What you will learn in this post:
– What is a competitive advantage.
– What are economic moats.
– How economic moats are essential to protect the investor’s returns over the long term.
Here is the situation.
You want to invest in the stock market over the long term.
You have some knowledge about valuing and picking stocks in the market.
And yet, you’re not satisfied. Somehow, you keep asking yourself:
– What you could do to improve your returns?
– What you could do to minimize your investment risk?
– How you could find great public businesses to invest your money in?
Whatever way you were investing in stocks, I invite you to take a look at another route. And it starts by realizing this.
Gold Rush era isn’t over
This world out there where companies are struggling to survive and sustain their profitability is a world where gold is purchased by everybody.
Every company and competitor wants somehow take his lion’s share and keep it the longest possible.
It’s a law, though, that this so-valued share is, and will be challenged over time. Competitors will always try new ways to get where you are, compounding great returns over the years.
It is, thus, natural consequence that every company has hard times defending itself from competition takeover.
This is a scene you can actually live at the corner of your own street.
Your closest grocery’s store can be challenged by competitors than open new stores in the neighborhood, trying to get some, if not all, of the benefits and returns generated by the original store, which then strives to improve ways to keep its customers leveraging on sell prices, cost of managing the store, payrolls, and wisely reinvesting its revenues.
Become the Levi’s Jeans of your Gold Rush era
The good news is you can find businesses that can stand there at the top of the hill, preserving their return, preventing competition from taking a shot at them.
Somehow they manage to be there, years after years, enjoying prosperity.
It’s not that they are not challenged. They simply are too strong to be challenged.
They are feared by competition, and the consequence of that is that their business can’t be replicated.
These businesses are the ones you want to take a look at and proudly invest in: Businesses with competitive advantage.
These businesses have a uniqueness, a fundamental strength keeping enemies at bay. This strength is their competitive advantage and this is what Warren Buffett calls “moats”.
Warning: The English are coming!
Centuries ago, castles used to be protected from enemy attacks and invaders, keeping them at bay putting between them and the castle a very large area of water.
That sure can prevent from attacks, and seriously get on the enemy’s nerves. I can get that!
Here is when the story gets more intense.
That water area could even be more effective. Piranhas and alligators could be waiting in there, making it a very hard and brave time for invaders to get to the castle.
This is a metaphor, but it clearly demonstrates the concept of moats.
Take advantage of the competitive advantages of businesses to create wealth over time
I want to help you find great businesses like these castles above that are guarded with solid moats, with lots of fierce creatures that will guarantee a solid protection of the fort.
Moats are competitive advantages, and competitive advantages need to be part of your long term stock investment plan, as every successful business, at some time, will eventually be challenged. Remember, that’s the law of this world of business returns out there.
So, in order to selecting great companies, you should find companies that are not only great, but solid and protected from competition: You need to find moats so you can enjoy your high protected sustainable returns in the long run, and that’s the core purpose of this blog.
Getting this habit in stock investing may be the best decision you could make in establishing your long term investment framework, ensuring you profitability, returns, and allowing your invested money to grow and compound at the best rates of returns over the years.
Wouldn’t that be great?
So, when you think about it, capitalism happened to let emerge a new level of conscience for the investor.
Not only the profit and returns are important, otherwise there would not be a Warren Buffett or a Benjamin Graham, but there must also be a consideration of the durability of those returns.
And that’s where moats get into action. Keep that in mind, and you will be experiencing great investments.
If you’re guessing how to find those businesses with competitive advantages and moats, you don’t want to miss this post:
Go check it and enjoy finding moats!
Thank you very much for your loyalty and interest.
To your stocks investments getting better,