Two Buffett Holdings: A Value Investor's Checklist for "Forever" Stocks

Warren Buffett's famous declaration that his "favorite holding period was forever" is often quoted in isolation. But the full context is crucial. In his 1988 letter, he conditioned that ideal on owning only "outstanding businesses with outstanding management." This is the strict filter for a true "forever" holding. It's not about a stock's ticker symbol or its popularity; it's about a durable competitive advantage and a management team that protects and grows it. The analysis that follows will focus on two stocks explicitly discussed in this light: Coca-Cola and Visa. Both have been cited by Buffett as exemplars of the kind of business he expects Berkshire to own indefinitely.

For a value investor, the principle is straightforward. You seek companies where the intrinsic value-the true economic worth of the business-grows over decades, not just quarters. Coca-Cola, with its iconic brand and global distribution, and Visa, with its network effects and secure infrastructure, are classic examples of businesses that have built wide moats. These moats are not just about market share; they are about the economic reality that makes it prohibitively difficult for rivals to dislodge them. As one analysis notes, Visa's Moat Score of 9 suggests a "clear and robust wide moat," supported by network effects and switching costs. Coca-Cola's moat is built on brand loyalty and cost advantages in a market where its products are essential.

The critical risk, however, is not the business model but the price paid. Even a wonderful business can be a poor investment if bought at a high price. The current market price for both companies may not offer a sufficient margin of safety-a buffer against error or bad luck-that a disciplined investor requires. The analysis of Coca-Cola and Visa will therefore center on whether their current valuations still align with the long-term compounding potential of an "outstanding business." The goal is to separate the enduring quality of the company from the fleeting noise of its stock price.

Coca-Cola: The Staple with a Wide Moat

Coca-Cola is the archetypal "forever" holding. It is Berkshire Hathaway's fourth-largest position, representing 9% of the entire stock portfolio, and has been owned since 1988. Warren Buffett has repeatedly cited it as a prime example of a business he would "maintain indefinitely," a sentiment echoed in his 2024 shareholder letter. The rationale is simple: it is a durable, recession-resistant staple. As Buffett noted, people buy Coca-Cola regardless of economic cycles, making it a defensive anchor in a portfolio.

The company's financial health is robust, underpinned by a powerful global brand and an unmatched distribution network. This creates a wide economic moat, making it difficult for competitors to dislodge. The business model is straightforward: sell a product people want, at scale, across the world. This translates into impressive profitability, with a gross margin of 61.55%. The company's size and reach provide a significant cost advantage, a key component of its enduring strength.

A critical pillar for a "forever" stock is a reliable return of capital to shareholders. Coca-Cola delivers here with a consistent and growing dividend. The company pays a quarterly dividend of $0.51 per share, resulting in a current yield of 2.89%. More importantly, it has a very good track record of increasing dividends to shareholders. This policy aligns with the long-term compounding goal, providing investors with a tangible return while the business grows.

Yet, the moat is not impervious. The company faces persistent headwinds from shifting consumer preferences toward healthier beverages. This challenges the growth trajectory of its core carbonated soft drink business. While Coca-Cola has made efforts to diversify its portfolio, the fundamental tension remains: a powerful brand must continually adapt to avoid obsolescence. For a value investor, this is a known friction, not a surprise. The question is whether the current price offers a sufficient margin of safety given this long-term challenge. The wide moat provides a buffer, but the path to future intrinsic value growth is now more dependent on successful adaptation than on simple volume expansion.

Visa: The Network Effect Engine

Visa operates as a pure-play network effect engine, a business model that is the gold standard for durable competitive advantage. Its economic moat is not built on factories or patents, but on the sheer utility of its global payment network. As one analysis notes, Visa possesses a robust wide moat, a conclusion supported by its dominant market position and the powerful switching costs it creates. For a value investor, this is the kind of moat that can compound intrinsic value over decades.

