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

"Raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to. The definition of a moat is the ability to charge more." Marc Andreessen

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

"You have to understand when competitive advantages are durable and when they’re fleeting. I mean, you have to learn the difference between a hula hoop company, you know, and Coca-Cola. But that isn’t too hard to do." Warren Buffett

"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]

"If you have a big enough moat, you don’t need as much management. You know, it gets back to Peter Lynch’s remark that he likes to buy a business that’s so good that an idiot can run it, because sooner or later one will. That’s — I mean, he was saying the same thing. I mean, he was saying that what he really likes is a business with a terrific moat where nothing can happen to the moat. And there aren’t very many businesses like that." Warren Buffett

“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

“As research analysts, we spend most of our time understanding the competitive moat – we need confidence that those growing cash flows will not be competed away over time.” Brian Vollmer

“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

“Few businesses possess an “economic moat” formed by enduring competitive advantages. Our experience reinforces the fact that it is these moats which enable the businesses to earn higher returns on capital than average" Chuck Akre

“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

"If you are evaluating a business year-to-year, you want to — the number one question you want to ask yourself is whether the — could the competitive advantage have been made stronger and more durable before — and that’s more important than the P&L for a given year." Warren Buffett

"While many of our companies reached record profits, even more important is the fact that many of them continued to widen their competitive moats relative to their competitors." Francois Rochon

"What we really are looking for is an enduring competitive advantage. I mean, that’s what’s going through our mind all the time."  Warren Buffett

“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

"Moats are fairly rare but come from a variety of things, such as regulation, intellectual property, sustainable cost advantages and superior management. True moats give you more confidence in projecting future performance" Chuck Akre

"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 Vinall

"What we do differently is that we focus on the direction of the moat. Every businesses competitive advantage is either getting narrower or wider. We stay focused on those types of businesses where they are expanding and getting stronger vis-à-vis everbody else in their industry. If you do that and get it right, it's a huge add to overall performance" Paul Black

“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 Vinall

“There are many sources of competitive advantage that we find favorable, but the advantage must be real and we must think that it is sustainable over time. We invest in companies that are protected by brands, network effects, patents and scale. Scale is interesting because it can manifest in different ways such as a cost advantage, a distribution advantage, or the ability to spread selling and marketing spend to protect a brand over a larger number of customers. Brands, network effects, patents or scale all ultimately protect the company through high barriers to entry and high switching costs. The switching costs can be financial, operational or psychological, and that customer captivity is ultimately what we are after.” Dan Davidowitz

"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

We all want to buy low and sell high, but first we must develop confidence in the sustainability of a business in order to arrive at a sound judgment about what constitutes “low” and “high.” Glenn Greenberg

"Our ideal company is one that pays no attention to Wall Street and instead focuses on widening its moat over time rather than winning the quarterly earnings race" Jake Rosser

"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 Vinall

"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

“We are big fans of companies focused on widening their moat over the next decade rather than trying to top analyst estimates for the next quarter.” Jake Rosser

"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 Vinall

"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

"There’s no formula that gives you that precisely, you know, that says that the moat is 28 feet wide and 16 feet deep, you know, or anything of the sort. You have to understand the businesses. And that’s what drives the academics crazy, because they know how to calculate standard deviations and all kinds of things, but that doesn’t tell them anything. And that what really tells you something is if you know how to figure out how wide the moat is and whether it’s likely to widen further or shrink on you." Warren Buffett

"Moats to me mean do they have competitors that have equally compelling propositions. To what extent do they invest behind the moat creating bona fide product differentiation and then telling the consumer about it" Thomas Russo

"There are a lot of different models that create a sustainable competitive advantage. And there are also some models of where you can lose it very fast. Just ask Arthur Andersen. That was a very good name in America not very long ago. And I think it would be harder to lose the good name of Wrigley’s gum than the good name of Arthur Andersen." Charlie Munger

"Usually if something can gain competitive advantage very quickly, you have to worry about them losing it quickly, too. I mean, when an industry is in flux, there are a lot of people that think they’re the survivors, or the ones that are going to prosper, where it turns out otherwise." Warren Buffett

"A moat that must be continuously rebuilt will eventually be no moat at all." Warren Buffett

"One shouldn't sell incredible moats and one should definitely never sell them when their is a phenomenal manager running them" Mohnish Pabrai

"The most important thing you can know, what we’re trying to do is we’re trying to find a business with a wide and long-lasting moat around it, surround — protecting a terrific economic castle with an honest lord in charge of the castle. And in essence, that’s what business is all about... What we’re trying to find is a business that, for one reason or another — it can be because it’s the low-cost producer in some area, it can be because it has a natural franchise because of surface capabilities, it could be because of its position in the consumers’ mind, it can be because of a technological advantage, or any kind of reason at all, that it has this moat around it." Warren Buffett

"Nothing breeds copycat competition better than success and over time even the best managed companies with what were perceived to be almost impenetrable barriers to entry find their niche market has become a mainstream one with a host of 'me-too' competitors. In today's world, Apple's success mirrors Nokia's in the 1990's. Inditex compares with GAP in the 1980's and Google is reminiscent of IBM in the 1970's. Over time, in order to maintain success all companies must invest to extend their 'moat' and/or seek new business opportunities" Marathon Asset Management

“There are some industries that are just never going to have barriers to entry. And in those industries, you better be running very fast because there are a lot of other people that are going to be running and looking at what you’re doing and trying to figure out, you know, what your weakness is or what they can do a little bit better. A great barrier to entry, you know, is something like this. If you gave me 10, 20, $30 billion and told me to go in and try and knock off the Coca-Cola Company with some new cola drink, I wouldn’t have the faintest idea how to do it. I mean, there are billions of people around the world that have something in their mind about Coca-Cola, and you’re not going to change that with 10 or $20 billion.” Warren Buffett