No real Moat Moats can be deceiving but this goes back to understanding the

No real moat moats can be deceiving but this goes

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No real Moat: Moats can be deceiving, but this goes back to understanding the business well enough to distinguish between a real
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and fake Moat. Something that looks like a Moat may actually fall to new technology, unions, new trends and fads, or a dwindling customer base. A company that makes typewriters doesn’t look so good with the advent of computers. Similarly, a company that produces hard-copy encyclopedias will find it hard to compete now that the Internet brings people up-to-date information for free. Some businesses don’t even pretend to have a Moat. I call these “commodity businesses.” A commodity business is any company that produces a product that anyone else can similarly produce. If you’re a grocery store just like the other grocery store, you’re going to be competing on price. I’m a regular on MSNBC’s Your Business , a TV show about solving problems for small businesses, and this issue of owning a no-Moat business comes up all the time. People who invest time and effort in a business that’s easy to copy almost always end up with a not-so-wonderful business. True for small business. True for big business. Do not invest in a business without a real Moat. Failed to keep up: If you don’t have passion and enthusiasm for your business, then you have no business owning a piece of it, because you’re going to have to keep up with it once you own it. And if you aren’t into the business, you won’t keep up with it. It’s a huge mistake to buy it and forget about it. You want to see the problem coming and get out. If you aren’t keeping up on the industry changes and your business’s quarterly reports, you could get run over. And if you do, shame on you. These big changes unfold over time. You’ll see them if you’re paying any kind of attention. Don’t be like the stupid henchman in the movie Austin Powers who got run over by a steamroller moving two miles an hour. Pay a little bit of attention. If you were to look at the companies that have recently fallen or, in some cases, disappeared, you’d discover that there were plenty of red flags waving well in advance of their fall. Take AIG, for example, the insurance giant that was bailed out by the government. The chairman of the company was forced out in 2005— big red flag. If I had been invested in AIG then (which I wouldn’t have because it’s not an industry that meets the first M for me), I would have been out, because it would have failed the Management test.
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Meaning, Moat, and Management—the three Ms. Get these right and you’ll be targeting a wonderful business. When to start stockpiling it is the next question, and that depends on the three most important words in investing—“Margin of Safety.” It’s the all-important fourth M. THE RICHES IN CREATIVE DESTRUCTION Technology is a great destroyer of businesses and jobs and even entire industries. But that’s not just a good thing, it’s a great thing. It might not seem like it to the investor who gets wiped out or the worker who loses her job, but it’s exactly this kind of destruction that is at the very heart of the creation of wealth. Real wealth is just
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  • Spring '20
  • Warren Buffett

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