> Warren Buffett Blog: Simplicity, low cost and strength to stop attacks from competitors will bring success

Wednesday, September 23, 2015

Simplicity, low cost and strength to stop attacks from competitors will bring success

I don’t want a business that’s easy for competitors. If you’ve got a wonderful castle, there are people out there who are going to try and attack it, and take it away from you. And I want a castle that I can understand, but I want a castle with a moat around it. I want a business with a moat around it. I want a very valuable castle in the middle. And then I want…the Duke who’s in charge of that castle to be honest and hard working and able. And then I want a big moat around the castle, and that moat can be various things.

The moat in a business like our auto insurance business at GEICO is low cost. I mean people have to buy auto insurance, so everybody’s going to have one auto insurance policy per car basically, or per driver. And…I can’t sell them twenty…but they have to buy one. What are they going to buy it on? They’re going to buy it based on service and cost. Most people will assume the service is fairly identical among companies, or close enough, so they’re going to do it on cost, so I gotta be the low cost producer. That’s my moat. To the extent my costs get further lower than the other guy, I’ve thrown a couple of sharks into the moat.