50."

Published on: Mar 11, 2019
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