In 2009, the Financial Crisis Inquiry Commission was established by Congress to examine and help determine the causes of the 2008 economic tumult that ensued in the wake of the securitized mortgage market meltdown. Under its subpoena power, the 10-member Commission had the power to summon witnesses and obtain relevant documents.
One of the witnesses the Commission called to testify was Warren Buffett .
Although the Commission reported its findings in 2011, the transcript of its proceedings wasn’t released to the public until early March 2016. It is interesting to review the transcript as it gives us a glimpse into Buffett’s value investing philosophy as well as his concept of pricing power and economic moats.
His testimony before the Commission, as it related to the reasons he invested in Moody’s (NYSE:MCO), provides a unique opportunity to hear Buffett describe his investing philosophy from the vantage of a rather unique and unorthodox venue.
The following is an excerpt of the relevant portion of Buffett’s testimony as it relates to his investment in Dun & Bradstreet and Moody’s. Commission member Brad Bondi conducted the direct examination of Buffett. Emphasis has been supplied.
BONDI: Okay. What kind of due diligence did you and your staff do when you first purchased Dun and Bradstreet in 1999 and then again in 2000?
BUFFETT: Yes. There is no staff. I make all the investment decisions, and I do all my own analysis. And basically, it was an evaluation of both Dun and Bradstreet and Moody’s, but of the economics of their business. And I never met with anybody.
Dun and Bradstreet had a very good business, and Moody’s had an even better business. And basically, the single-most important decision in evaluating a business is pricing power.