Buffett's New Moats: NRG Energy, Nalco

After teaming up with Charlie Munger, Warren Buffett often talked about the importance of an economic moat for companies that he would consider investing in. Just as a moat around a medieval castle kept the castle safe from intruders, an economic moat around a company keeps it safe from competitors and other profit-draining forces.

During the credit boom, some said Warren Buffett had lost his search for economic moats. However, after the promoter of Berkshire Hathaway (BRK.A) clinched a sizeable investment in Goldman Sachs (GS) in 2008, Wall Street's strongest name then, investors knew what the master had been waiting for. Having clinched several successful deals last year in the financial sector in the midst of a subprime catastrophe that saw the demise of Lehman Brothers Inc., Buffett’s Berkshire now seems to be keen to shift its asset allocation to more sustainable businesses.

Although Berkshire Hathaway, which disclosed its December 2008 holdings this week, is not worried about its portfolio size shrinking by 25% in the fourth quarter of 2008, it certainly is adapting to changes. The firm bought shares in a diversified electric generation company NRG Energy (NRG) and a water treatment company Nalco Holding (NLC).

While the former is a Fortune 500 company with approximately 24,000 megawatts (MW) of power generation capacity, the latter is a global integrated water treatment solution provider. It is certainly not difficult to figure out what kind of ‘moats’ the legendary investor is looking for in such uncertain times.

Correction note: An earlier version of this story incorrectly reported that Berkshire Hathaway sold shares of ratings agency Moody's.

Comments

[donzelion:]

I always get tickled by Buffett's moat, simple concept, complex in practice. Coca Cola products have much less of a "moat" than other types of industries - Pepsi is a powerhouse in its own right, and there are dozens of other drinks that are not Coke or Pepsi products available at the supermarket.

For Buffett to look at Coke and say, "wide moat, I like it" is not for him to make a mathematic, rationale, analytic judgment: it's aesthetics at work by a talented investor with an eye for a certain style. If you like his style, it's better to buy Buffett than Buffett's investments (particularly since you're not going to get the same sweetheart contract he did with GE and Goldman).

Feb 19 06:18 AM

[Did U Think...:]

Well it's about time for Buffet to get some new moats because his a$$ is sinking fast in the old ones.

Feb 19 11:13 AM

[ATLBob:]

On Feb 19 11:13 AM Did U Think The Ponzi Scheme Would Last? wrote:

> Well it's about time for Buffet to get some new moats because his
> a$$ is sinking fast in the old ones.


There always seems to be an endless supply of people who opine that Warren Buffet and Charlie Munger have "lost it", or that they aren't in touch with the way the markets work today. When Berkshire didn't participate in the 'dot-com' frenzy a few years ago, they were called dinosaurs until the 'dot-coms' became 'dot-bombs' and self-imploded. Warren and Charlie have certainly made some mistakes in the past and will likely make more; however, when all of the day traders and shorts have crashed and burned once again, Berkshire will still be standing.

Feb 19 12:17 PM