Concise Guide to Value Investing by Brian McNiven

Author:Brian McNiven
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-01-05T00:00:00+00:00

The business moat

Buffett looks for what he refers to as a protective moat. A moat is the barrier that makes it difficult, and occasionally impossible, for competitors to invade and steal the business of the castle beyond the moat. The strong business attributes that constitute the moat give a company a sustainable competitive advantage. Companies that have recognisable brand names, whether they are manufacturers or service providers, have the ability to expand through increased per-capita consumption and further market penetration. Given rational management, these companies tend to have low profit volatility and the ability to reinvest profits at attractive rates of return in expanding the business.

Buffett’s moat is not limited to brand recognition or an established market niche. Some businesses providing simple, everyday products or services have innovative techniques or operating procedures and systems that enable them to produce financial results that belie the apparent simplicity of the business or the comparative results of their competitors.

Innovation, in keeping a company at the forefront of its industry, is a means by which the moat is reinforced. The former editor of the Harvard Business Review, Rosabeth Moss Kanter, once told a conference: ‘The secret of innovation is that it gives you a temporary monopoly. It means that you can charge more for it’. Innovation is not necessarily limited to the creation of a new concept, product or marketing approach. It may simply mean monitoring customer satisfaction, with the objective of improving an existing function within the business or reducing customer aggravation. If innovation is doing something better than the norm, some companies seem to go out of their way to ensure that they remain below the norm. If a business has difficulty with simple issues, management probably has an apoplexy when confronted with complex issues. Some companies glide, others stumble and stagger. Avoid the stumblers.

For instance, I recently had bank accounts at two different banks for reasons that were once valid but no longer held. Nonetheless, I kept my main banking with my old original bank for reasons of loyalty at the expense of practicality. In adopting internet banking, I was able to pay off my credit card online. If I was going to be overseas at the beginning of the month when the previous month’s charges were due, I would go online before the end of the month and pay off my credit-card purchases before they fell due in the following month — a practice one would imagine the bank would appreciate. Each time I did this, the bank’s computer would note that no payment had been received in the month in which the previous month’s charges were due, and therefore charge me a late payment fee and interest. In other words, I was being penalised for early payment.

I finally decided to call the bank and complain. After following the directions of several automated voices while being transferred from one level of enquiry to another, and waiting patiently while the automated voices went through their usual annoying so-called compliance jargon of

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.