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TheStreet Open House

Three Reasons to Invest in Established Companies

Stocks in this article: BRK.BWMTXOMWFCKOAMZNGOOGCATBHP

  NEW YORK (TheStreet) -- There is a reason that the portfolio of Warren Buffett's Berkshire Hathaway  (BRK.B) is stuffed with industry leaders such as Walmart (WMT), Exxon Mobil (XOM), Wells Fargo (WFC) and Coca-Cola (KO), among others.

Three reasons have to do with Buffett's investing dictate -- "It is better to buy a wonderful company at a fair price than a fair company at a wonderful price."

The first is that the best got to be that way for a reason: They established strong brands. Coca-Cola, Walmart and Exxon Mobil are examples of that. Those brands have staying power which give the companies a competitive edge.

Next is that "creative destruction" is for venture capitalists, not investors.

Venture capitalists prosper by getting in early and staying late with that rare company that becomes the next Amazon (AMZN) or Google (GOOG).

Creative destruction destroys the previous economic order, as Amazon did to retail and Google did to other search engines. For those who pick right, the rewards can be huge. But the average venture capital firm fails to return investor capital after fees.

There is plenty of fluctuation in the prices of established industry leaders that allows for buying low, however. As examples, Caterpillar (CAT), the biggest heavy equipment maker in the world, and BHP Billiton (BHP), the largest natural resources entity, have both moved 50% more than the stock market as a whole, giving investors an opportunity to purchase shares at a discount.

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