Dear Investors
"When the business does well, the stock price tends to follow over time"
Warren Buffet refers to the term 'moat' for unique advantages that companies have over competitors
Here is what moats are and why they matter.
[ THREAD ]
"When the business does well, the stock price tends to follow over time"
Warren Buffet refers to the term 'moat' for unique advantages that companies have over competitors
Here is what moats are and why they matter.
[ THREAD ]
A 'moat' is a unique advantage that a company has over it's competitors that allows it to:
- Be more profitable
- Retain more market share (customers, clients, etc)
Companies that can establish and keep a moat tend to do well over time.
- Be more profitable
- Retain more market share (customers, clients, etc)
Companies that can establish and keep a moat tend to do well over time.
The phrase comes from the body of water that medieval castles used to use as defense mechanism to keep invaders away.
In a sense, a moat is something that makes a business almost untouchable.
Here's what a real 'moat' looks like ➡️
In a sense, a moat is something that makes a business almost untouchable.
Here's what a real 'moat' looks like ➡️
There are several "types" of moats that a company can develop.
Companies can have one or several at a time. The advantage just has to be unique and hard to replicate.
Here are some examples ➡️
Companies can have one or several at a time. The advantage just has to be unique and hard to replicate.
Here are some examples ➡️
Low Production/Distribution Costs (Scale):
Massive corporations have the ability to produce and distribute their goods and services at cheaper prices than smaller companies.
Why? Because they can get bulk discounts on their orders ➡️
Massive corporations have the ability to produce and distribute their goods and services at cheaper prices than smaller companies.
Why? Because they can get bulk discounts on their orders ➡️
Classic example would be Wal-Mart.
As they have gotten larger, they've been able to keep costs low and charge lower prices while remaining more profitable than competitors.
This forces small players out of business. That's what scale does.
As they have gotten larger, they've been able to keep costs low and charge lower prices while remaining more profitable than competitors.
This forces small players out of business. That's what scale does.
Moat can also be intangible meaning they aren't 'concrete'
One of the most types of intangible moats is brand power.
Brand allows companies to stand out even charge more than competitors for similar products.
One of the most types of intangible moats is brand power.
Brand allows companies to stand out even charge more than competitors for similar products.
A great example of this would be Apple.
They have developed brand authority overtime and people don't mind paying more for their products/services.
It's no surprise to see where they are today.
They have developed brand authority overtime and people don't mind paying more for their products/services.
It's no surprise to see where they are today.
There are other types of moats you can research (High Switching Costs, Network Effect, etc)
In short, a moat is a competitive advantage that allows a company to dominate.
A very brief introduction to economic moats.
I hope this helps.
In short, a moat is a competitive advantage that allows a company to dominate.
A very brief introduction to economic moats.
I hope this helps.
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