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ECONOMIC MOATS

ROADMAP :

ERODING MOATS

FINDING MOATS

MOATS by SECTORS & ITS

EXPLANATION.

EXERCISE

1

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Finding Moats

It is easier to create a COMPETITVE

ADVANTAGE in some industries than it is in

others.

The fourth best company in a structurally

attractive industry may very well have a wider

moat than the best company in a brutally

competitive industry.

2

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Moats by SectorSECTOR NARROW

MOATS(%)

WIDE

MOATS(%)

ALL

MOATS(%)

Software 49 9 58

Hardware 26 5 31

Media 69 14 83

Telecommunications59 0 59

Health Care Services 31 11 42

Consumers Services 32 7 39

Business Services 36 13 49

Financial Services 54 14 68

Consumer Goods 32 14 46

Industrial Materials 31 3 34

Energy 55 6 61

Utilities 80 1 813

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Explanation :Morningstars Sector wise Moats :-

Software and Hardware

Integration Capital

needed intensive

Moat- SWITCHING COSTS of customers.

Telecommunication and Healthcare

Moat- Regulatory Structure + Not attractive to

competitors.

4

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Media Only main key players.

Threat- Technological disruptions.

Moat- Diversity and control of distribution

channels.

Restaurants and Retailers

Moat- Low Switching Costs.

Energy Only in hands of few.

Moat- Transportation and Regulations.

5

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The Moats Process

NO

ECONOMIC

MOAT

NO

ECONOMIC

MOAT

NARROW

MOAT

WIDE

MOAT

STEP 1

YES YES

YES

N

O

N

ON

O

S

H

O

R

T

L

O

N

G

6

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OPTIONS How strong is the companys Competitive

Advantage? IS it likely to last a long time or arelatively short time?

Has the firm historically generated solid Returns

on Capital? Does the firm have one or more of the Competitive

Advantage listed below?

Is the firms future likely to be different than itspast?

High Switching Costs and Low Cost Production;

Network Economics and Intangible Assets.7

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The Moats Process

Has the firm

historically

generated solid

Returns On

Capital?

Does the firm

have 1 or moreof the

Competitive

Advantages

listed below?

How strong is thecompanys

Competitive

Advantage?

Is it likely to last long

time or a short time?

NO

ECONOMIC

MOAT

NO

ECONOMIC

MOAT

NARROW

MOAT

WIDE

MOAT

STEP 1

YESYES

YES

N

O

N

O

N

O

S

H

O

R

T

L

O

N

G

Is the firms

future likely

to be different

than its past?

Network

Economic

s

Intangible

Assets

High

Switching

Costs

Low Cost

Productio

n

8

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