Berkshire Hathaway 2018 Annual Meeting Audience Question # 25

Warren and Charlie comments on Elon Musk’s remarks that “moats are lame”

Warren Buffett:

Andrew?

Andrew Ross Sorkin:

This question comes from Kiwi and actually is directly about the issue of moats.

He notes that… “Elon Musk, this week, on his Tesla earnings call, said the following, quote, ‘I think moats are lame. They are, like, nice in a sort of quaint, vestigial way. And if your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness,’ unquote.

“So, Warren, it seems the world has changed. Business is getting more competitive. Pace of innovation. Technology is impacting everything. Is Elon right?”

Charlie Munger:

Let me answer that one, Warren.

Elon says a conventional mode is quaint. And that’s true of a puddle of water. And he says that the best moat would be to have a big competitive position. And that is also right. You know, it’s ridiculous.

Warren does not intend to build an actual moat.

Even though they’re quaint.

Warren Buffett:

Yeah.

There’s certainly a great number of businesses… this has always been true, but it does seem like it… the pace has accelerated and so on, in recent years. There’s been more moats that have been… become susceptible to invasion… than seemed to be the case, earlier. But there’s always been the attempt to do it.

And there… here and there, there are probably places where the moat is as strong as ever. But certainly… you could work at… certainly should be working at improving your own moat and defending your own moat all of the time. And then… Elon may turn things upside down in some areas.

I don’t think he’d want to take us on in candy. But…

And we’ve got some other businesses that wouldn’t be so easy to…

You can look at something like Garanimals out there in the other room. And… it won’t be technology that takes away the business in… Garanimals. Maybe something else that catches the young kid’s fantasy or something.

But… there are some pretty good moats around. Being the low-cost producer, for example, is a terribly important moat. And something like GEICO… technology has really not brought down the cost that much. I think our position as… there is a couple of companies that have costs as low as ours. But among big companies, we are a low-cost producer, and that is not bad when you’re selling an essential item.

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