Moody's Corporation
Company Overview
Moody's Corporation is one of the world's two dominant credit rating agencies — alongside S&P — providing credit ratings, research, and risk analysis to issuers and investors in the global bond markets. Berkshire received Moody's shares in 2000 when Dun & Bradstreet spun off the credit ratings business, and initially had no particular intention to be a long-term holder.
Investment Story
2000: Spin-off distribution. Dun & Bradstreet spun off Moody's as an independent public company in September 2000, distributing shares to D&B shareholders including Berkshire. Berkshire initially viewed the Moody's position as an incidental holding from a prior D&B investment.
The recognition. Upon reviewing Moody's business after the spin-off, Buffett recognized extraordinary economics: a near-duopoly (Moody's and S&P controlled approximately 80% of global credit rating revenues), no capital requirements except computing infrastructure, regulatory-certified status that prevented new entrants, and earnings that grew automatically as the global bond market expanded annually.
The 2008 controversy. Moody's ratings on mortgage-backed securities and collateralized debt obligations during the housing bubble proved catastrophically inaccurate — ratings that implied near-zero default risk proved to imply substantial default risk. Congressional investigations, legal liability exposure, and reputational damage followed. Despite this, Moody's business model remained intact: regulators still required ratings, issuers still needed them, and investors still used them as a starting point.
Long-term holding with periodic concern. Berkshire held Moody's for over 20 years, reducing its position gradually in the 2010s. The business consistently generated impressive returns on minimal capital investment throughout the period.
Buffett's Own Words
*M&T Bank Corporation ....................... 5.6 24,000,000 Moody’s Corporation ........................... 16.1 1,453 2,338,961,000 PetroChina Company Limited.............. 1.3 1,340 1,727,765 The Washington Post Company ........... 18.1 1,367 56,448,380 Wells Fargo & Company...................... 3.3 3,324 Others ................................................... 2,863 4,682 Total Common Stocks .......................... $ 8,515 $35,287 We bought some Wells Fargo shares last year. Otherwise, among our *
Moody’s Corporation................................................................................ 1,727,765 The Washington Post Company................................................................ 53,265,080 Wells Fargo & Company .......................................................................... 2,315 Others........................................................................................................ 4,103 5,726 Total Common Stocks......................................................
Moody’s Corporation................................................................................. 1,727,765 The Washington Post Company ................................................................ 1,275 53,265,080 Wells Fargo & Company........................................................................... 2,497 Others ........................................................................................................ 4,621 5,383 Total Common Stocks ............................................
M&T Bank Corporation ....................... 5.6 24,000,000 Moody’s Corporation ........................... 16.1 1,453 2,338,961,000 PetroChina Company Limited.............. 1.3 1,340 1,727,765 The Washington Post Company ........... 18.1 1,367 56,448,380 Wells Fargo & Company...................... 3.3 3,324 Others ................................................... 2,863 4,682 Total Common Stocks.......................... $ 8,515 $35,287 We bought some Wells Fargo shares last year. Otherwise, among our s
M&T Bank Corporation .......................... 5.8 24,000,000 Moody’s Corporation .............................. 16.2 2,084 2,338,961,000 PetroChina “H” shares (or equivalents)... 1.3 1,249 1,727,765 The Washington Post Company .............. 18.1 1,698 56,448,380 Wells Fargo & Company......................... 3.3 3,508 1,724,200 White Mountains Insurance..................... 16.0 1,114 Others ...................................................... 3,531 5,465 Total Common Stocks...........................
Investment Lessons
Regulatory certification creates extraordinarily durable competition barriers. The SEC's Nationally Recognized Statistical Rating Organization (NRSRO) certification — essential for operating as a major credit rating agency — has been granted to only a handful of firms in history. New entrants cannot simply build a better rating methodology and win business; they must achieve regulatory certification that requires years of operating history and regulatory approval processes that incumbents can delay through formal comments.
Duopolies with no capital requirements are exceptional businesses. Moody's and S&P together effectively control the global credit rating market. Neither requires significant capital to generate revenue — a small team of analysts and quantitative systems produces billions in annual revenue. The ratio of free cash flow to revenue (typically 40-50%) reflects this capital-light, pricing-power model. These economics — once recognized — justified indefinite holding.