The following article is part of The Motley Fool's "Stock Madness 2006," based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. Throughout the competition, our writers and analysts will engage in head-to-head competition. You, dear readers, are the fans and referees -- after you read these exciting duels, your votes will determine who moves on to the next round of play. The writer who survives the tournament will be our champion and most valuable "coach."

But, please, make no mistake -- "Stock Madness 2006" is a GAME!

Round three is the perfect time to release my secret weapon: Competitive advantage. It's crucial to lasting success in both basketball and business. Moreover, all five of my companies have it; four of Alyce's companies don't.

The secrets to success
As Warner Wolf would say, let's go to the videotape:

Company

Competitive advantage

Berkshire Hathaway (NYSE:BRKb)

Warren Buffett, world's greatest investor

Valero (NYSE:VLO)

Largest and most technologically complex oil refiner

Old Dominion Freight Line (NASDAQ:ODFL)

Innovative less-than-truckload carrier

American Financial Realty (NYSE:AFR)

Growing portfolio of financial tenants of the highest credit quality

National Research (NASDAQ:NRCI)

First-mover and most mature sales staff in the health care information industry



Warren Buffett is arguably the smartest business mind of this century. His investment acumen and ethics are unparalleled.

Valero can refine more cheap, high-sulfur crude oil into premium products than any other company -- earning it far and away the best returns. Lest you think another company could copy its model, it's been 30 years since a refinery was built in the United States, and due to environmental and political pressures, it could be 30 more before we get another.

Old Dominion, American Financial, and National Research all boast unique business models that have them growing rapidly. All three are also undervalued small caps, which make them part of the most attractive area of the market to invest, according to Fama and French data. And just for an extra kick, American Financial gives this portfolio a 9% annual dividend yield to take to the bank.

The fastest way to the bottom
As for Alyce, she has Toyota, a company whose relentless focus on cost-cutting and assembly line efficiency has it poised to take the title of world's largest car manufacturer. It's also one of the few that can boast regular profits.

But what else?

Urban Outfitters and Coldwater Creek are flavors of the month. Coldwater Creek, in the words of a more fashion-conscious Fool, is "a poor man's J. Jill" that sells to "mothers-in-law." There's simply no way it's going to steal Chico's thunder, which is obviously what recent investors are hoping.

Urban Outfitters, on the other hand, has built an entire brand for young people on the concept of faux vintage wares and cheap T-shirts with stupid slogans silk-screened on. Sure, it's run has been impressive, but what's going to stop larger retailers such as Gap, Abercrombie & Fitch (NYSE:ANF), or Limited Brands from moving into the space? There's no competitive advantage in corny silk-screening.

RARE Hospitality manages mediocre restaurants. So do thousands of others.

And then there's Yahoo!, a company that is failing to define itself as anything more than a portal for other people's content, including ours (sorry, Yahoo). There's nothing Yahoo does that Google (NASDAQ:GOOG), Microsoft, News Corp., or even Amazon.com couldn't do better. And I give Google the advantage here because search is what users need most on the Internet, and Google runs the search engine of choice.

The Foolish bottom line
Competitive advantage is what sets great long-term investments apart from mediocre ones. My portfolio has it across the board, and the returns will follow suit.

Alyce Lomax's rebuttal
There are many mothers-in-law out there at the moment; they're called Baby Boomers, and they're tough (yet highly coveted) customers -- Coldwater Creek is helping fill the closets in mother-in-law suites everywhere. And there's far, far more to Urban Outfitters than silk screening -- its bohemian, hipster wares set it apart; I'd wager many of Urban's most loyal customers wouldn't be caught dead in a conventional chain like Limited. Rare Hospitality's portfolio of restaurants run the gamut -- Bugaboo Creek Steakhouse provides family fare, while Capital Grille is an upscale option. As for Yahoo! -- it's got a formidable user base and it's been acquiring small innovators while everybody's distracted by Google's (NASDAQ:GOOG) "We're-so-not-evil" antics. Not bad.

Who wins this round? Take a look at Alyce Lomax's team , and then cast your vote .

American Finanical Realty is an Income Investor recommendation. Valero is a Hidden Gems selection. Amazon.com is a Stock Advisor selection, Microsoft is an Inside Value pick, and Gap has been singled out by both those newsletters.

Fool editor Tim Hanson owns shares of Berkshire Hathaway, Valero, and American Financial Realty. Alyce Lomax owns shares of Urban Outfitters. The Fool has a disclosure policy.