Summary of Heather Brilliant & Elizabeth Collins's Why Moats Matter

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The goal of economic moat analysis is to identify companies with sustainable competitive advantages, or economic moats. These are the keys to outperforming the stock market over time.

#2 There are companies that are able to generate high returns on capital for extended periods of time. These companies are able to withstand the relentless onslaught of competition for long periods, and these are the wealth-compounding machines that we want to find and own.

#3 The amount of value a company creates for itself and its shareholders depends on two things: the amount of value being created and the business’ ability to continue to create value well into the future. The first factor is easy to calculate using basic financial statements.

#4 An economic moat is when a company has a dominant market position and favorable long-term regulatory framework that protects its high returns. It’s difficult for any single company to establish a cost advantage, and this causes eventual oversupply and weak or nonexistent profits for all players.

• Language: English
• Publisher: IRB Media
• Release date: May 20, 2022
• ISBN: 9798822523234

IRB Media

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Insights on Heather Brilliant & Elizabeth Collins's Why Moats Matter

Contents

Insights from Chapter 1

Insights from Chapter 2

Insights from Chapter 3

Insights from Chapter 4

Insights from Chapter 5

Insights from Chapter 6

Insights from Chapter 7

Insights from Chapter 8

Insights from Chapter 9

Insights from Chapter 10

Insights from Chapter 11

Insights from Chapter 12

Insights from Chapter 13

Insights from Chapter 14

Insights from Chapter 15

Insights from Chapter 16

Insights from Chapter 17

Insights from Chapter 1

#1

The goal of economic moat analysis is to identify companies with sustainable competitive advantages, or economic moats. These are the keys to outperforming the stock market over time.

#2

There are companies that are able to generate high returns on capital for extended periods of time. These companies are able to withstand the relentless onslaught of competition for long periods, and these are the wealth-compounding machines that we want to find and own.

#3

The amount of value a company creates for itself and its shareholders depends on two things: the amount of value being created and the business’ ability to continue to create value well into the future. The first factor is easy to calculate using basic financial statements.

#4

An economic moat is when a company has a dominant market position and favorable long-term regulatory framework that protects its high returns. It’s difficult for any single company to establish a cost advantage, and this causes eventual oversupply and weak or nonexistent profits for all players.

#5

There are five sources of competitive advantage: intangible assets, cost advantage, switching costs, network effect, and efficient scale.

#6

When assigning moat ratings, we consider the five qualitative factors outlined earlier. But we also look for quantitative evidence of a moat, namely, a company’s ability to earn excess returns on invested capital. The size of the spread between ROIC and cost of capital is not as important as the expected duration of the excess profits.

#7

Valuation is an important aspect of investing, and it makes sense when you think about it: you wouldn't want to pay $650,000 for a house that's worth $500,000, because even if it were a great house, it would take many years for the market to recognize its value as $650,000, and at that point, you would have lost purchasing power in real terms after inflation.

#8

The key to successfully purchasing an asset at a discount to its fair market value is estimating the future cash flows it will generate.