Unfortunately, however, Buffett did not discuss the moat. Morningstar, the world's top rating agency, regards intangible assets, switching cost, network effect, cost advantage and scale effect as five forms of moat, which can be used as an important reference for us to understand commercial moat.
The moat of intangible assets includes brand, patented technology and government authorization. On the surface, these have little in common, but as an economic moat, their functions are essentially the same, that is, to make enterprises have a unique position in the market.
1, brand moat
Brand moat is mainly manifested in two aspects, the first is the brand premium ability.
Brand premium ability depends on whether consumers are willing to pay higher prices for products. Most of these products pursue differentiation strategies, which can meet the higher-level needs of consumers. For example, the price of high-end brand Maotai has been rising all the year round, but consumers are still willing to pay the bill. This kind of enterprise has obvious brand premium moat.
Another form of brand moat is brand search ability.
The products of such enterprises are mostly standardized products, which are not obviously different from their peers. If the price is too high, consumers will turn to other substitutes. If this corporate brand is deeply rooted in people's hearts, people will not hesitate to choose this company's products when facing a wide variety of similar consumer goods in the market, which shows that this company has a moat of brand search, such as Coca-Cola in the beverage industry and Yili in the dairy industry.
2. Patented technology
The second kind of intangible assets moat is patented technology. An enterprise has technology that others can't copy, which can make the enterprise gain strong competitiveness in the market. For example, Microsoft in the computer industry and Huang in the medical industry. Many Japanese companies are drooling over Pien Tze Huang's secret recipe, but it took decades to develop its preparation method. This unique technology is the guarantee that Pien Tze Huang is hard to find a medicine in the market.
3. Government authorization
Article 3 The moat of intangible assets is authorized by the government. This kind of moat generally appears in the energy, telecommunications and financial industries. For example, banks that we can't live without, although they don't have any special technology, are the businesses that earn the difference through deposits and loans. In our country, banks can't be opened at will, and government authorization sets a very high threshold for banks, so that companies with such licenses can enjoy the returns brought by special resources for a long time.
Convert it into the cost we pay when we change products or services. This cost is not only reflected in money, but also includes the cost of time, energy and manpower.
Banking is a typical industry with switching costs. If our salary card is bound to the bank, basically all businesses, such as Alipay, WeChat, Taobao and brokerage, are also bound to this bank card. Even if other banks offer more favorable terms, we will basically not choose to switch to another bank's services because we need to do too much work for this.
This kind of conversion cost moat often appears in banks, securities, enterprise financial software systems and other industries.
The moat of network effect is that with the increase of users, the value of its products or services is also increasing.
The most typical enterprise of network effect moat is Tencent. Tencent is a communication tool. When everyone is using WeChat, even if there is a better communication tool than WeChat, if your relatives and friends don't use it, then this product is of little value to you.
Once this network effect moat is formed, it will be very powerful. At present, the average daily users of WeChat have reached more than 700 million. Anyone who wants to launch another communication tool to replace WeChat must be able to build a considerable user network. Faced with such a huge project, most competitors can only flinch.
In 20 18, Tencent ranked among the top brands in the world 10 with a brand value of $0/78.9 billion, which shows how powerful this moat of network effect is.
This kind of network effect moat is common in Internet companies, such as Tencent, Alibaba and Didi Taxi.
In the industry where price determines consumers' purchasing decisions, cost advantage is of great significance. This kind of moat is common in industries that produce standardized products, and its products are highly replaceable.
The cost advantage moat mainly comes from four aspects: advanced technological advantages, superior geographical location, unique resources and scale effect. Because the scale effect is the moat we contact most, we will introduce it in a separate part.
1. process optimization: enterprises with process optimization can obviously reduce product costs and form a temporary moat for enterprises of a certain scale.
This optimization process can make enterprises temporarily ahead of competitors, but it can still be copied by competitors, so it can only be a temporary moat.
2. Superior geographical location: common in upstream and downstream companies in the resource industry. Because the long-distance transportation of resources requires high transportation costs, if the distance is long, even if other companies are cheaper, the overall cost will no longer have an advantage after long-distance transportation. Therefore, enterprises with unique geographical location can enjoy the protection brought by this geographical advantage.
3. Unique resource advantages: If the mineral resources owned by an enterprise are lower than the mining costs of other resource producers, there is no doubt that this enterprise will have a strong competitive advantage. This is also a relatively strong moat, because these mineral resources are often unrepeatable.
Scale effect is a cost advantage moat and the most common moat, which we analyze separately as a part. The scale effect moat is mainly reflected in three aspects.
1, the larger the scale, the lower the unit cost.
The cost of products comes from fixed costs on the one hand and variable costs on the other.
For a factory, whether it produces 1 or 1000 products, it needs to pay the same rent, workers' wages, utilities and equipment maintenance fees, which are called fixed costs. However, the cost of raw materials for processing 1 products is variable and increases with the increase of processing capacity.
In this case, with the increase of the number of products processed by the factory, the unit cost of products will be lower and the competitiveness in the market will be stronger. This scale effect is widespread in the processing and production of industrial raw materials.
2. Strong channel network
Being able to produce things is one kind of ability, and being able to let consumers buy them anytime and anywhere is another kind of ability. For example, why Coca-Cola can dominate the beverage industry for a long time, and the ability to penetrate the capillary of the market is one of its core competitiveness. In the remote countryside of our country, you can even see Coca-Cola products in the only canteen in the village, which is the powerful channel ability of Coca-Cola.
This large-scale channel network is extremely difficult to replicate and is often the source of an ultra-wide economic moat. For example, JD.COM Company spent ten years to establish its own logistics system. In 20 12, Tencent also took a fancy to this market and wanted to spend money on its own logistics in the same way. However, it took Tencent many years to establish this channel capability, while it took JD.COM ten years to establish it. After some attempts, Tencent finally gave up the idea of logistics, reached a strategic cooperation with JD.COM, and handed over the logistics market to JD.COM.
3. Niche market
The scale advantage of niche market lies not in absolute scale, but in relative scale. Even if a company is not large enough, it can form a strong competitive advantage as long as it surpasses its competitors in a certain part of the market.
For example, there are 1000 people in your community, and you only need a supermarket to meet people's daily shopping needs. Therefore, the only supermarket owner in this community can live a rich life by opening a small shop. But if you also open a supermarket in this community, the result may be that neither store can make money. So this supermarket has a moat for niche markets.
The moat of the niche market is simply that the market is small, big capital disdains it, and small capital can't make much money. Then in this market, existing enterprises can enjoy the competitive advantage brought by this scale for a long time.
Intangible assets, switching costs, network effects, cost advantages and scale effects are Morningstar's summary of the economic moat. When we analyze enterprises, we should find out where the real competitiveness of the company is through historical data, and how long can this competitiveness last?
The essence of capital is the endless search for a paradise of wealth that can bring higher returns. As long as this industry is profitable, competition will follow. Only enterprises with a wide moat can count banknotes comfortably in the fierce competition.