Moat versus growth

This is the fifth edition of A Weekend in Omaha where we cover the Berkshire Hathaway Annual Meeting and bring you features and interviews with value investing luminaries. Attending the meeting and writing for the edition has always been an enlightening experience. There are so many aspects to Warren Buffett’s style of investing that you can never get tired of reading, writing or ruminating about them. 

Buffett’s approach is amazing because it lays down a simple framework through which you can minimise the risk of loss by evaluating factors that help a firm create value. The concept of investing in companies with strong moats, an important but not the only aspect of Buffett’s approach, is that it eliminates the reliance on growth, as you’ll read in the cover story, So Charlie, Should We? While Buffett steadfastedly avoids “bad” businesses, the beauty of moat companies is that whether the industry is rising, stable or falling, these companies can continue to deliver a superior return. 

It might be a bit of an exaggeration to say that if you have a moat you do not need growth and if you have growth you don’t need a moat, but there is a grain of truth in that. Apart from the size constraint, this may explain why Buffett has not looked at India. Even though its growth rate may be tapering, the United States still offers Buffett a vast number of companies, which have a strong competitive advantage and great earnings potential, to choose from. India’s growth rate is higher and companies which have a strong moat and earnings predictability are richly priced. That leaves our market with opportunities which require us to make a lot of assumptions about future growth. And those assumptions may not always play out.  

Being a ‘growth’ investor is actually much harder as it relies on correctly predicting a lot of moving parts. The fact that you have to make those calls more frequently makes it even riskier. The idea is to make fewer decisions and channelise the energy into getting them right. While it may be time for Buffett to take cognisance of the growth opportunity in India, it is also high time that Indian investors start looking at global markets for moat opportunities.