Moats are lame. Rate of innovation is what matters in fast-moving fields.
Things I’ve Learned from Charlie Munger about Moats (2015)
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Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#12Moats are lame. Rate of innovation is what matters in fast-moving fields.
To win innovation race you have to spend top dollar on top talent. It also has tons of risk in case innovation fails - and innovators fail often.
Building moat works when you can have large amounts of average employees and business you are in is proven.
Yes we need innovation, but if I look at what was going on with crypto/nft, I would say that was not worth much.
Besides if someone thinks that innovation is the only hard thing to do - sustainably running company with more than 50 employees for decades is already really hard thing.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#13Moats are lame. Rate of innovation is what matters in fast-moving fields.
> innovation is what matters in fast-moving fields
Most innovation is capital intensive, even if that’s just hiring and paying the right people. Moats give you that, as well as room to be patient.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#14TL;DR courtesy GPT4 API (yes I paid for it - you’re welcome) Charlie Munger on Moats 1. Importance of moats: Durable competitive advantage, or moats, are crucial for long-term investing success. Moats are created by factors such as supply-side economies of scale, demand-side economies of scale, brand, regulation, and patents/intellectual property. 2. Buying moats at a fair price: Moats are important, but overpaying f…
At no point is a "moat" defined! Perhaps I am in the minority but I thought this was going to be about medieval castle defences.
Things that restrict competition, such as government protected monopoly like copyright or patents, or licensing such as certificates of need for hospitals or even the residency process to become a doctor (in the US), or land with advantageous properties that other land cannot replication (i.e. location).
Or simply doing something that requires so much expertise that it requires tens of billions of dollars and decades for others to catch up, such as what TSMC/ASML/Apple/etc.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#15Moats are lame. Rate of innovation is what matters in fast-moving fields.
Mungers investing style is normally not in fast moving fields but buying good companies at a discount that tend to be on the more boring side. Things like Coca Cola or geico were bought when the companies had short term issues that brought the stock down. They are easier to identify than fast moving fields. In 1999-2000 when there were very fast moving fields and tons of companies look at how many survived to today - a lot less than were around. This style looses out on potential 100 badgers for sure but the history of the investing style so far has evened out with the ups and downs of the market.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#16Moats are lame. Rate of innovation is what matters in fast-moving fields.
yes but "growth investing" works but requires careful timing.
(I've half my money on growth, half on value - value is much easier to manage)
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#17Moats are lame. Rate of innovation is what matters in fast-moving fields.
I would argue, that in the view of Buffet, innovation, or intellectual property, would be a form of moat. Having resources yor competitor does not have, eg best engineers, would also be a moat.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#18TL;DR courtesy GPT4 API (yes I paid for it - you’re welcome) Charlie Munger on Moats 1. Importance of moats: Durable competitive advantage, or moats, are crucial for long-term investing success. Moats are created by factors such as supply-side economies of scale, demand-side economies of scale, brand, regulation, and patents/intellectual property. 2. Buying moats at a fair price: Moats are important, but overpaying f…
Followup assignment: Are those actually Charlie Munger quotes or did the GPT make them up?
I'd be impressed if the GPT it can supply sources for quotes (ok I'm still impressed, but sources for facts is a weakness of it).
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#19Moats are lame. Rate of innovation is what matters in fast-moving fields.
The point is about which companies are worth investing in, not which companies benefit the world the most. Take biotech, where there is a lot of 'innovation' but you will generally lose your shirt investing in such companies.
The other point to make is that innovation tends to either be not obvious or too obvious. Innovation at Tesla is 'too obvious' and hence the company has very high valuations and a low margin of safety for an investor. Amazon on the other hand had a lot of innovation in their business model but this wasn't very obvious to an outsider.
Re: Things I’ve Learned from Charlie Munger about Moats (2015)
#20Moats are lame. Rate of innovation is what matters in fast-moving fields.
The post specifically addresses the role of technology in destroying moats.