I cant overemphasize the importance of Moat to stockpiling The Big Five in and

I cant overemphasize the importance of moat to

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I can’t overemphasize the importance of Moat to stockpiling. The Big Five in and of themselves cannot predict a great investment even when they’re perfect. The Big Five are the view out the rearview mirror, and you can’t buy a business looking backward any more than you can drive a car by looking at the road you just drove over. The past doesn’t predict the future. It points but it doesn’t predict. Lots of businesses have had good historical numbers only to be wiped out by competitors.
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The Big Five point us in the right direction. But you have to know your business. In Rule #1 I told you that all big-Moat businesses have good Big Five numbers. And here is BNI, a big-Moat business with some of the Big Five numbers excellent and some red flagging us. Which goes to show you, never say never. Or never say always. Stockpilers live in a less black-and-white world than Rule #1 traders; when you’re trading, using the tools to exit with the Big Guys will protect you from the events the Big Five numbers can’t predict. As a stockpiler, your only protection from those kinds of events lies in understanding the future of the business . You have to know you have a durable barrier to competition that will preserve your sales and profit margins. Fundamental to that understanding is knowing whether you have a big Moat. Here’s a test to know whether your business has a big Moat. If someone gave you a billion dollars to compete with Burlington Northern, could you do it? Could you open up a railroad to compete with BNI to deliver goods across land? No. Why not? Because you can’t get the right- of-way to build the track. And if you could get permission to build, it would cost you $3 million per mile. With $1,000 million, you can build 333 miles of track. And then you’re broke. No locomotives, no coal cars, no employees, no nada. You simply cannot compete with BNI. Even if you wanted to do it with trucks, you’re out of luck. Over long distances, BNI railcars are much less expensive than trucking. Rail can deliver a ton of coal, for instance, from Wyoming to Georgia for $40. I can’t send my 2,000-pound gun safe from Wyoming to Georgia for $40. I couldn’t even get it from the sporting goods store to my house for $40. BNI has such a lock on the business that Bret Clayton, CEO of Kennecott Energy, said, “If there’s one thing you don’t want to do in this business, it’s piss off the railroads.” * Their first Moat is a Toll Bridge Moat and their second barrier is a Low-Price Moat. Nice. How does the future look for BNI? Well, the cargo they carry is heavy on commodities, construction materials, Far Eastern goods, and coal, so if you think construction prices, food prices, coal prices, and shipping prices are going up in the long-term future, this is a good business to own. Is BNI wonderful? I’d say so. But only long term. Short term, who knows?
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Okay, so we’ve got a wonderful, long-term business we just might want to buy (assuming we’ve done our homework and know the industry well). What’s it worth? Plugging in the Numbers to Calculate Value—the Sticker Price Here are the steps to
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  • Spring '20
  • Warren Buffett

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