8 Ways You Can Use One of Buffett’s Best Strategies

Rudy Martin

With the markets barreling higher by the day, no doubt you’re sitting on some nice returns that you’d like to protect.

Many investors like to take the money and run when their returns seem too good to be true. However, it’s no fun to be sitting in cash while the markets keep climbing.

You know what it’s like to get a good stock at a great price, and everything seems to be going in its favor. But then, out of nowhere, everyone starts to sell. Then you’re left to decide whether to bail out or hang on and hope for a recovery.

But what if you can avoid those kinds of shaky stocks in the first place?

The world’s most-successful investor has a surprisingly simple strategy to protect his multibillions while staying active in the markets. Today I’d like to share with you a near-bulletproof approach that combines growth and protection, and eight stocks from around the globe that can help you get started with it.

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You can understand why we believe all the doom-and-gloom talk on gold is overblown.

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Use a ‘Wide Moat’ to Protect Your Investments

I pay very close attention to the strategies used by the most-successful investors in history, to see what I can learn from them.

Perhaps the best way to get positioned for the next round of profits is to build a fortress around the ones you’ve already amassed. But you don’t have to set up camp on a hill and dig a moat around your wealth to keep it safe.

Not literally, anyway!

Among a handful of basic investment principles to which multibillionaire Warren Buffett adheres is to select companies with “wide moats” for the Berkshire Hathaway (BRK.A) portfolio.  

The world’s third-wealthiest human looks for, among other factors, companies with wide economic “moats” that deter competitors from capturing their markets.

But instead of the dangerous creatures you’d normally associate with bodies of water that surround a fortress or castle, some of the best companies in the markets today protect their businesses with economic moats that include …

  • Unique product or service offerings
  • Wide name recognition
  • Difficult-to-replicate products
  • Cost and/or logistical advantages
  • Patent protections, and
  • Various other solid competitive advantages that afford them special pricing powers and market domination.

There are plenty of names that fit the bill. In fact, one company uses these moat components as a key factor in its stock and fund coverage.

We’re Gonna Need a Bigger Moat!

Morningstar analysts classify many of the firms they cover as possessing no moats, narrow moats or wide economic moats.

There are many wide-moat companies worth tracking for their investment potential, but here are a few near the top of Morningstar’s list.

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The Most Profitable Company

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Standard Oil… Saudi Aramco… The Dutch East India Company… These companies were bigger and more profitable than any single company on the planet today.

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With representatives from Brazil, Mexico, Switzerland and France, in addition to the United States, it is apparent that wide moats are by no means limited to U.S. companies.

8 Wide-Moat Companies

for Growth, Protection

(Click here to view full-size image)

Source: Morningstar

Each company listed markets its products and services in developing markets, where the biggest wealth is being created.

In fact, three of the eight are domiciled in either Brazil or Mexico — two major emerging markets with an exploding consumer base.

With discretionary products such as entertainment by Grupo Televisa (TV), brand-name beers from Companhia de Bebidas das Americas AmBev (ABV), air travel involving use or facilities managed by Mexico’s Grupo Aeroportuario del Sureste (ASR) and online commerce capabilities offered by eBay (EBAY), these wide-moat stocks handily serve the new global middle class — which is eager to incorporate these kinds of luxuries into their everyday lives.

Find great stock catalysts,

opportunities inside the ‘moat’

Consumers in developing nations moving from subsistence living to middle-class status will also become more-frequent consumers of products to enhance and prolong their good health.

That should be good news for companies like Novartis AG (NVS) and Sanofi SA (SNY).

Pharma producers, because of the expertise and huge research budgets needed to develop and gain approval for their products, are well-represented in Morningstar’s roster of wide-moat stocks.

In fact, the Oracle of Omaha’s Berkshire Hathaway has holdings in Sanofi as well as GlaxoSmithKline (GLAXO) and Johnson & Johnson (JNJ).

Interestingly, Novartis and Sanofi are now transitioning from years of declining earnings trends — when new-product “pipelines” were unusually lean — to half a decade when analysts predict positive earnings growth patterns.

As heftier pipelines tend to bring new products to market, corporate as well as stock growth should firm up.

Companies Widen the Moat

By Closing Access Gaps

The global consumer powers an unstoppable investment trend, because there are many facets to this growing-in-affluence world citizen.

Not only is he or she spending money on entertainment, housing, brand-name products and health services, but companies are doing their best to make sure they can deliver the products and services that he or she is so eager to purchase.

That means a big opportunity for the companies that can provide the infrastructure to serve this powerful customer base.

Looking at some other names on Morningstar’s list, we can rest assured that machinery from Caterpillar Inc. (CAT) will help contribute to the trillion-dollar boom in global infrastructure.

Plus, CAT’s equipment plays a part in producing farm products as well as mining the ores and other minerals that fulfill the ongoing commodity boom.

And even though many people have an opinion about Monsanto (MON) and its role in the agricultural side (via fertilizers, chemicals and seeds) of the commodity boom, it’s a triple-digit stock with an extraordinarily wide moat that keeps on growing.  

Bottom line: Obviously, the width of a company’s economic moat shouldn’t be the only factor in an investment decision. But it’s pretty tough to argue with the billions of dollars Warren Buffett has amassed by using this strategy to keep his fortune growing.

Best wishes,

Rudy

P.S. My Global Trend Trader members recently added two of these “wide-moat” names to their open positions list, plus plenty of other plays designed to profit from the improving lifestyles of citizens around the globe. To get all the names of my favorite stocks, click here to take my service for a risk-free test-drive today!