Massive Moats Research

At the 1997 Berkshire Hathaway $BRK.B Annual Meeting, a shareholder asked Warren Buffett and Charlie Munger how they determine a company’s intrinsic value and which metrics and filters they use at Berkshire to arrive at that number. Their response is included in the pages below. Along the way, they also discuss their pursuit of perfection in selecting businesses and how that approach naturally leads to a concentrated portfolio. In my view, this is one of the most valuable exchanges in Berkshire’s history.

On the eve of what could be the Agentic Era, Amazon $AMZN reports today.

Yesterday, the In Good Company podcast published a great episode in which Nicolai Tangen (CEO of Norges Bank Investment Management) interviews Bill Ackman about the structural benefits of permanent capital, what he sees as investor’s biggest edge and his perspective on the foundation of strong investment ideas. Some insights: 1) According to Ackman, great businesses are those you can expect, with a very high degree of certainty, to be worth more in ten or twenty years, regardless of whether the stock market stays open. These are highly predictable, strong capital generating businesses (proxy: FCF growth), and are protected by an underlying moat. They also have little exposure to unpredictable external factors, such as commodities, regulation, or interest rates. 2) There are roughly 200 to 300 “really great businesses,” but it’s rare for one of them to become available at a price that also makes it a great investment, according to Ackman. That’s why he runs a concentrated portfolio. 3) Why do so few investors follow this approach, the playbook of superinvestors like Warren Buffett, Charlie Munger, Chris Hohn, and Bill Ackman? Ackman points to a couple of reasons: A) many investors want to get rich quickly and/or lack a long-term perspective; B) most of the capital in the asset management industry is inherently short-term and can be withdrawn quickly, so many fund managers avoid thinking long-term out of concern for how their clients will judge them; and C) many hedge funds focus on the very short term and use leverage, which leaves them unable to tolerate a high degree of volatility. That’s why permanent capital and independence are essential in pursuing this unconventional strategy (“time arbitrage [...] the ability to be a long term investor in a short term world”). 4) These same forces also make price swings more extreme nowadays. The rise of indexation also plays a role here: it shrinks the effective float, which has turned what were historically 3–4% price moves into moves of 30–40% today. Ackman sees major opportunities in this for the long-term oriented investor. 5) Ackman also sees AI creating major opportunities, as well as major threats: “I would say every business today is either AI related, or should be, or is going to be disrupted by AI. So I think that is the assessment that you’ll have to do.” 6) Last but not least, Ackman shares advice on the personal side of becoming a better investor and thinker: try to avoid alcohol and sugar, start exercising, and be deliberate about the people you surround yourself with and the role models you choose. In his view, you learn the most from the people closest to you, so make sure they’re people who move you forward and inspire you to get the most out of life. Watch the full In Good Company interview here: youtube.com/watch?v=T8nHLUlR…

The best series ever made. “Der Mensch kann tun, was er will, aber er kann nicht wollen, was er will.”

This week’s episode of Dark Matter was once again really good and complements the other recent episodes of this season, especially E5 and E8, which were also very strong in my view. Congrats to the production team at @SonyPictures / @AppleTV

The Hermès thesis has turned into a perfect storm, with the stock down 42% year-to-date. Since Valentine’s Day 2025, the share price of Hermès International Société en commandite par actions has fallen from €2,957 to €1,239 as of today. Getting back to its former all-time high would now mean a return of +139%. Right now, that level feels like a fading memory from a romantic night in Paris. Several developments are weighing on this negative sentiment. For one, revenue growth in regions like Asia-Pacific has softened in recent quarters (constant exchange rates): - Q1'26: +2.2% - Q2'26: +2.5% - Q3'26: +0.0% The French company’s total revenue growth over the past three quarters has been (constant exchange rates): - Q1'26: +5.6% - Q2'26: +6.7% - Q3'26: +4.3% Besides slowing sales growth in Asia-Pacific, recent developments in France are likely to play a role as well. In summary, Hermès is caught in a perfect storm. The big question is whether and when Hermès can return to double-digit revenue growth and regain full strength. The company currently trades at 28x trailing twelve-month earnings, which is relatively low compared to its recent history. If Hermès reignites its growth engines, that multiple could rebound. However, if the current negative forces continue and intensify, the multiple could compress even further. The key question we have to ask ourselves as investors is whether Hermès ranks among our best ideas. Accounting for opportunity cost is essential here: each dollar invested in Hermès is a dollar that could be deployed in a more attractive opportunity. How do you guys view the future of Hermès? Is it among your top ideas? Why (not)? $RMS.PA

