Have listened to quite a few episodes of the Value Investing Podcast now and listened to the interview with Pat Dorsey whilst in the car the other day. I was driving and couldn't make a bunch of notes but a few things that jumped out at me are below.
Pat Dorsey on moats:
- 3 players having 30% market share isn’t that good when compared with a highly fragmented industry where the largest player may have 5% but that is 4 times the next highest.
- Moat that contributes to stability, not a lot of value e.g. McCormack spices not going to have re-investment opportunities; turmeric isn’t going to be the next big hit. This moat tightens confidence around model of earnings going out and adds a lot of stability as confidence in sustaining returns on capital.
- Moat that can be reinvested is much more valuable e.g. XPO logistics rolling up truck industry (compounding machine); it can reinvest capital at equally high, incremental rates of return and has a very long runway ahead of it as the industry is very fragmented.
- Where are the companies without such obvious moats that will grow and be more recognisable?
o Dig around, all information is from the past, the value is in the future.
o Understand the businesses and the capital allocation.
o General rule of thumb: not in commodities, chemical or most retailers (efficient scale moats in Australia the exception).