Porter’s Five Forces

Michael Porter’s framework for analyzing the competitive intensity and attractiveness of an industry: (1) threat of new entrants, (2) bargaining power of suppliers, (3) bargaining power of buyers, (4) threat of substitute products, (5) rivalry among existing competitors.

Warren Buffett’s take, as captured by Frederik Gieschen from a 2000 shareholder meeting: “I’ve never really read Porter. I’ve read enough about him to know that we think alike, in a general way. I think he talks about durable or sustainable competitive advantage and that is exactly the way we think.” Buffett’s practical method for finding that advantage: study companies that achieved it and ask how and why — Mrs. B at Nebraska Furniture Mart taking $500 and building the largest home furnishing store in the world, State Farm outcompeting better-capitalized rivals. The key investing question: “If you can spot it when others don’t spot it so well, you will do very well.”

Related to Competitive Moats as the practical investing application of the same underlying logic.

Where this appears

• Buffett on Moats in 2000… (tweet)