Feb 7 2023
Moat: Competitive Advantages In Companies (Part 3) (010)
Part three of an ongoing series on Warren Buffett and Charlie Munger's 4 principles of investing. We walk through these investing principles in the form of a checklist that you can download here: https://www.aahus.com/2021/05/one-of-most-important-artifacts-or.html
We go through these 4 steps in a company before we invest in its stock. There are 2 rules of investing according to Warren Buffett: Rule #1: don't lose money, and Rule #2: never forget Rule #1. We don't want to lose our hard-earned money so that's why it's important to do this "homework" before we buy any stocks.
The 4 investing principles/steps we discuss in this series are: 1) Understanding the business (circle of competence), 2) Management (honest & competent), 3) Moat (favorable long term prospects), and 4) Margin of Safety (available at an attractive price).
When we invest in a wonderful company, it's because it has a durable, competitive advantage that is known as its moat. Many companies might not have a moat at all, so it's key to identify the business's strengths and weaknesses. Much like the medieval castle moat, a business moat helps prevent its competitors from taking away market share.
You want to look for business advantages that sustain the business for a long period of time, such as these moats: brand, switching, network effects, secrets, toll bridge, price/cost. We discussed examples of moats.
Note: We apologize for some audio issues we had in this episode, and have made adjustments for improved future episodes. Thank you for understanding.