Buffett and Sustainable Competitive Advantage

Continuing our series on the four filters of Warren Buffett today’s topic is Sustainable Competitive Advantage.

Buffet often talks about finding sustainable competitive advantage (S.C.A.) in businesses. What is it, and why is it so important?

A competitive advantage  is a trait or feature of a business that gives it an advantage in dealing with its competition.  If it is sustainable then that advantage is likely to continue into the future.

Buffett often refers to S.C.A. as a moat as it is a barrier to entry for another business.  The moat analogy is a good one as a moat’s sole purpose is to dissuade a siege on the castle by rival forces.  If a force wants to take the castle they can of course, but the potential cost in casualties as a result of the moat is often significant enough to keep them from trying.

Finding Sustainable Competitive Advantage

Understanding the concept of S.C.A. is fairly easy but actually finding it can be hard. To aid in your search here are a few examples:

Time is the friend of the wonderful business, the enemy of the mediocre.

Warren Buffett, Berkshire Hathaway Letter to shareholder’s 1989

Finding a company with a sustainable competitive advantage means that the company has a leg up on its competition.  While this in no way guarantees a successful future for the company it can certainly give it a much stronger chance.

Other Articles In The Series:

1. The Four Filters of Warren Buffett and Charlie Munger
2. Buffett and Understandable Businesses
3. Buffett and Able and Trustworthy Managers