Pat Dorsey’s book is one of the most important text that you can read to untangle the puzzle of moat and competitive advantages.
“The difference between GEICO’s costs and those of its competitors is a kind of moat that protects a valued and much-sought-after business castle…He [Bill Snyder, chairman of GEICO] continually widens the moat by driving down costs still more, there by defending and strengthening the economic franchise.”
Moat is a metaphor for companies having durable competitive advantage. Pat Dorsey, in this wonderful book The Little Book That Builds Wealth, explains –
“There are lot of ways to make money in the stock market. You can play the Wall Street game, keep a sharp eye on trends, and try to guess which companies will beat earnings estimates each quarter, but you’ll face quite a lot of competition.
You can buy strong stocks with bullish chart patterns or superfast growth, but you’ll run the risk that no buyers will emerge to take the shares off your hands at a higher price. You can buy dirt-cheap stocks with little regard for the quality of the underlying business, but you’ll have to balance the outsize returns in the stocks that bounce back with the losses in those that fade from existence.
Or you can simply buy wonderful companies at reasonable prices, and let those companies compound cash over long periods of time. Surprisingly, there aren’t all that many money managers who follow this strategy, even though it’s the one used by some of the world’s most successful investors. (Warren Buffett is the best-known.)”
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