Investing Lessons [Basic]
What is moat in Warren Buffett’s terms & why it’s important
Chris From RWOA.io, Re-ThinkWealth Content Expert
27 December 2017
Who is Warren Buffett?
Warren Buffett is my favorite investor. He also happens to be one of the most, if not the most successful investor of all time.
His name is usually linked with Berkshire Hathaway, a company he founded in the early 1960s. And is currently one of the world’s largest conglomerate.
Berkshire Hathaway invests in many companies such as GEICO, the insurance company, and Dairy Queen. They are also the largest shareholder for Wells Fargo & Co, Coca-Cola, International Business Machines and American Express.
Warren Buffett is currently worth US$83.3 Billion as of 4 December 2017.
What is Moat?
Moat is a term that Warren Buffett uses to illustrate the competitive advantage of a company.
Its definition in the dictionary is that it is “a deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack”.
So the castle, fort or town is meant to illustrate a company. To prevent them from being easily attacked, they need to have a moat around it.
That moat is simply put, the competitive advantage of the company.
Why Is Moat Important?
Moat is important because it protects a company from losing their market share easily which will erode its earnings power over time. This is important for us as investors because we would want the company we invest in to have its earnings grow over time – then the share price will follow – and not the other way round.
So, we should only invest in companies with a strong moat – if our aim is to hold it for a long period of time.
Warren Buffett said a few things about moat before which we can learn something about:
“The moat in a business like our auto insurance business at GEICO is low cost. I mean people have to buy auto insurance so everybody’s going to have one auto insurance policy per car, basically, or per driver. And I can’t sell them 20, but they have to buy one. What are they going to buy it on? They’re going to buy it based on service and cost. Most people will assume the service is fairly identical among companies, or close enough, so they’re going to do it on cost, so I gotta be the low-cost producer. That’s my moat.”
Disclaimer: The information provided is for general information purposes only and is not intended to be a personalized investment or financial advice.
Important: Please read our full disclaimer.
Thank you for your time reading! 🙂
If you liked this article, please share it | I write for my readers, you. It would mean a lot to me if others read this as well.
My Take on World Events Thinking of Betting in World Cup 2018 or Investing in Stocks? Read this first. Chris Lee Susanto, Founder at Re-ThinkWealth.com 3 July 2018 Hi my name is Chris. Looking at the relationship between risk and reward is fascinating and interesting...
24/3/2017 Was The First Time I Bought GameStop: About Time a Private Equity Firm is Interested in it!
Personal Investment Reflection 24/3/2017 Was The First Time I Bought GameStop: About Time a Private Equity Firm is Interested in it! Chris Lee Susanto, Started investing in Singapore and U.S. stock market utilizing value investing & options selling strategies when...
Guest Post: Stock Analysis [Advanced] Sony - Deep Value? Bryan Wang, an investment analyst with a portfolio of equities focused on ‘best ideas’. 15 June 2018 Editor note: Bryan is a personal friend of mine - and is a genuine value investor. We often have a discussion...
Guest Post: Investing Lessons [Advanced] Sustainability of Dividends Kelvin Seetoh, a full-time investor with a portfolio of listed businesses in the Asia-Pacific and USA region. His preference for businesses is founder-led, low working capital needs, large...
Want new articles before they get published? Subscribe to my Awesome Community.
Learn more about RWOA.io
A premium online learning solution for stock investing – that is affordable for everyone.
Don't forget to join our exclusive Telegram chat group
If you do not have Telegram App yet, do download it for free via App/Play store. It’s fast and easy!