Good market condition or poor market condition, ‘risk on’ or ‘risk off’ mood in the market – the hunt for quality stocks is always on. One of the most popular investment terminologies used while identifying quality stocks is ‘stocks with an investment moat’. What is this moat after all and why should investors continue identifying it in stocks? Literally speaking, moat is nothing but a hole dug around a castle, which is later filled with water for ‘safety arrangement’. Safer the arrangement i.e. wider and deeper the hole is, bigger the moat is, and hence more protected is the castle. In those days of yore when kings and dukes ruled regions and lived in castles, a big moat would make it tough for attackers to gain access into the castle.
Similarly, in the business world any company with a wider and deeper safety arrangement or in other words a bigger moat will always tend to be safer relatively and hence profitable in the long term, devoid of competitive pressure, relatively speaking. Such companies with bigger safety arrangement are also known as companies with investment moat. You will find that companies with bigger or wider investment moats are the ones which are actually well-protected from competitive pressures and remain relatively profitable while enjoying larger market share, which of course is crucial in the long run since it proves to be a key determinant of profit margins and consistent growth in profits while also keeping the company in business for longer periods.
The Warren Buffet View
This story is from the January 20, 2020 - February 02, 2020 edition of Dalal Street Investment Journal.
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This story is from the January 20, 2020 - February 02, 2020 edition of Dalal Street Investment Journal.
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