What’s interesting about moat is that if a moat needs to be continuously built, it isn’t a moat at all. How do you know if you’re paying up or overpaying for the moat? This time we invert the conundrum of moat to explore the symptoms of false-moat trap.

Over the past few months, I have spent considerable time studying about business, their longevities, moats, what helps them sustain, and what dilutes them over time.

As an investor in stocks, studying what makes a few businesses really great and their moats sustain over a long period of time, and on the other hand, what makes a majority of businesses bad and their moats, if any, fleeting has been an interesting aspect of my work.

So, while I have not yet arrived at any Eureka moment on how and why some moats sustain over a long period of time, and how can one identify in advance when a moat is shrinking, there have been some thoughts that I have formed through such reading.

I had shared some of those thoughts in my last post in the June 2015 Special Report. This post is a continuation of what else I have learned about moats, and especially about the dark side of investing in either emerging moats or ones that have already had a proven past.

I’m sure you may be wondering, “What could be the dark side of moats?”

Well, without trying to lay down any clear theories on the same, what I will be sharing below are just a few thoughts on the risks of investing in moats that you must keep in mind when you are buying such businesses that seem to be in their full glory and not destined to failure in the future.

But then, like s**t happens in real life, it often happens when it comes to investing…and that’s what makes it such an interesting game where you must keep learning…and evolving.

Let’s Start with…Destruction

When changes in the natural environment accelerate, so do the extinction rates of the Earth’s creatures. It happened to the dinosaurs and again to many species during the Ice Age. Many scientists believe we may be entering another such period.
[Read more…] about Moats: Some More Thoughts

When was the last time you did something for the first time?

It’s an ordinary looking question but it has the power to create magic in our lives. How? Please allow me to digress a bit for a while and I’ll circle back to this line of thought little later in the post.

It’s common knowledge that every action produces an equal and opposite reaction. That’s Newton’s Law. Simply put, every cause has an effect. What’s noteworthy about this phenomenon is that some actions produce immediate effect, for example if you put your hand in fire you get burnt. Some other actions have delayed effect like you overeat unhealthy food and it makes you fat but the result isn’t immediate.

The above two cause-effect relationships are well known to everybody but there are some actions which may not seem to produce any recognizable effects, immediately or even in perceivable near future, but they end up creating significant unintended consequences.

Notice the term ‘unintended’ which means you could never have known in advance about the kind of consequences or results that will eventually be produced by your actions. Let me tell you a story.

This is a story of a guy with an uninteresting and dead end corporate job. There was no hope for him to become wealthy in his career. However in his spare time, i.e., weekends and evenings, he was always involved in some hobby projects or activities.

He learnt computer programming and developed few computer games which nobody bought. He came up with few business plans but could never convince any investors for his ideas. He attended business writing classes. He used to draw cartoons and send them for publication. He did public speaking courses. He learnt about human psychology.
[Read more…] about Life 2.0: Serendipity

In the original version of his book The Intelligent Investor, Ben Graham began his discussion of a chapter on “The Investor as Business Owner” by pointing out that, in theory…

“…the stockholders as a class are king. Acting as a majority they can hire and fire managements and bend them completely to their will.”

But he changed this part in the subsequent editions of the book. In practice, says Graham…

“…the shareholders are a complete washout. As a class they show neither intelligence nor alertness. They vote in sheeplike fashion for whatever the management recommends and no matter how poor the management’s record of accomplishment may be.

The only way to inspire the average American shareholder to take any independently intelligent action would be by exploding a firecracker under him.”

Well, this is a fact that is true for not just American shareholders, but all shareholders. Most of us overlook the human aspect of operating a business. This is despite the fact that, in most cases, the future success of a business is directly tied to the quality of its people.
[Read more…] about Governance: Know Thy Manager

This is maybe the first time I am introducing someone here not on my own, but through a testimonial, and that too from a legend himself.

Here’s how Prof. Sanjay Bakshi describes the investor I am profiling today, Arpit Ranka –

Arpit is one of the finest human beings I have ever met. He is trustworthy, ethical, humble, spiritual, and diligent. Many years ago when he approached me through his wonderful brother Arpan (who was my student at MDI), I allowed him to sit in my class. He was the best student in my class. Later he worked with me for many years.

Arpit is a very successful value investor who loves his craft. Anyone who associates with him should consider himself or herself lucky. I am lucky to have him in my life.