“The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.”
Competitive advantages can make a company more profitable than its peers. This is good because, as we’ve seen, profitability is effectively the rate of return you get on any earnings which are not paid out as a dividend.
Competitive advantages can also help a company survive the inevitable tough times that come around every now and then. This is especially important for value investors because we often end up investing in companies that are attractively valued precisely because they’re going through tough times.