Things I’ve Learned from Charlie Munger about Moats (2015) | Hacker News Reader

Things I’ve Learned from Charlie Munger about Moats (2015)

25iq.com

102 pointsmooreds21 comments

There are a lot of good points contained in this post, if a bit basic. The Munger quotes are mostly fun and reasonably illustrative.

But the poor organization and the repetition were very frustrating. The lede is buried in about half of the numbered points, obscured by increasingly repetitive connective tissue.

It started out as an interesting read and ended up quite annoying.

> Even the fate of the smallest business like a bakery or shoe store will be determined by whether they can create some form of moat.

This is the main reason I'm terrified of AI: near as I can tell, it's a 'moatpocalypse.' ('Moaterdammerung'?)

I keep seeing posts voicing self-reassuring thoughts like "if you're not a low performer you're not at risk."

But this seems to miss the basic point. Let's say that AI never replaces humans and always augments them. (A wildly optimistic view, but I have to start somewhere.)

In this case, me+AI is now competing in a job market against Bob-who-learned-to-code-last-week+AI. That's twenty-plus years of experience that, up until this year, was a deep fscking moat (who else can recite iptables lore, write a safe bash script, and work in perl, python, C, C++, Typescript, etc?)

Today the answer to that question is "virtually anyone."

This means that my employment will hinge on questions of "cultural fit" rather than talent, which, yes, means that in general, there will be less tolerance for asshole behaviour (probably a net good.) So, no new Torvalds or Stallmans (Stallmen?) will be spawned. *But it also means* that mean-girls psychology is going to triumph. Employment will literally be a popularity-contest _Survivor_, as anyone can be replaced at any time, and their replacement will be good enough.

The brunt of this impact will be felt by those of us who are "diverse hires" --- why would you hire Susan, who is brilliant but no fun at parties, when you could hire Hank, who looks, sounds, and talks exactly like you, was best man at your wedding, and holds those wild keggers? Sure, Hank only knows rudimentary Python, but who the hell cares about that now?

ChatGPT implies the Triumph of the Bro.

TL;DR courtesy GPT4 API (yes I paid for it - you’re welcome)

Charlie Munger on Moats

1. Importance of moats: Durable competitive advantage, or moats, are crucial for long-term investing success. Moats are created by factors such as supply-side economies of scale, demand-side economies of scale, brand, regulation, and patents/intellectual property.

2. Buying moats at a fair price: Moats are important, but overpaying for them can hinder success. Value investing focuses on buying assets at a significant discount to their value.

3. Building moats is difficult: Identifying and creating moats is challenging, with no specific formula. Venture capital focuses on building moats, while value investing focuses on buying existing moats at discounted prices.

4. Widening the moat: Managers must focus on widening the moat and maintaining barriers to entry for competitors. Moats can be widened through acquisitions or innovation.

5. Competing against fanatics: Building and continuously widening a moat is essential to compete against devoted business owners and entrepreneurs.

6. Inversion approach: Moats may weaken over time, so it's important to consider what could cause their decline.

7. Moats can shrink: Increased buying power of companies like Walmart and Costco can impact moats, causing them to shrink.

8. Technological change: Disruptive technology can weaken moats or even cause businesses to disappear entirely.

9. Moats can be destroyed: The internet has weakened or destroyed moats of some businesses, such as newspapers.

10. Strong moats can lead to success: Some moats are so strong that even weak management teams can lead to business success.

11. Monopolies and moats: Owning monopolistic businesses with unregulated prices can be profitable, but true monopolies are rare. Moats vary in strength and size, and are constantly in flux.

12. Lollapalooza effect: Great moats tend to have more value than the sum of their parts, creating a "lollapalooza" effect.

How did you phrase your request? e.g., summarize all numbered points in article into single sentences.

At no point is a "moat" defined! Perhaps I am in the minority but I thought this was going to be about medieval castle defences.

The first three sentences:

> 1. “We have to have a business with some inherent characteristics that give it a durable competitive advantage.” Professor Michael Porter calls barriers to market entry that a business may have a “sustainable competitive advantage.” Warren Buffett and Charlie Munger call them a “moat.”

It's in the first point: "durable competitive advantage, or moats"

Things that restrict competition, such as government protected monopoly like copyright or patents, or licensing such as certificates of need for hospitals or even the residency process to become a doctor (in the US), or land with advantageous properties that other land cannot replication (i.e. location).

Or simply doing something that requires so much expertise that it requires tens of billions of dollars and decades for others to catch up, such as what TSMC/ASML/Apple/etc.

Followup assignment: Are those actually Charlie Munger quotes or did the GPT make them up?

I'd be impressed if the GPT it can supply sources for quotes (ok I'm still impressed, but sources for facts is a weakness of it).

It summarized the article.

Reading "Chokepoint Capitalism", I can't help but notice the similarity between 'moats' and 'chokepoints'. After all moats are essentially just a means to force traffic into more easily guarded gates. And one always wants to encircle as much of a market in ones moat as possible.

Moats are lame. Rate of innovation is what matters in fast-moving fields.

To win innovation race you have to spend top dollar on top talent. It also has tons of risk in case innovation fails - and innovators fail often.

Building moat works when you can have large amounts of average employees and business you are in is proven.

Yes we need innovation, but if I look at what was going on with crypto/nft, I would say that was not worth much.

Besides if someone thinks that innovation is the only hard thing to do - sustainably running company with more than 50 employees for decades is already really hard thing.

> innovation is what matters in fast-moving fields

Most innovation is capital intensive, even if that’s just hiring and paying the right people. Moats give you that, as well as room to be patient.

Mungers investing style is normally not in fast moving fields but buying good companies at a discount that tend to be on the more boring side. Things like Coca Cola or geico were bought when the companies had short term issues that brought the stock down. They are easier to identify than fast moving fields. In 1999-2000 when there were very fast moving fields and tons of companies look at how many survived to today - a lot less than were around. This style looses out on potential 100 badgers for sure but the history of the investing style so far has evened out with the ups and downs of the market.

yes but "growth investing" works but requires careful timing.

(I've half my money on growth, half on value - value is much easier to manage)

I would argue, that in the view of Buffet, innovation, or intellectual property, would be a form of moat. Having resources yor competitor does not have, eg best engineers, would also be a moat.

The point is about which companies are worth investing in, not which companies benefit the world the most. Take biotech, where there is a lot of 'innovation' but you will generally lose your shirt investing in such companies.

The other point to make is that innovation tends to either be not obvious or too obvious. Innovation at Tesla is 'too obvious' and hence the company has very high valuations and a low margin of safety for an investor. Amazon on the other hand had a lot of innovation in their business model but this wasn't very obvious to an outsider.

The post specifically addresses the role of technology in destroying moats.

Indeed it does have alot of good points, and i think its important to understand who Charlie Munger was, like his beliefs etc. First of all he is a total critic of Bitcoin calling it "rat poison squared" and "turds". And the guy is totally minimalist, very frugal in his lifestyle. He lives in the same house in California that he owned for over 50 years, and he vocally expresses disdain for luxury cars and other ways of displaying wealth. I'm not sure if thats due to his deep confucianism and taoism appreciation, though.

It’s great seeing any post by Tren Griffin.

This is another great post by him:

https://25iq.com/2019/06/08/secrets-of-sand-hill-road-ventur...

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