No. of Recommendations: 13
There is growing interesting amongst Berkshire owners here about diversifying holdings, with Berkshire trading at a nice price/book ratio right now.
I have posted some lightweight research and observations on Google and Meta here that might be fun:
https://www.shrewdm.com/MB?pid=144903753Economic moats as seen by investors might cover these simplified categories:
1. Have no moat. Margins will likely collapse one day.
2. Have a dubious moat. (*)
3. Have a strong moat. (**) Resulting sustained high ROE - very difficult to impossible to fend off over long periods (10-20 years) - but can't divert all of their earnings into that moat, so need to provide a dividend or make relatively lower quality acquisitions.
4. Have a strong moat - and can divert most of their earnings into that same moat. (***)
- Manlobbi
* Think Dollar General's combination of very low store set cost giving it advantage wider distribution, thus access convenience, thus allowing higher relative pricing. Kind of a moat, except that other competitors can still enter it - for example similar competitors can repeat the model if it seems to be sustainably giving high margins, leading to those margins eroded to the minimum sustainable level; or online competitors can also offer convenience and even lower prices, eroding the convenience advantage (though applying only to some portion of customers).
** An example is See's Candies. They have durable earnings from brand loyalty, but can't seem to repeat it in other geographies, or (significantly) bring new products into that same brand moat. So they just sustain the moat with high ROE and distribute out the earnings for to be place in a more expandable moat elsewhere. A second example is Apple. They have enormous iPhone sales and the combination of (1) app ecosystem and (2) the familiarity/dependence with MacOS and to a smaller extent (3) brand trust, collectively creating a moat. They can expand the moat somewhat by offering services within it, however they can't readily expand it by *magnitudes* with either acquisitions, research or capital expenditure, because firstly almost everyone in the future who will want an iPhone are already buying them (they have near market situation), and secondly the moat is pretty specific to existing products (in my view the moat is defined around iOS and MacOS more than the hardware). These firms should trade at a higher PE than the 15 market average.
*** Examples include Meta (I think) which leads to the post about Meta above. These firms should trade at a significantly higher PE than the 15 market average.
