Moats and Woes and My Plans
writing well is extraordinarily painful
G’day amigos. #32. As always, I’m keen to share what I’ve been reading, learning, and compressing. Been flat stick this week, so a little shorter than usual. But first, a quote from Futurama:
When you do things right, people won't be sure you've done anything at all.
Here’s the format of today’s email:
Part 1: Moats and Woes
Part 2: Bonus Quirky Content - Something to Read, Watch, and Listen
Part 3: My Plans
Moats and Woes
Raising prices is a great way to flesh out whether you actually do have a moat. If you do have a moat, the customers will still buy, because they have to. The definition of a moat is the ability to charge more.
- Marc Andreessen
A quick little look into moats and what drives them.
How do you know a moat still exists?
This video is what inspired this weeks topic. Yen says he’ll save you 15 years and 10,000 hours. So I think it’d be silly to ignore his advice here.
What defines a moat?
Competitive Win Rate: You literally win more. Strong customer retention and a competitive win rate.
Pricing Power: If you don’t have pricing power, you don’t have a really good business. This is reflected in Gross Margin stability. Not EBIT. Gross Margin.
High Return on Incremental Capital: What’s the point of the moat if it doesn't continue with every incremental dollar invested in the business?
I may not even know why it exists, if these things hold, I know it exists.
Pat Dorsey - Buying Companies With Economic Moats [Link] [Apple Link]
GOAT podcast on moats. Dorsey touches points two points that Yen mentioned above. On pricing power:
companies love to talk about their brand. They love to say how well known they are. But if that brand doesn't translate into pricing power it's frankly not worth what the company spends to maintain it. You always have to be thinking, what advantage does this brand give you? Does it allow you to raise prices? Does it allow you to price ahead of the competition?
And incremental returns on capital:
If you have a static moat that's great. Coca-Cola, right? The moat is the moat, but it's not really getting bigger, and the reinvestment potential isn't very high. All the cash needs to get paid out to shareholders who have dividends or repurchases. But if you have a business where each year the moat gets a little bit better, and so the returns on capital get a little bit higher each year and there's reinvestment potential. The dollar that's reinvested at 18% this year gets reinvested at 20% next year, gets reinvested at 22% the year after that.
Pay Attention to the Castles Behind the Moats [Link]
An interesting look at the businesses behind the moat.
With a good moat, a smart management team has time to remodel the castle, maintain its lands, and modernize its defenses. But the opposite can also happen. We’ve written, for example, that moat erosion tends to start behind the castle walls, sowed by internal discord, which provides an opportunity for competitors to attack.
A Taxonomy of Moats [Link]
The graphic alone is great for understanding the sources of moats.
uncertainty is not just a nuisance startup founders can’t avoid, it is an integral part of what allows startups to be successful. Startups that aim to create value can’t have a moat when they begin, uncertainty is what protects them from competition until a proper moat can be built. Uncertainty becomes their moat.
This quote from Francois Rochon isn’t in the above article, but is a great way to finish:
Moats always keep changing. There are always new companies with moats; some are expanding, some are shrinking. So we have to follow that closely. If I had to choose one criteria to help me decide what is the direction of the moat - it's the management. Moats aren't built by angels, they are built by human beings. What makes a moat grow is something in the culture of the company, it doesn't come from thin air. It comes from top management that build that culture, then it translates into a moat and high return on equity for shareholders.
Quotes on Moats. Investment Masters Class website is a gold mine.
Maximizing Moats: Reinvestment Runways & Capital Allocation by Pat Dorsey. “Quantitative data is often priced efficiently. Qualitative insight is less efficiently priced”
Bonus Quirky Content
Something to read: How to Do What You Love by Paul Graham [Link]
Relevant seeing that a chunk of this post is gonna me talking about what I love (my newsletter and podcast for those not following along at home).
expect a struggle. Finding work you love is very difficult. Most people fail. Even if you succeed, it's rare to be free to work on what you want till your thirties or forties. But if you have the destination in sight you'll be more likely to arrive at it. If you know you can love work, you're in the home stretch, and if you know what work you love, you're practically there.
Something to watch: Never Fight Fair Fights by Yen Liow [30 mins]
Yen’s getting a good mention today sheesh! But thoroughly worth your time. Yen’s whole channel is a gold mine of talks that I highly recommend. I also made this BizCard for this talk:
Something to listen to: Steve Mandel on Invest Like the Best [Link] [Apple Link]
This one been popping off on FinTwit and for good reason! A tonne to takeaway.
One thing that we've learned, or I've learned is, people can be unbelievably smart. But if they're very linear thinkers, it will never work as an analyst.
