FREE: MOATS book in pdf form

FREE: Celebrating Berkshire Hathaway's 50 years w Buffett and Munger, I release the MOATS book in pdf form @budlab

https://www.frips.com/MOATS.pdf

Having a “Sustainable Competitive Advantage” means customers keep coming back to repurchase. The two major areas of competitive advantage are: 1. a cost advantage, and 2. a differentiation advantage. While the “marketing mix” teaches us to think about the product, price, place, and promotions, this all comes together in the mind of the potential customer. The customer may or may not perceive these two general areas of advantage. This book refers to them as a “cost” and “special” advantages. I simplify by substituting the word “special” for differentiation.

Over the years, Warren Buffett and Charlie Munger found wonderful businesses by asking a lot of questions. What is the nature of each business? Can we predict it with a high degree of accuracy? Can we imagine a moat around each economic castle? Will this moat be enduring? Is there something special here for our customers, or is this
advantage eroding?

Since the nature of capitalism is competition, a successful business needs to have “something special” in order to lead the pack and fend off present and potential competitors. It needs a barrier to entry. Sustainable Competitive Advantage is also called “favorable long-term prospects” or “enduring economic advantages.” It comes from things that make a business difficult to copy or enter.

A brand is such a barrier because it represents something unique and valued in the mind of a customer that promotes customer loyalty. A valuable patent or trademark can also give a business a period of protected advantage, acting as a barrier to entry.