Warren Buffett only buys certain types of companies and stocks for Berkshire Hathaway's (NYSE:BRK-A) portfolio. Generally, he wants companies that are stable, have shareholder-friendly management, and -- most importantly -- that have a distinct and durable competitive advantage.
In fact, his investment style is so specific that he made up his own term for these types of companies: "wide moat." A wide moat company is one that will withstand the test of time because it's in an industry that will be around forever and it does its business better than its peers.
The "wide moat" companies Buffett buys
Looking over the holdings in Berkshire's portfolio, it's not too hard to figure out why Buffett chose those companies.
Coca-Cola is in an industry that will always be around -- durability --and it has perhaps the best brand recognition in the world -- a competitive advantage. American Express is in the payment processing business, which isn't going anywhere, and offers an unparalleled product line which allows them to successfully charge higher fees than its competitors year after year.
Buffett already owns shares in several banks, but there are 5 standouts with wide moats that he should either buy -- or buy more of.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Goldman Sachs. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.