It's Delhi Daredevils versus Sunrisers Hyderabad in Hidden Treasure - Views on News from Equitymaster

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The Equitymaster Research Digest

It's Delhi Daredevils versus Sunrisers Hyderabad in Hidden Treasure
Apr 12, 2016

  • Why my team is obsessed about economic moats
  • The trouble with commoditized businesses
  • The contest that's playing out with the Hidden Treasure team
  • Is air pollution killing your real estate investment?
  • The countdown begins...

Economic moat.

If there is one phrase that our research team is obsessed with, this is it.

Every time we discuss a stock idea, the question we focus on most is whether the company has an economic moat - that is, a competitive advantage. What is that moat? And is it really durable?

We believe that if we get this crucial bit even broadly correct, then most of the work is done.

This may sound counterintuitive to investors who follow the so-called market experts in the news media. The 'experts' tend to bombard investors with a flood of information. And it may seem as if everything they talk about is important...from rate cuts to macro data, from quarterly earnings to US Federal Reserve policy.

But there is one crucial difference between our approach and theirs...

While they speculate about near-term factors that move stock prices, we focus on factors that determine the long-term profitability of a business.

And that's exactly what economic moat is all about. It answers some critical questions about a company's future:

  • Does the business have low entry barriers?
  • Is it easy for new players to enter the business and grab market share from existing players?
  • Does the company have pricing power?
  • Is the company able to pass on costs to its customers?
  • Can the company keep growing without compromising its profitability?
  • Can the company expand or retain market share without lowering profit margins?
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