Andy Jassy, CEO of Amazon $AMZN, on the incredible demand for compute and the company’s $220B infrastructure investment:

The third season of Netflix’s The Gentlemen (IMDb: 8.1/10) is now in production $NFLX

The cast is stealing the show in The Diplomat’s new season, not just the Poseidon. $NFLX

I just published a new investment letter, including an overview of my current portfolio, my thoughts on three core themes for building a sound portfolio strategy, and why I favor a concentrated portfolio over a diversified one. massivemoats.substack.com/p/…

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This episode has video on Netflix. An exclusive deal between two of my favorite companies @AcquiredFM & @netflix 🤝

Some thoughts on Hermès $RMS.PA. If France’s current trajectory continues to deteriorate over the coming years, what could that mean for French companies like Hermès? Beyond the risk of higher taxing on successful companies, could political instability and social unrest gradually change how consumers worldwide perceive “Made in France”-brands like Hermès, as they do not want to be associated with France its decline? Hermès’ French origins sit at the center of its brand identity and anchor its IP moat: Parisian elegance, craftsmanship, and heritage. So what happens if France continues to loses its prestige? Can Hermès transcend its national context and stay insulated from a weaker image of its home country? Or would the brand’s status slowly erode as the nation loses its allure and, perhaps, even its culture?

One of the most profound insights in investing, yet barely acknowledged.

I believe the market currently overestimates the value capture at the model layer and underestimates the value capture at the data center layer.

Jensen Huang (CEO of NVIDIA $NVDA) on why future AI usage will take a lot more inference than the LLMs we know today:

I run a concentrated portfolio. What is not visible from the outside is that I research new prospects almost every day. Lately, I have not found a new idea as strong as my top positions. This is the primary criterion, because I do not want to dilute the portfolio with mediocre ideas. I do not want to add positions merely for the perceived benefit of diversification; I only want top-tier, alpha-generating ideas. One thing that might differentiate me from most professional investors is that I have a different perspective on risk and do not feel the urge to add new companies just “to feel important” or to chase the currently popular “momentum waves.” I remain calm. My goal is to expand the portfolio to 6–8 positions in the long term. I believe the right ideas are worth waiting for. While I keep searching, I am curious which recent ideas you are allocating toward that you consider truly exceptional.

In a recent episode of The Modern Investor podcast, @BillAckman shared his perspective on concentration in portfolio management. Some thoughts: - Concentration starts with the proper set of knowledge. The more you know about investing and the businesses on your radar, the more opportunities you have to be a concentrated investor. - In addition to the knowledge you have about particular businesses, which forms the foundation for well-grounded conviction, the ranking of positions in a concentrated portfolio should be based on risk and return. - There is only a small number of incredible businesses with a certain scale. On certain occasions, these businesses trade at a discount. When this happens, provided that you have built up the proper knowledge over the years, you can do a quick assessment and swiftly decide whether to seize the opportunity offered by the market. - In Ackman’s view, there is a maximum number of stocks to hold to properly benefit from concentration. Beyond 12-15 positions, the incremental benefits are no longer meaningful. In other words, one should ask whether, in a properly constructed portfolio, allocating capital to a new idea (e.g., idea 16) truly pays off compared to the top ideas, Nos. 1-3. - A certain degree of diversification is still important, however, since investing remains a game in which the unexpected can happen, as Ackman concludes. Watch the full interview here: youtube.com/watch?v=2kTVSQS2…

Warren Buffett and Charlie Munger at the 1997 Berkshire Hathaway Annual Meeting on wonderful businesses, their fluctuating valuation, opportunity costs, and the self-reinforcing nature of rising prices:

I think few investors who only recently started their investing journey fully grasp how enormous the dot-com boom and bust really was. Between January 1, 1995, and March 10, 2000, when it hit its all-time closing high, the NASDAQ Composite Index soared 571.4%, climbing from $751.96 to $5,048.62. It then collapsed by 77.9%, bottoming out at $1,114.11 on October 9, 2002. To put that in perspective: after a 77.9% drawdown, an investor needs a gain of 353.2% just to get back to even.