Productive assets

My own preference is an investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investments. Farms, real estate, and many businesses such as Coca-Cola, IBM, and our own See’s Candy meet that double-barreled test.

Growing earning power

Charlie Munger made me focus on the merits of a great business with tremendously growing earning power ; but only when you can be sure of it – not like Texas Instruments or Polaroid, where the earning power was hypothetical.

Roman candles

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. Business history is filled with “Roman candles,” companies whose moats prove illusory and were soon crossed.

Formula in finance

No formula in finance tells you that the moat is 28 feet wide and 16 feet deep. That’s what drives the academics crazy. They can compute standard deviations and betas, but they can’t understand moats.


Wonderful castles, surrounded by deep, dangerous moats, where the leader inside is an honest and decent person. Preferably, the castle gets its strength from the genius inside ; the moat is permanent and acts as a powerful deterrent to those considering an attack ; and inside, the leader makes gold but doesn’t keep it all for himself. Roughly translated, we like great companies with dominant positions, whose franchise is hard to duplicate and has tremendous staying power or some permanence to it.