A Timeless Way to Identify True Wealth Creators by value investing
Warren Buffett’s investing success has always come from simplicity rooted in deep understanding. Long before algorithmic trading and market screens, Buffett relied on timeless business principles—ways of seeing value where others saw noise. One of his most enduring frameworks is what students of Buffettology call “The Three Buckets of Value”: Breakup Value, Franchise Value, and Growth Value.
Each bucket represents a different layer of what a company is truly worth. Together, they form a complete picture of how wealth is built—not through market timing, but through patience, quality, and compounding.
The Foundation: Breakup Value
Buffett’s early investing years were shaped by the teachings of Benjamin Graham. Graham focused on tangible assets—the factories, inventories, and cash on the balance sheet. If you could buy a company for less than its “breakup” or liquidation value, you had a margin of safety. Buffett referred to such companies as “cigar butts”—cheap stocks with just one puff of value left.
Breakup value is the conservative layer of valuation. It’s what remains if a company shuts down and sells everything. It tells you what the business is worth even in its worst-case scenario.
In India, an early 2000s example captures this logic well. Steel Authority of India (SAIL) was trading below its book value when steel prices were in a slump. Investors who recognized its asset value saw tremendous gains when the commodity cycle turned upward. The tangible worth of SAIL’s plants and infrastructure created a natural cushion against loss.
But Buffett eventually realized that such opportunities, while profitable, were limited. They offered temporary rewards but not lasting wealth. Once the cycle turned or the asset was sold, the story ended. Buffett wanted businesses that kept creating value, not ones that needed constant replacing.
The Moat: Franchise Value
That realization led him to the second—and most powerful—bucket: Franchise Value.
Franchise value reflects the intangible power of a business—its brand strength, customer loyalty, and ability to maintain high profitability regardless of competition or inflation. Buffett often described this as “a moat around your economic castle”—a defense system that protects superior economics from being eroded.
In India, this principle is perfectly embodied by companies like Hindustan Unilever (HUL) and Nestlé India. HUL’s products—Surf Excel, Dove, Lifebuoy—are embedded in the daily lives of millions. Nestlé’s Maggi and Nescafé are not just food brands; they’re emotional staples. Both companies maintain high return on equity year after year because their customers keep coming back without much persuasion.
Globally, Buffett’s fondness for Coca-Cola and later Apple comes from the same place. Coca-Cola’s global brand loyalty makes it nearly immune to pricing pressures. Apple, despite being a tech company, built a franchise through habit and ecosystem lock-in. Once you enter its ecosystem, you rarely leave.
A franchise company, in Buffett’s eyes, is one that doesn’t have to reinvent itself every decade. It earns consistently high returns, maintains customer trust, and can withstand economic storms. These are the businesses that compound quietly, year after year, without drama.
The Engine: Growth Value
Once Buffett mastered the art of identifying great franchises, he turned to the question of expansion: how do these businesses grow their intrinsic value? This brought him to the third bucket—Growth Value.
Growth value measures a company’s ability to reinvest its profits at high rates of return. But Buffett warns that growth only adds value when it happens within a strong franchise. Growth without a moat is like building a castle on sand—it looks impressive but crumbles under competition.
The story of Infosys is a strong example. Starting as a small IT service provider, it created a process-driven, trust-based franchise. Its scalable model—where new clients added profits faster than costs—allowed it to reinvest in automation and global expansion. Infosys grew because its foundation was solid.
Another Buffett favorite, Moody’s Corporation, demonstrates the same logic globally. Moody’s has a virtual monopoly in credit ratings. Every dollar of new revenue adds almost directly to profit because the business needs little new capital. This combination—strong moat plus efficient growth—turns ordinary companies into compounding machines.
When franchise strength meets growth power, the result is exponential wealth creation.
When Moat Meets Momentum: The Compounding Flywheel
Businesses that combine franchise and growth value are the rare “multibaggers” investors dream of. These are companies that protect their base while expanding steadily—creating what Buffett calls the compounding flywheel.
Think of Asian Paints. For decades, it’s dominated India’s paint industry with over 50% market share. Its brand, supply chain, and dealer network form a fortress-like moat. But what makes it special is what it does with its profits: reinvesting every rupee into logistics, technology, and innovation. That combination of moat and momentum has produced decades of market-beating returns—proof that quality and reinvestment are the twin engines of compounding.
The story of Marico follows a similar arc. In the 1990s, it was a simple oil manufacturer—its value lay mostly in physical assets. But once it built brand strength through Parachute and Saffola, it gained pricing power and customer trust. As the franchise matured, the company reinvested in diversification—into male grooming, skincare, and digital channels. From 2005 to 2025, Marico’s stock multiplied nearly ninefold, powered by consistent reinvestment and high return on capital.
Lessons from See’s Candies: Buffett’s Favorite Example
When Buffett purchased See’s Candies in 1972 for $25 million, the company’s tangible assets were worth far less. But Buffett saw what others didn’t—the loyalty of California customers who would buy their favorite chocolates year after year, regardless of price hikes.
See’s required almost no additional capital to grow; it funded expansion from retained earnings. Over the next five decades, it earned more than $2 billion in pre-tax profit from that original $25 million investment.
See’s embodies the perfect intersection of all three buckets: minimal breakup value, unbeatable franchise strength, and slow but steady growth—all compounding quietly through time.
Applying Buffettology Today
Buffett’s framework isn’t a checklist—it’s a way of thinking. The breakup value protects your downside. The franchise value sustains your returns. The growth value multiplies those returns into generational wealth.
In the Indian market, this framework is visible in different shades:
- Coal India represents breakup value—a tangible-asset-heavy business with a stable floor but limited compounding.
- HUL showcases franchise value—steady profits protected by brand and distribution.
- Pidilite Industries blends franchise and growth—its Fevicol monopoly coupled with product innovation has made it one of India’s most admired compounders.
Buffettology teaches us that the goal isn’t to buy cheap stocks—it’s to own businesses that stay valuable. Breakup value is like your safety net; franchise value is your foundation; growth value is your accelerant.
The Valuable Insight
The Three Buckets of Value reveal a simple truth: wealth is built when durability meets reinvestment. Buffett’s philosophy urges investors to think like owners, not traders. A strong franchise keeps you safe; profitable growth takes you far.
As Buffett says, “It’s better to own a growing piece of a wonderful company than a stagnant piece of a cheap one.”
Breakup value protects against loss. Franchise value sustains high returns. Growth value multiplies them. Together, they form the architecture of enduring compounding—the quiet path from good businesses to great fortunes.