Economic Moat For Protection

We humans as individuals tend to put up barriers when situations are not going right in our lives. We push others out and further our distance from them, creating a bigger moat. Now this can be a good thing depending on the situation, but as far as investments are concerned this is a Great position to be in!

Basically, an economic moat is a competitive advantage that a business has that prevents other businesses from taking market share from them.

Warren Buffet talks/mentions economic moats from time to time. He gives the example that the company is a castle, and the economic moat is like the moat that surrounds a castle. The wider the moat, the better defense a company has. A company can have a wide economic moat with pricing power, a well-known brand name, and large distribution. Companies that have a wide economic moat include:

Coca-Cola which is one of the most recognized brand names in the world, and has a wide economic moat with pricing power and a fantastic distribution network. Their global reach and expanding footprint ensure that the wide moat is unlikely to breakdown anytime soon. I’m pretty sure Coke will be around until the day I die.

Wal-Mart which is the largest retailer in the world has somehow become an economic moat as a retailer. Wal-Mart has made itself a wide moat through its distribution network and its ability to negotiate pricing with its suppliers and manufacturers, whcih allows it to sell goods at a discount rate.

With the 30+ companies that Skyy owns I have a few that are speculative plays, but the majority of the companies will be around for many years to come! In the end, its’s important to focus your money on companies that have economic moats. These moats (stocks) provide the company a natural defense from competitors and ensure that they stand the test of time!

Live Long & Prosper

 

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2 thoughts on “Economic Moat For Protection

  1. Miracle,

    You could not be more right. A company with a narrow moat is still decent however. I mostly worry for companies that seem to have no moat whatsoever! Just as you want cash in your pocket for a rainy day, companies should be expected to do the same.

    Thanks for the article,
    -Reaper

  2. DR,
    Thanks and yes your correct any type of moat is better than no moat at all! I wish every company would have a nice pile of cash on hand for rainy days doesn’t make sense not too! But as you know were all different.

    Thanks for stopping by.

    DM

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