IFB78: The Value in a Stock with a Competitive Moat

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Dave:                                    00:35                     All right, folks, welcome to investing for beginners episode 79 tonight. Andrew and I are going to talk about moats, competitive, both business advantages, all the things you look for in a great business, and we’re going to talk a little bit about some of the ins and outs of those as well as some things to look out for and how you can find great companies with moats. So Andrew, why don’t you go ahead and start us off and talk a little bit about moats.
Andrew:                              01:00                     Yeah, let’s do it. Shout out to Warren Buffett, right? He kind of came up with this idea. What’s a moat, other than the margin of safety. I don’t know if they use that for the margin of safety metaphor also, but you know, uh, I’m assuming most of you don’t have castles and don’t have a moat. So we’ll explain that real quick. Uh, if you had a castle, your try the defendant against attackers who might be pounding at your walls. So if you build a moat and you fill it with water, they’re going to have to, although I guess swim across and you can pick them off.
Andrew:                              01:35                     And so that helps you stay competitive, right? It will help a business stay in business. And so it only makes sense if you can find the businesses that are the most competitive, those will tend to have the best results. And so they all tend to take up more market share, be able to get more profits, and that in turn leads to more returns for the investors. So buffets talked about different types of Moats, uh, some of the ones he looks for. There are a couple of other ones I think we can kind of throw in the mix there, and I’m sure he looks at that stuff to a first on the list. Let’s talk about pricing power. So the kind of logic behind this one is when you have a business that you’re able to increase the price without the, without losing sales, then you have pricing power. And that’s a very, very strong moat.
Andrew:                              02:36                     Easy example, simple example of this, was one of Buffett’s first and most successful investments that the city ever had. It was, I don’t know if it was called the Washington Post or fills a different, it was, it was a publishing company and because they had distribution to whatever cities they were servicing, they, they essentially had to, had a monopoly on the, on those select areas. And so because they were the only newspaper in town, they were able to raise their prices, and people will continue buying them.