๐—˜๐—ป๐—ฑ ๐—ผ๐—ณ ๐—ฎ๐—ป ๐—ฒ๐—ฟ๐—ฎ!

The Oracle of Omaha is stepping down as the chief of Berkshire Hathaway by end of this year.

All of us have learnt so much from him.
A key learning that stands out in my mind is
๐—ต๐—ผ๐˜„ ๐˜๐—ผ ๐—ถ๐—ฑ๐—ฒ๐—ป๐˜๐—ถ๐—ณ๐˜† ๐—ฎ ๐˜๐—ฟ๐˜‚๐—น๐˜† ๐—ด๐—ฟ๐—ฒ๐—ฎ๐˜ ๐—ฏ๐˜‚๐˜€๐—ถ๐—ป๐—ฒ๐˜€๐˜€

In one of this shareholder letters, Buffett
says that โ€œ๐˜ผ ๐™ฉ๐™ง๐™ช๐™ก๐™ฎ ๐™œ๐™ง๐™š๐™–๐™ฉ ๐™—๐™ช๐™จ๐™ž๐™ฃ๐™š๐™จ๐™จ ๐™ข๐™ช๐™จ๐™ฉ ๐™๐™–๐™ซ๐™š ๐™–๐™ฃ ๐™š๐™ฃ๐™™๐™ช๐™ง๐™ž๐™ฃ๐™œ โ€œ๐™ข๐™ค๐™–๐™ฉโ€ ๐™ฉ๐™๐™–๐™ฉ ๐™ฅ๐™ง๐™ค๐™ฉ๐™š๐™˜๐™ฉ๐™จ ๐™š๐™ญ๐™˜๐™š๐™ก๐™ก๐™š๐™ฃ๐™ฉ ๐™ง๐™š๐™ฉ๐™ช๐™ง๐™ฃ๐™จ ๐™ค๐™ฃ ๐™ž๐™ฃ๐™ซ๐™š๐™จ๐™ฉ๐™š๐™™ ๐™˜๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก. The dynamics of capitalism guarantee that competitors will repeatedly assault any business castle that is earning high returns”

๐—ฆ๐—ผ ๐—ต๐—ผ๐˜„ ๐—ฑ๐—ผ ๐˜†๐—ผ๐˜‚ ๐—ฎ๐˜€๐˜€๐—ฒ๐˜€๐˜€ โ€œ๐—บ๐—ผ๐—ฎ๐˜โ€?
There is no one formula to measure business moats. The all encompassing metric that comes closest is ROIC (or ROE for financial services) — a business which is able to demonstrate high ROIC for a significant period is able to do so because it has moat.

The following characteristics provide formidable barriers against competition โ€” in other words these are ๐—ธ๐—ฒ๐˜† ๐˜€๐—ผ๐˜‚๐—ฟ๐—ฐ๐—ฒ๐˜€ ๐—ผ๐—ณ ๐—บ๐—ผ๐—ฎ๐˜:

– [ ] ๐—–๐—ผ๐˜€๐˜ ๐—”๐—ฑ๐˜ƒ๐—ฎ๐—ป๐˜๐—ฎ๐—ด๐—ฒ
e.g., Costco (US retailer) procures (and sells) at the lowest cost
Netflix incurs negligible incremental cost in onboarding a new subsriber
– [ ] ๐—•๐—ฟ๐—ฎ๐—ป๐—ฑ ๐—ฃ๐—ผ๐˜„๐—ฒ๐—ฟ
e.g., Apple is able to charge a premium because of its brand value, which is synonymous with innovation and quality
– [ ] ๐——๐—ถ๐˜€๐˜๐—ฟ๐—ถ๐—ฏ๐˜‚๐˜๐—ถ๐—ผ๐—ป
e.g., Large FMCG and beverage companies have presence in the remotest of areas
– [ ] ๐—ก๐—ฒ๐˜๐˜„๐—ผ๐—ฟ๐—ธ ๐—˜๐—ณ๐—ณ๐—ฒ๐—ฐ๐˜๐˜€
e.g., Hospitals are encouraged to tie up with Health Insurers that have a lot of customers. In turn, customers are encouraged to go for health insurers that provide coverage across multiple hospitals. This creates networking effects for the health insurer
Moreover, digital platforms like Meta, LinkedIn, Uber have a lot of networking effects as well
– [ ] ๐—ฆ๐˜„๐—ถ๐˜๐—ฐ๐—ต๐—ถ๐—ป๐—ด ๐—–๐—ผ๐˜€๐˜๐˜€
e.g., Switching from one IT service provider to another is a lot of cost and effort for a company. This creates a switching cost moat for the IT provider
– [ ] ๐—ฃ๐—ฟ๐—ผ๐—ฑ๐˜‚๐—ฐ๐˜ ๐——๐—ถ๐—ณ๐—ณ๐—ฒ๐—ฟ๐—ฒ๐—ป๐˜๐—ถ๐—ฎ๐˜๐—ถ๐—ผ๐—ป
Can you think of companies offering differentiated products or services?

What are some of the other sources of moat?

Analyzing these sources are key to the research and investment thesis of any business.

โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”โ€”
Invest (in yourself) and Rise!
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It is my honest endeavor to post quality and well researched education content on my YT channel:

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