Economic moats are structural & sustainable qualities that are inherent to the business.
Moats generally manifest themselves in pricing power: A company that can't raise prices is unlikely to have a strong moat.
INFO: We looked at companies that maintained Return on Capital above Cost of Capital for 15+ years.
Legal monopoly vs. expiry/challenge/piracy
Brands are valuable if they deliver a consistent or aspirational experience.
Aspiration increases willingness to pay. So, create scarcity & exclusivity. +Tiffany's store layout(40% revenue comes from stuff that costs less than $200 and shop layout is like costly items in front and cheap at last) +"You don't own a Patek Philippe, you merely take care of it for the next generation."
Confidence is how other people see you.
Does the cost of switching to a competing product or service outweigh the benefits?
Integrate with customer's business: Upfront costs of implementation payback from renewals
Sell ongoing service relationships
Provide a product with a high benefit/cost ratio
Provide a service that increases in value as the number of users expands.
Aggregate demand b/t fragmented parties.
Non-linearity of nodes vs. connections.
Western Union is Radial, they have lots of branches but nobody is sending money from Bangladesh to Chicago or Mexico
Process: Invent a cheaper way to deliver a product that can't be replicated quickly.
Scale: Spread fixed costs over a large base. Relative size matters more than absolute size.
Niche: Establish minimum efficient scale
Good managers are constantly looking for ways to widen a company's moat
Bad managers invest capital outside a company's moat, lowering overall ROIC
A tiny minority of managers can create enormous value via astute capital allocation - even if they don't start with great horses.
They are hard to find, and false positives abound...but they can create enormous wealth over time. Keep an eye out!
The value of an economic moat is largely dependent on reinvestment opportunities
The ability to reinveset tons of cash at a high incremenetal ROIC = a very valuable moat.
If a firm has limited ability to reinvest, the moat adds little to intrinsic value. +McCormick, Microsoft, Oracle
Local differences create moats
Minimum efficient scale is more common South African retailers, Globo, BEC World
Cultural preferences create barriers to entry Beer travels. Candy & snacks generally don't.