Investing is Stocks with a Deep Competitive Moat
We will call them "Mo'at Deep" stocks. The profits must flow!
Moat: A deep wide ditch, usually filled with water, typically surrounding a fortified medieval town, fortress, or castle as a protection against assault.
A "deep moat" in the context of stocks refers to a company that has a strong, sustainable competitive advantage, which protects it from competitors and enables it to maintain profitability over the long term. For fun and memes we will call it Mo’at Deep.
Here are some key characteristics of a “Mo’at Deep” companies:
Strong Brand Identity: Companies with well-recognized and trusted brands often have a Mo’at Deep because consumers are willing to pay a premium for their products or services. Examples include Apple, Coca-Cola, and Nike.
Patents and Proprietary Technology: Companies that hold patents or have proprietary technology can protect their market share from competitors. This is common in pharmaceutical companies and tech firms.
Network Effects: Some companies benefit from network effects, where the value of their service increases as more people use it. This is seen in social media platforms like Facebook or marketplaces like eBay.
High Switching Costs: When customers face significant costs (financial, time, effort) to switch from one product or service to another, companies enjoy a Mo’at Deep. Examples include enterprise software companies like Microsoft or Oracle.
Cost Advantages: Companies that can produce goods or services at a lower cost than competitors have a Mo’at Deep. This can be due to economies of scale, superior supply chain management, or access to cheaper resources. Walmart and Amazon are good examples.
Regulatory Advantages: Companies operating in heavily regulated industries can have a Mo’at Deep if regulatory requirements create high barriers to entry for new competitors. Utilities and telecommunications companies often benefit from this. Often a company that is a first mover in an Industry ( e.g. ChatGPT’s open A.I.) will ask for and help write regulations to prevent competitors from taking market share. This is called regulatory capture.
Efficient Scale: In industries where the market can only support a few players, companies that dominate that space enjoy a Mo’at Deep. This is typical in industries with high fixed costs, like railroads and certain manufacturing sectors.
Intangible Assets: This includes things like strong brand reputation, trademarks, and proprietary processes that provide a competitive edge.
Superior Management: Companies with management teams that have a proven track record of innovation, strategic decision-making, and efficient operations can maintain a Mo’at Deep.
Cult characteristic Customer Loyalty: A strong base of loyal customers who consistently choose a company’s products or services over competitors is a significant competitive advantage. Apple, Tesla, Yeti.
Investing in companies with a Mo’at Deep can be a strategy for long-term growth and stability, as these companies are better equipped to fend off competition and maintain profitability. Proxy indicators, are growth, retention, monthly active users, visits, etc.
BUT
Regardless of the depth of the Moat competitors will find a way, especially if the company is VERY profitable. i.e. has high profit margin.
In silicon valley startup circles I use to work in there is a saying we like to use:
“Your margin is my opportunity”
Keep that in mind as you invest. A company that is very profitable right now, is broadcasting its fat margin to all the go getters that see it as an opportunity to disrupt that business model, or cut into the fat margins in some way.
Example:
TikTok came for META’s margins
Zoom (ZM) came for Microsoft’s Skype margin
INTC & AMD are coming for NVDA’s margin.
BYD is coming for TSLA’s margin.
HOOD is coming for COIN’s crypto margin.
In each of these examples, the competitors might worm themselves into their margins and take some market share but the companies that have the lead might stay ahead thanks to their Mo’at Deep. META copied TikTok’s style and algo, Microsoft gave away teams in their bundle for free, NVDA has software and scale, TSLA is more known cult brand with Elon, and Coinbase is most trusted and more reputable Crypto brand that didn’t f’ over their customers like Robinhood did in the Game Stop GME saga.
Competitors will fail or succeed to conquer the castle of profit margins based on how good the company’s Mo’at Deep is!
For current winners/leaders Complacency is the profit killer.
They need remember, to walk without rhythm (innovate and build a Mo’at Deep), so they won’t attract the competitor worm.
The profits must flow!