Back in 2009, Berkshire Hathaway Chair Warren Buffett published his shareholders’ letter covering the prior year. With its financial crisis and nervous stock markets, 2008 has some similarities to what we have seen so far in 2025. For now, fortunately, things are not as bleak in the markets as they were back then – though, of course, that can change.
In the letter, Buffett said that, “in good years and bad, Charlie (Munger) and I simply focus on four goals”.
At least two of those goals are worth considering even for an investor with just a small amount of money to put in the stock market, I reckon.
A rocklike financial position
One was maintaining what Warren Buffett described as “Berkshire’s Gibraltar-like financial position”.
This included a large degree of excess liquidity, keeping short-term financial obligations modest, and diversifying sources of earnings and cash.
Of course those things are easier when dealing with billions of pounds like Berkshire, not a few hundred or thousands like many small private investors. But they are still possible on a small scale – and I think smart investors will act like Buffett in this regard.
By the way, note that even in a very compact summary, Buffett distinguished between earnings and cash. They are not the same thing.
Especially in a crisis, as the old saying goes, ”cash is king”. It is not by accident that Berkshire ended the first quarter of this year sitting on an incredible $348bn cash pile.
Large sources of competitive advantage that can get larger
Another of Warren Buffett’s four goals was “widening the ‘moats’ around our operating businesses that give them durable competitive advantages”.
A moat is a metaphor Buffett often uses for a competitive advantage. Like a moat around a castle, it helps keep rivals at bay. Not only does Buffett look for a moat – he says here that he focuses on trying to widen it.
He is talking about businesses that Berkshire fully owns. But I think the same logic can be applied to owning shares in a company. Indeed, Warren Buffett likes to invest in companies that have wide moats and ideally ones that grow instead of shrinking.
What a moat looks like in practice
To illustrate, consider Berkshire’s longstanding investment in Coca-Cola (NYSE: KO).
It has been a phenomenal success both in terms of share price growth and dividends. The sugary drink maker has grown its dividend per share for 64 years on the trot.
What is its moat?
For starters, its namesake product has a unique formulation and strong brand. That allows Coca-Cola to charge a premium price.
By offering a wide range of soft drinks, Coca-Cola has a fuller offering than some rivals, like UK soft drinks makers A G Barr and Nichols. That, along with an extensive global distribution network, can make it more appealing to stockists.
This business formula, like its drinks formula, is simple but keeps a lot of people happy.
Can it last? Like any smart investor, Warren Buffett is keenly alert to risks. I do think the unhealthy nature of many Coca-Cola products is a long-term risk to sales.
That is partly offset by the variety of drinks it sells, though. Just as at a castle, a moat does not need to be complex to be highly effective.
