Saturday, January 4, 2014

Can we still depend on investment moats?

I have been taking an MBA module as part of my Master's requirements and came to realise that the firm Michael Porter co-founded and premised on his Five Forces, Monitor Group, was declared bankrupt and sold to Deloitte in late-2012 and merged into the accounting firm's advisory practice. 

There are some articles as to why this came to be from the Economist and Forbes (Forbes initial article here).

The reason I termed my post as such is because a lot of my thinking stems from finding businesses with sustainable competitive advantages, or investment moats. This line of thinking is seen in Warren Buffet and Jeremy Siegel, both who preach the long term buy-and-hold investment approach. But if the founder of this way of thinking cannot keep his business alive, can we depend on the tools that he has provided us?

If you were to look at my portfolio, I have put in most money to food stocks because they have the best long run returns because of the nature of competition in their industry, according to a simplified Five Forces analysis. 

Perhaps we should consider the impact of disruptive innovation and how it has undermined an industry in a very fundamental way.

I am not saying that we cannot find investment moats. Rather, I am saying that in some industries, such moats are at best illusory because advances, particularly the Internet or globalisation, has dramatically shifted the balance of power in favour to the customer than the business. 

Food for thought.

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