The mechanics are straightforward. Visa's network becomes more valuable with every transaction, creating a reinforcing loop: more merchants accept Visa, which attracts more consumers, which in turn attracts more merchants. This is the essence of network effects. The company's secure technology infrastructure and powerful brand identity are the critical intangible assets that underpin this network. They provide the trust and credibility that make Visa the default choice for billions of transactions annually. This trust is a formidable barrier; replicating it would require not just capital, but years of building consumer and merchant confidence.

Financially, the model is a high-margin scalpel. Visa earns revenue through service fees charged to financial institutions based on transaction volume, and data processing fees. It does not assume credit risk, which keeps its balance sheet lean and its capital allocation focused. This transaction-driven, fee-based model is highly scalable. As global commerce grows, so does Visa's fee pool. The company's scale is staggering: in fiscal 2024, it processed almost $16 trillion in total volume. This massive base provides immense pricing power and operational leverage, translating into a business that can grow revenue without a proportional increase in costs.

The long-term compounding potential is clear. Wide moat stocks, as a group, have historically delivered superior returns, with one analysis showing an average +645% return over the past decade versus the market's +188%. Visa's position at the center of the world's payment system gives it a structural advantage in this growth. For a value investor, the question is not about the business model's sustainability-it is a proven winner-but about the price. The current valuation must offer a sufficient margin of safety to justify the expectation of decades of fee growth from a network that is already near-universal. The moat is wide, but the investor must still pay a fair price for the privilege of riding its long-term wave.

The Value Investor's Checklist: Margin of Safety and Compounding

For a value investor, the final step is to apply the classic criteria: Does the stock offer a sufficient margin of safety at its current price? And, more importantly, does it have the capacity to compound intrinsic value over the long term? Both Coca-Cola and Visa pass the moat test, but the path to future value differs, as does the risk profile.

Coca-Cola's compounding engine is built on a proven, asset-light model. Its asset-light business of selling syrup and concentrates to bottlers provides a reliable stream of high-margin revenue, insulated from the volatility of retail operations. The key catalyst for future intrinsic value is the company's ability to adapt. The persistent headwind from health-conscious consumers is a known friction, but it is also the driver for growth in its non-carbonated portfolio. Success here is not about a single product launch, but a sustained shift in its mix. The proven track record of dividend increases provides a tangible return today, which can be reinvested to amplify long-term compounding. The risk is a slow erosion of its core moat, but the brand's global ubiquity and cost advantages offer a wide buffer.

Visa's compounding potential is more directly tied to the growth of global commerce itself. Its primary catalyst is expansion-into emerging markets where card penetration is still low and into digital payments, where its network effects can be leveraged. The company's robust wide moat and network effects create a powerful, self-reinforcing engine. Each new transaction makes the network more valuable, attracting more users and merchants. This creates a high-margin, scalable business with immense pricing power. However, this growth comes with a more complex regulatory environment. As a global payment processor, Visa is a constant target for scrutiny and new rules, which introduces a layer of operational and financial uncertainty not present in Coca-Cola's beverage business.

The investor must weigh these paths. Coca-Cola offers a simpler, more predictable compounding story with a tangible dividend, while Visa offers higher growth potential but with a more intricate set of risks. The primary risk for both, however, is the potential loss of their competitive moats. For Visa, this could come from regulatory action or a technological disruption that bypasses its network. For Coca-Cola, it is the long-term shift away from sugary drinks that could undermine its brand dominance. In both cases, the moat is wide, but it is not infinite.

The bottom line for the value investor is that both companies remain worthy of consideration as "forever" holdings. Their durable advantages provide a foundation for long-term value creation. Yet, the margin of safety-the gap between price and intrinsic value-depends entirely on the price paid today. The analysis of their moats and catalysts shows they are not immune to change. The patient investor must buy not just a great business, but a great business at a fair price, with the discipline to hold through the inevitable cycles of growth and adaptation.