What Really Drove Buffett’s Success | Kai Wu on Berkshire's Intangible Edge

In this episode of Excess Returns, we’re joined by Kai Wu of Sparkline Capital to explore one of the most important and overlooked aspects of Warren Buffett’s investing evolution: his shift from tangible to intangible value. Based on Kai’s research paper “Buffett’s Intangible Moats,” we examine how Buffett's portfolio has evolved alongside the economy — and why the intangible drivers of brand equity, intellectual property, human capital, and network effects are central to understanding his success. Kai also shares how quantitative methods can be used to replicate Buffett’s approach and what this means for investors today.

Topics Covered:

• The three eras of Buffett’s portfolio evolution: industrial, consumer, and information age

• Why Buffett’s shift away from deep value investing began earlier than most realize

• How Charlie Munger helped change Buffett’s approach — and why that mattered

• Buffett’s preference for intangible assets like brand, IP, and network effects

• How to quantify intangible value and its four key components

• Surprising stats: Buffett rarely buys below book value and holds high price-to-book stocks

• Kai’s framework for building an intangible value score across stocks

• Factor attribution: quality and intangible value explain most of Buffett’s alpha

• The impact of portfolio size, sector biases, and evolution of circle of competence

• How to replicate Buffett’s approach using a systematic, factor-based strategy

• Why intangible value may be the "quality of tomorrow" and a forward-looking moat

Timestamps:

00:00 – Buffett’s evolution from value to intangible investor
01:55 – Why Kai researched Buffett’s investing style now
04:00 – The three eras of Buffett: Geico, Coca-Cola, Apple
08:15 – How Buffett’s thinking changed under Munger’s influence
10:00 – The rise of intangible moats and Buffett’s definition of economic goodwill
13:10 – Four components of intangible value
15:10 – Mapping Buffett’s holdings to intangible assets over time
17:30 – Does Buffett get enough credit for evolving?
20:30 – Only 8% of his holdings were bought below book value
24:00 – Average price-to-book of Buffett's portfolio is 8
26:00 – Defining Kai’s intangible value factor
27:50 – Buffett becomes a value investor again — just using a different metric
30:00 – Circle of competence vs. expanding opportunity set
33:00 – Today’s portfolio is 75% intangible by Kai’s framework
34:45 – Decomposing Buffett’s returns into factors
38:00 – Quality and intangible value explain 90% of Buffett’s alpha
43:15 – Sector exposure vs. true value tilt
49:00 – Intangible value as a leading indicator of quality
52:00 – Building a Buffett-style quant portfolio using two key factors
54:00 – Why Buffett’s future returns may be more muted