Economic moat

But essentially, we could say that that's covered.

Moat, I would say that moat is most definitely covered.

Um, these numbers show that their moat isn't as powerful as it once was.

It's not a moat that's going to be able to protect themselves at, you know, 20, 30% growth.

We call this developing our circle of competence, finding out if the business is one that we can thoroughly understand and one that we're going to be able to predict its cash flows in the future.

Then we go ha- go and have a look at the economic moat or some kind of long-term competitive advantage that this company may or may not have.

We need to assess management in terms of their integrity to shareholders as well as their skill at making decisions within the business.

And of course, at the end, we'll do our intrinsic valuation, where we'll estimate how much cash we can expect to get out of this company over the long term, and therefore, how much we should be willing to pay for it.

Make sure you dig deeper and un- understand what actually drive these, drives these restaurants and what's happening within the industry.

When there's really a lot of positivity, they're going to build a lot of restaurants, and that's going to lead to oversupply, which means that restaurants aren't going to perform as well.

So moving on now to our second part of the analysis, which is to look at the economic moat.

We need to see if we can identify any kind of unique advantage that this company has over its competitors.

And so that flywheel is another thing that I think is a mode.

I don't, you know, I don't think of Moat from the point of view of like build this one feature in the product that is so incredibly unique and technologically complex that nobody else can replicate it.

I think Moat is built in stages from how you build the product, how you solve the problem, how you have your sales motion, how you have customer love, how you have inbounds, how you have referrals.

I think that whole combination is how we think about Moat.

yeah that's called i think there's like a term for it it's kind of like the um so um it's a stack right so like basically the mold is built in a stack so that's like where so we previously have like the square funder on the pod and then he um there's a term for it i'm like i read his book but like it's been like four years so i'm kind of forgetting about the term but like it's kind of like talking about the mold is built in like small motions or like in like a lot of a stack of things that like kind of like yes it's appreciation um so when it comes to like i mean you mentioned about the humane in the loop so like i'm calling it's like everybody has to fact check everything how are they using ai to fact check these things right now or like are they like manually checking if something is right or wrong and the other part of it is like okay the security kind of things like so first maybe we could start from like the maximus perspective of um where should be humanized or like how do, how should human check fact check this stuff right now? Cause like sometimes like, let's say this does not apply to accounting, but like, you know, for, for me, let's say I'm like, using one AI agent to build a product and then using the other AI agent.

So that's how you kind of like, maybe it's the blend is leading the blend here, but like, it's very like, you know, it's very meta, but like, how do you like, how, how should people actually like fact check these things? And then do, do they just like sample a few numbers? Like let's, let's say like you know i'm like selling um a can of like coke right or like yeah a cola coca-cola okay not coke okay let's say because this is a good video on youtube we don't want to talk about stuff so basically let's say you're selling a can of soda and then like um the production is like oh like this can costs like two cents and then the drink costs like uh you know three cents or whatever and like do you, do you just sample like, Hey, like how much is this sold in like, you know, Minnesota and like blah, blah, blah.

[upbeat music] The might and myths of economic moats.

Motley Fool Hidden Gems Investing starts now.

[upbeat music] Welcome to Motley Fool Hidden Gems Investing.

We do a lot of Q&A and things like that, and several of us, as well as production team, are gonna be there, so we needed to get something to you guys.

So this is a pre-recorded idea.

I'm with John Quast and Lou Whiteman, as always, and what we're gonna do is we're gonna talk about the concept of economic moats.

It is a very common or a very well-tread y- uh, term that's used in financial media a lot as a way to analyze businesses.

It became very popular in the 2000s.

And I would say, look, many things go into something being a good company.

And today, a lot of people talk about moats.

Moats are critically important.

But at the same time, if you have a moat without the right management, you get destroyed.

And look at Boeing under its previous CEO.

Adrian, nice to meet you, sir.

So I'm trying to get it kind of right in my head about what your economic moat is.

So I'm going to explain what I think and then you tell me if I'm right or not.

That's okay.

We've got this type of moment.

What's the right thing to be putting in? Because we've got that data.

That's ultimately, you know, what keeps the economic moat for us is having a data that no one else can access.

So this video will be our test case then, Adrian.

So what's the thesis of the book? A chokepoint is an unavoidable gate between creatives and audiences.

Moats narrow many buyers and sellers around a few intermediaries.

Buyer power lets gatekeepers dictate pay, terms, discovery, and access.

Law can h- actually harden a temporary advantage into a durable lock-in, and real remedies must restore exit, voice, information, and ownership.

What are the major premises of the book? Markets can concentrate even while prices fall.

Power over sellers can matter more than power over buyers.

Moats combine cost, data, network effects, contracts, and law.

Atomized creators bargain poorly against integrated firms.

So we would expect companies with moats, high quality companies, would benefit from this, but that did not happen.

Wide moat companies actually underperformed the market during that time.

Now, speaking of moats, the Morningstar Wide Moat Focus Index has been going through a rough stretch.

Why is that?

Yeah, so the Morningstar Wide Mode Focus Index is interesting because it takes the companies with the widest modes, but there's also a valuation layer to it.