When seeking promising investment opportunities, it’s wise not to rely on once-great companies that have since faltered, advises Warren Buffett. The legendary investor emphasizes that it is extremely rare for a company to regain its competitive edge once it has been lost.
Buffett illustrated this point at the 2003 Berkshire Hathaway Annual Meeting, stating, “In terms of competitive advantage and then regain — lost and then regained — there aren’t many examples of that.” He shared an anecdote about a friend who repeatedly invests in struggling companies with hopes of turning them around. Buffett’s response to such optimism is a simple but pointed question: “Where in the last hundred years have you seen it happen?”
In essence, Buffett’s advice underscores the importance of focusing on companies that currently possess strong competitive advantages, rather than hoping for a turnaround in those that have lost their way.
Hear Buffett’s full explanation
See the complete Lessons From Warren Buffett series
© 2024 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.