The Moat

“Any company whose earnings are growing consistently or more important, are likely to grow consistently has something unique about it. The competition can read these earnings records too, and fat earnings records are an invitation to come in and sample the cream. So a company that has something unique about it has something the competition cannot latch on to right away. Whatever it is that is unique is a glass wall around those profit margins.”  Adam Smith, The Money Game

"In business, I look for economic castles protected by unbreachable 'moats'."  Warren Buffett

"A strong ability to defend established markets against new competitors is essential for a sound investment" Phil Fisher

”The returns generated by owning gate-keeper assets have been responsible for some of the greatest fortunes in history. Be it Rockefeller consolidating the refining business under Standard Oil, or the Carnegie-Frick steel empire, amalgamating Federal Steel, Carnegies Steel, The American Steel and Wire Company and the Rockefeller ore fields into the aptly named US Steel Corporation.  The key to their success was their ability to limit output and thereby maintain stable and highly profitable prices at a critical juncture in the supply chain”  Marathon Asset Management

“I used to have a gas station down the road here in Omaha and there was another gas station down the road. Whatever he charged for gas was my price.  You don’t want to be in a business like that” Warren Buffett

"Old moats are getting filled in and new moats are harder to predict, so it's getting harder." Charlie Munger

"Technological obsolescence - The internet's been a great wealth creator, but it has destroyed lots of business plans and lots of moats, and we keep our eye out.  And that's for us, an ongoing source of ideas.  It's amazing how the analog-to-digital revolution just continues to find new businesses to decimate.  And we're mindful of that.  It's the Schumpeterian view of capitalism"  Jim Chanos [Short seller]

“We buy barriers, we don’t build them. Some industries simply don’t have barriers to entry and never will so we avoid them”  Charlie Munger

“If you have an economic castle, people are going to come and want to take that castle away from you. You better have a strong a moat, and a  knight in that castle that knows what he’s doing”  Warren Buffett

“It’s incredibly arrogant for a company to believe that it can deliver the same sort of product that its rivals do and actually do better for very long.” Professor Michael Porter

“A truly great business must have an enduring 'moat' that protects excellent returns on invested capital.” Warren Buffett

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products and services that have wide, sustainable moats around them are the ones that deliver rewards to investors” Warren Buffett

"Frequently, you'll look at a business having fabulous results. And the question is, "How long can this continue?" Well, there's only one way I know to answer that. And that's to think about why the results are occurring now - and then to figure out the forces that could cause those results to stop occurring" Charlie Munger

“As Buffett likes to tell it, companies that are surrounded by a moat are even better.  A moat can come in the form of patent protection for an essential product we need, or a brand name that has broad consumer recognition. Moats tend to scare off competition. Moats also come in the form of size. Does anyone think they could start a business that could compete with the likes of a Wal-Mart? There will always be competition, and no moat lasts forever. But a moat can permit a company to make significant profits for many years. “ Christopher Browne

"So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way - it’s just too risky. We don’t know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses-or virtually all of our businesses-have pretty darned good moats.” Warren Buffett

“The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed.” Warren Buffett

"Warren Buffett often states that his CEOs’ top priority is to widen their company’s moat. The idea of widening a moat is key. It is worth quoting Buffett’s precise words from the 2000 AGM: We think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. In my view, widening the moat is more important than the width of the moat. Everyone is attacking a company’s moat, so the question is not how wide it is, but whether it is widening at a faster pace than competitors are filling it up. Innovation is central to the idea of widening a moat." Robert Vinali

“We devote probably 90% of our intellectual horsepower to understanding whether the competitive moat around the business is widening or narrowing” Christopher Begg 

“You need a moat in business to protect you from the guy who is going to come along and offer it (your product) for a penny cheaper” Warren Buffett

“Even businesses with durable moats don’t last forever” Mohnish Pabrai

"Always look for durable competitive advantage" Charlie Munger

"The vocabulary of moat is international.  There are basically seven moats the world over: brand, switching cost, regulation, patents, cost advantage (for example economies of scale), network effect, and culture.  In a great business you can spot them a mile off.  If you are not sure what a company's moat is then normally it does not have one or at least not a wide on"  Robert Vinali

"What we're looking for are businesses that are getting better, where they have some type of model that’s sustainable for a long period of time, and where the moat is going to widen. Because of that moat, they earn high returns on capital that we think will be sustainable in the future." Christopher Begg

"Really the most important thing is that the moat is growing. Everyone has people running after them trying to catch up, but are they running faster than the guy who is trying to catch up" Robert Vinali

"If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength .. On a daily basis the effects are imperceptible; cumulatively, though, their consequences are enormous.  When our long term position improves as a result of these unnoticeable actions, we describe the phenomenon as "widening the moat" Warren Buffett

"In my view, far greater attention needs to be paid to a company’s ability and willingness to innovate. Value investors may prefer not to give too much consideration to innovation. However, no matter how wide a company’s moat is, it is unlikely to be sustainable unless it goes hand in hand with innovation." Robert Vinali

"Imagine a bunch of fishermen going out to sea to fish.  Any fisherman is going to have to just work harder than the next guy to get more fish.  There’s no moat at all.  He’s just got to work, get up earlier, get to the fishing grounds sooner, have better nets. There’s no moat there.  There’s no sitting back and relaxing, so in a certain sense, we’re looking for moats because, when you have a moat, you can sit back and relax and the profits come in, if you like.  Those are the places where we want to be as investors, especially given that we don’t control the company ourselves, the management may be good or bad." Guy Spier