A non-linear thinker being someone who tends to have a myriad of unrelated thoughts that somehow interrelate. Put simply, thinking outside the box.
Love the thoughts on making wins for everybody. Be good by doing good.
I say that the best model is clearly one that wins for everybody. Wins for your employees, wins for your customers, wins for your suppliers and then ends up winning for your shareholders.
Something to listen to: Guy Spier on What Got You There [Link] [Apple Link]
Sean is on a roll! Two weeks in a row of awesome episodes. Love Guy’s honesty and openness. He’ll admit what he doesn’t know and owns up to his shortcomings. I love it.
the people who write the best are the ones who are willing to go to a painful place. And the work of writing well is extraordinarily painful, because what you’re actually doing is you’re sitting down with your notepad or computer, you’re trying to work out what you really think in a certain way. You kind of rearrange the furniture internally, and that is painful and difficult.
Rabbit hole/resource to dive into: Becoming Warren Buffett Interviews [Link]
Highly recommend the Bill and Melinda Gates interview. Just cool to see some raw interviews.
Left this until last as it’s pretty self-indulgent. But will give you more of an idea of where I am and where I want to go.
Secrets out, I wanna get the bag. But fear not, these free weekly Wednesday emails will continue! This is very early days and I’m putting this out as a sounding board. Feel free to give feedback anonymously here. But planning to offer a paid tier that’ll offer:
An audio version of CbK issues. The goal of this newsletter will forever be Compress to Impress, so hoping to channel those same core values, and objectives, in a paid audio-based experience.
Early access to Compounding Curiosity podcast episodes and a chance to view upcoming guests and submit questions.
Access to the members’ Discord (Hint: You can now while it’s still free)
Bimonthly meetups and AMA’s with guests
When? Thinking of pulling the trigger at 2,000 subs. I’m at 854 right now, so appreciate any boosts to help get me there! But likely Jan 2022.
How much? $7 a month or $70 a year. That’s it. It’ll be the most valuable $7 you spend each month. Instead of a couple short term coffees, I offer long-term lessons, insights and resources. It’ll be the highest ROI of your life.
Where’s my money going? Helping me take this full-time. I freaking love this work. It gets me up in the morning and keeps me up late at night. Think of it as an investment. You pay now, which in turn helps the material improve over time. Help me help you! I’ll be transparent about it all, every 6 months breaking down the numbers so you know where I’m at and where I’m going.
How long? I’ve loved every moment of the journey to date. Energy spent on CbK is a tap-dancing to work type gig. This work feeds my curiosity, gives me freedom, and lets me meet wonderful people. I can’t fathom doing anything else. So this is a step towards getting to turn my hobby into a career. I want this to be a 50-year project… hopefully! Either way, I hope it’ll be enough to support myself, and in due time, a family.
Ok plans for the podcast. Big plans. Arrogantly, and naively so, I wanna be the Tim Ferriss of Asia-Pacific. Selfishly, I want to learn and chat with the best across APAC. Cover a range of topics and just follow my curiosity. The plan is to start mostly with investing and business, then start branching out here and there.
Why Asia-pacific? I’ve chosen APAC because I’m excited to showcase my own backyard. There's a true opportunity to shine light in deserving corners, and I think I can be the appropriate conduit to showcase and share. Being from Perth can be isolating in the context of the world, but this podcast gives me a chance to branch out and highlight interesting people at the same time. So why not?
What can I expect? Ok, a little context first. Patrick O'Shag is a role model and hero of mine, and what he's building at Colossus is extraordinary. Having done work with Colossus doing transcripts, I’m hoping to channel that (again, maybe naively and arrogantly so) intellectual honesty and all-around accessibility of his Invest Like the Best series, but within the APAC domain. Take for example, Market Wizards by Jack D. Schwager, I’m beyond excited to uncover and share similar real world and real time icons of excellence, yet within APAC. This region is bursting with talent, ideas, and lessons, it just needs someone to share it, and I think that can be me.
The podcast has been one steep learning curve. There’s only so much you can learn from others and read online, but committing to it has been a baptism of fire. I wouldn’t have it any other way, so appreciate any support this early in the journey as I’m still figuring things out!
Have a suggestion for a podcast guest or know some interested! Hit reply or DM me on Twitter :)
Final thought for the week:
Until next week, have a good one!
- Pablo PiCarrott
You can find previous issues of Curated by Kalani here. I’m on the web at kscarrott.com, interviewing at Compounding Curiosity, and on Twitter @scarrottkalani.
FYI: You can always hit ‘Reply’ to this email and it’ll be sent to me and I’ll reply back! Always keen to hear from readers :)
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