The checklist/scorecard approach is smart. At Phaetrix I frame it as style discipline — value, growth, dividend, etc. Different wrappers, but the same end goal: protect capital and compound without losing sleep.
The four sources of structural competitive advantage are intangible assets, customer switching costs, the network effect, and cost advantages.
If you can find a company with solid returns on capital and one of these characteristics, you’ve likely found a company with a moat.
— Pat Dorsey
B.
Analysis:
Network Effect is manifested in the Asset Turnover Ratio (Rev/Total Assets)
Intangible Assets & Customer Switching Cost are manifested in the 1st Level Profit Efficiency Yield, namely Gross Profit Yield from Revenue (GP/Rev).
Company Operational Cost Advantage is manifested in the 2nd Level Profit Efficiency Yield, namely The Quality of Gross Profit, i.e. Net Profit Yield from Gross Profit (NP/GP).
Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.
The checklist/scorecard approach is smart. At Phaetrix I frame it as style discipline — value, growth, dividend, etc. Different wrappers, but the same end goal: protect capital and compound without losing sleep.
The Mother of Growth is the MoAT.
A.
The four sources of structural competitive advantage are intangible assets, customer switching costs, the network effect, and cost advantages.
If you can find a company with solid returns on capital and one of these characteristics, you’ve likely found a company with a moat.
— Pat Dorsey
B.
Analysis:
Network Effect is manifested in the Asset Turnover Ratio (Rev/Total Assets)
Intangible Assets & Customer Switching Cost are manifested in the 1st Level Profit Efficiency Yield, namely Gross Profit Yield from Revenue (GP/Rev).
Company Operational Cost Advantage is manifested in the 2nd Level Profit Efficiency Yield, namely The Quality of Gross Profit, i.e. Net Profit Yield from Gross Profit (NP/GP).
MoAT
= Synergized Structural Competitive Advantage
= Network Effect × (Intangible Assets & Customer Switching Cost) × Company Operational Cost Advantage
= Asset Turnover Ratio × Gross Profit Yield from Revenue × Net Profit Yield from Gross Profit
= Rev/Total Assets × GP/Rev × NP/GP
= GPA × NP/GP
= NP/Total Assets
= ROA
Thanks ATC! If only all moats can be measured..and key to alpha imo is identifying them before they become moats…
Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price.
— Warren Buffett