Warren Buffett, or the “Oracle of Omaha” is one of world’s the most reliable investor. Started in the early pre-teen age of his life, Buffett announced on Saturday at the AGM of Berkshire Hathaway that he would be stepping down this year after six decades. The successor CEO, Greg Abel is currently the Vice Chairman of the firm. At the AGM he head two questions for CEOs regarding the growing competition in the market.
The two key questions were, “If you were stuck on a desert island for 10 years and could only own the stock of one of your competitors, which one would it be — and why?’ Then ask the reverse: ‘If you had to short the stock of one competitor — and stake your net worth on it while you’re away — which one would it be, and why?”
Buffett discovered that executives were usually quite candid when discussing their rivals. “Every manager enjoys talking about the competition. They’re like school kids,” he joked. “I probably gained most of my industry insights just by ensuring they didn’t expect me to stick around too long.”
These questions were raised to encourage deep analysis of business fundamentals and long-term viability. By considering which competitor’s stock one would confidently hold or short over a decade without oversight, investors are prompted to assess the intrinsic strengths and weaknesses of businesses, beyond short-term market fluctuations.
Buffett’s approach underscores the importance of understanding a company’s enduring competitive advantages and management quality. He emphasised that such thought experiments help in identifying businesses with sustainable growth prospects and those vulnerable to disruption. This aligns with his investment philosophy of seeking companies with durable moats and prudent leadership. The exercise serves as a valuable tool for investors to evaluate their convictions and the resilience of businesses in the face of unforeseen challenges.