Moody's Corporation
The dominant credit rating agency with a regulatory moat protecting its business, and one of Buffett's most consistent compounding machines for over 50 years.
Moody's Corporation (MCO)
Founded: 1909 (New York) IPO: 2000 (spun off from Berkshire) Market Cap: ~$75B (2024) Buffett's Holding Since: 1970s (50+ years)
Overview
Moody's is one of the three major credit rating agencies (along with S&P Global and Fitch), responsible for rating the creditworthiness of governments, corporations, and structured finance products.
Why Moody's Has a Wide Moat
1. Regulatory Moat
Most bond issuances legally require a rating from an "NRSRO" (Nationally Recognized Statistical Rating Organization). Moody's is one of only a few.
2. Network Effects
More bond issuance → more need for ratings → Moody's is the default choice.
3. High Switching Costs
Once a company is rated by Moody's, changing rating agencies is disruptive and expensive.
4. Pricing Power
Moody's raises prices annually. Governments and corporations need ratings — they'll pay.
The Buffett Connection
Berkshire Ownership
Buffett has owned Moody's since the 1970s. When Moody's was spun off in 2000, Berkshire received shares and has held them since.
The Moat Example
In moat, Buffett often uses Moody's as the example of "efficient scale" moat — a niche served so efficiently that no competitor can profitably enter.
Performance
- Cost basis: Very low (1970s purchases)
- Current value: ~$10B+
- Dividends: Hundreds of millions annually
Famous Buffett Quote
"Moody's has an extraordinary business. It's like a toll bridge — every bond that crosses has to pay a fee." — warren-buffett
Key Financials (2023)
| Metric | Value |
|---|---|
| Revenue | $5.5B |
| Operating Margin | ~50% |
| Moody's Analytics | Growing software business |
| ROIC | ~30%+ |
Why It Fits the Moat Concept
| Moat Type | Moody's Evidence |
|---|---|
| Regulatory | NRSRO designation required |
| Switching Costs | Expensive to change raters |
| Efficient Scale | 50%+ operating margins |
| Network Effect | Standard in bond markets |
Related
- warren-buffett — 50-year holder
- moat — The textbook example
- compounding — One of best compounding stories
- long-term-thinking — Five decades of holding
- berkshire-hathaway — Where it's held