Investing - Buffett's Moat

This article is from the book "Buffett's Moat"

Foreword:

As an excellent rookie programmer, it is necessary to learn about investment, and you don’t need to learn too much, at least you need to understand some.

In my opinion, if you want to get involved in a new field, you should first learn what the outstanding people in this industry do, just like Newton said - standing on the shoulders of giants.

In the era of such advanced information, we can obtain the experience and knowledge that others have studied for several years or half a lifetime by obtaining information and spending a few weeks of learning.

The more powerful figures in the investment field must learn from Mr. Buffett.

Buffett:

This 100-year-old man has been in the investment world for more than 60 years. Every time there is a major economic turmoil, when Buffett loses the most, someone will come out to bury him, saying that he is no good, and that he has suffered a lot. , but if the time scale is extended, people will find that it has to be someone else, and they are still awesome. All of this basically relies on the analysis of the moat of the invested company.

Buffett is a representative of the originator of the value investing school. His typical cognition is that when the price of a company is significantly lower than its value, he will buy and hold its shares; When there is a good opportunity, sell it. This is what Buffett learned from Emlett. At that time, PE or PB valuation method was used, but later, with the blessing of the thinking of the moat, Buffett began to accept it. Buy at a premium (give a higher valuation to the business).

The reason behind this premium purchase is that the company has a wide moat, so its growth rate is higher, more stable, and its future profits will be stronger, so even if it is purchased at a premium, it is a very cost-effective deal.

Give an example to reflect the moat:
1. Maotai: The gross profit margin is 91%, and the cost of producing 100 yuan of goods is only 9 yuan. The supply exceeds the demand, and it is impossible to grab the 53-degree Feitian Moutai on Taobao with scripts.
2. Niulanshan Erguotou: The gross profit margin is 48%.
Moutai has grown steadily and has almost no competitors, while Erguotou is relatively poor, and there are often competing products similar to the old village head wine.

Let's get to the point and start to study what Buffett said about the moat.

What is a moat:

A moat is something that is difficult for others to copy. For example, the Moutai brand is deeply rooted in the hearts of the people, and it is more difficult to recreate the same brand influence as Moutai; or products with patents can also keep competitors out.

1. During the epidemic in 2020, the price of masks has increased by more than ten times, so a large number of businessmen began to invest in making masks. Within a year, the price of masks returned to before liberation, and businessmen who aimed at speculative profit lost their money.
2. Jia Ling filmed "Hello, Li Huanying" last year, which earned several billion at the box office. At that time, the market value of the company associated with this movie skyrocketed. However, the appearance of a good work is irrelevant to a company's moat, and there is no evidence to prove that the company has a strong moat and can continuously produce high-quality works.

Through the above, it can be said that the moat is the ability of a company to have something that is difficult for competitors to copy, or to maintain its stable development far beyond the industry level for a long time. In addition, all temporary advantages are false moat advantages.

A real moat should have the following four characteristics:

• 1. Possess intangible assets such as brand influence, patents, and national special approval.
• 2. Has a strong switching cost (the user is using one thing, and it will be troublesome or painful to switch to another one)
• 3. Network economy (the example is WeChat, the more people use it, the greater the value generated. The less people use it, the less people use it. The short-lived bullet text messages before were defeated by this factor)
• 4. Cost advantage (positive scale advantage, the larger the scale, the lower the cost)

Don't get too obsessed with moats:

Excessive obsession with the moat can also cause very tragic things. For example, companies such as Nokia mobile phones and Kodak camera film have established a solid moat, but when they are abandoned by the times, it takes a blink of an eye.

This shows that the moat will also be filled or abandoned. As an investor, you need to have a keen sense of smell to pay attention and discover in advance. Therefore, Buffett advocates not to invest in too many companies in the basket, 3-5 key investments, too many companies will make you unable to take care of them, resulting in more misjudgments.

No matter how wide the moat is, it must be bought at a reasonable price

If you find that a company has a very good moat and is very excited, you must calm down your excitement and anxiety, and you must have a reasonable price and your own valuation. Otherwise, no matter how good a company buys too high, it will be hard work.

Conclusion:

Let's stop here. After reading this book, I think that for me, I have read more analysis and case support of the moat, which has deepened my understanding and impression.

What is the moat of Yimutian: Internet economy. This moat is particularly good. There are growers, users, wholesalers, etc. on an acre of land, and they complement each other. The greater the number of users, the greater the value. After gaining a certain scale advantage over time, it is very difficult for other companies to intervene, just like Bullet SMS facing WeChat.

Think about it, 58.com also has the same advantage, why did it lose? From my understanding, 58.com is a hodgepodge, with everything, but later various subdivisions appeared, and more refined operations have been developed with 58, but if it is only this, it will not catch up. I think there is another most The most important factor is driven by the power of capital. For example, Meituan and Didi have spent hundreds of billions of dollars, subsidizing users in a self-harm style, and finally established their positions. But I believe that such things will no longer happen in the future, because the release of the national anti-monopoly regulations can basically establish the moat of Meituan and Yimutian.