Economic Moats
1. Because success attracts competition as surely as night follows day, the most highly profitable companies tend to become less profitable over time. That's why economic moats are so important: they help great companies stay that way
2. For concrete evidence of an economic moat, look for firms tat consistently earn high profits. Focus on free cash flow, net margins, return on equity and return on assets.
3. After you've looked at these specific measures, try to identify the source of company's economic moat. Companies generally build sustainable competitive advantages through product differentiation, driving costs down, locking in customers with high switching costs, or locking out competitors through high barriers to entry.
4. Think about economic moats in two dimensions: depth (how much money the company can make) and width (how long it can sustain above-average profits). In general, any economic moat based in technological innovation is likely to be short-lived.
5. Although the attractiveness of an industry doesn't tell the whole story, it's important to get a feel for the competitive landscape. Some industries are just easier to make money in than others.
1. Because success attracts competition as surely as night follows day, the most highly profitable companies tend to become less profitable over time. That's why economic moats are so important: they help great companies stay that way
2. For concrete evidence of an economic moat, look for firms tat consistently earn high profits. Focus on free cash flow, net margins, return on equity and return on assets.
3. After you've looked at these specific measures, try to identify the source of company's economic moat. Companies generally build sustainable competitive advantages through product differentiation, driving costs down, locking in customers with high switching costs, or locking out competitors through high barriers to entry.
4. Think about economic moats in two dimensions: depth (how much money the company can make) and width (how long it can sustain above-average profits). In general, any economic moat based in technological innovation is likely to be short-lived.
5. Although the attractiveness of an industry doesn't tell the whole story, it's important to get a feel for the competitive landscape. Some industries are just easier to make money in than others.