Moats

Warren Buffett famously looks for businesses that possess what he terms economic moats; barriers to entry that often involve long term established brand loyalty. His philosophy has shifted somewhat in later years, but the concept of moats has long been the aspiration of high margin businesses, particularly tech. However, this concept has been challenged recently, particularly as it relates to the businesses that Mr. Buffett currently owns; namely high profile, well established brands such as Coca Cola, Disney, etc.. An article in the FT however, astutely points out that it’s “not that someone works out how to cross the moat…. Its that the castle becomes irrelevant”. This really struck me in that it seems like there are so many “castles” that are becoming irrelevant: retail, dining, transport, etc.. In fact, technology and big data are combining to lay siege to a number of industries previously protected by anti-competitive constraints like never before.  These tensions will  have major implications for relative valuations and ultimately for the economic survival of established players versus upstart competition.