Search
Get in touch!
Linkedin X-twitter Envelope

Michael Mauboussin: How to Measure a Company’s Moat

In his latest article titled “Measuring the Moat: Assessing the Magnitude and Sustainability of Value Creation”, Michael Mauboussin provides a comprehensive framework for evaluating a company’s ability to create and sustain value over time.

The article provides a detailed approach to measuring a company’s moat by analyzing strategic positioning, industry dynamics, and financial metrics to assess long-term value creation potential.

Here are the key takeaways:

  • Sustainable Value Creation vs. Competitive Advantage: The article distinguishes sustainable value creation, which involves generating returns on invested capital (ROIC) that exceed the weighted average cost of capital (WACC), from sustainable competitive advantage, which also requires outperforming competitors. Multiple companies in the same industry can achieve sustainable value creation without necessarily having a competitive advantage over each other.
  • Importance of Strategy: A company’s strategy is crucial for long-term investors as it determines sustainable value creation. The spread between ROIC and WACC is a key metric, indicating whether a company’s strategy leads to value creation. The analysis includes understanding industry dynamics, firm-specific strategies, and how these translate into financial performance.
  • Industry and Firm Analysis: The article emphasizes the importance of analyzing both industry structure and firm-specific strategies. Industry analysis involves understanding factors like market share stability, profit pools, and barriers to entry using frameworks like Porter’s Five Forces. Firm analysis focuses on how individual companies add value through their unique activities and strategic positioning.
  • Barriers to Entry and Economic Moats: Identifying barriers to entry is essential for assessing a firm’s economic moat. These barriers can include economies of scale, network effects, switching costs, and regulatory advantages. The article also discusses how these factors contribute to a firm’s ability to maintain a favorable spread between ROIC and WACC.
  • Disruption and Innovation: The text explores the concept of disruptive innovation, where new entrants with different business models challenge incumbents. It highlights the importance of understanding how disruption can impact industries and firms, using examples like Blockbuster vs. Netflix.

The point of measuring the moat is to develop a grounded point of view on the magnitude and sustainability of a company’s [Return On Invested Capital] ROIC.

Click here to go to the external source.

Share the news

Disclaimer of liability

The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk

You might also find this interesting:

Michael Mauboussin: How to Handle Intangibles in Modern Value Investing

June 18, 2025

Michael Mauboussin, Head of Consilient Research at Morgan Stanley, delivered a compelling keynote presentation at the Ben Graham Centre for Value Investing’s 2025 conference, addressing how the rise of intangible assets has fundamentally altered the landscape of value investing.

Drawing from nearly a century of investment wisdom while adapting to modern realities, Mauboussin argues that traditional accounting methods have become increasingly inadequate for evaluating companies in today’s intangible-heavy economy. His presentation reveals that intangible investments now represent 1.7 times tangible investments in the U.S. economy, a complete reversal from 1977 when tangible investments dominated by a factor of 1.4.

Cliff Asness: Missing the Best Days Isn’t the Real Problem

June 12, 2025

Clifford Asness of AQR Capital Management revisits his 1999 rejected paper that challenged one of the most common arguments against market timing. The widespread belief that missing just a few of the market’s best days destroys long-term returns is fundamentally flawed, according to Asness.

His analysis shows that while missing the best performing days does hurt returns, missing the worst performing days provides symmetrical benefits. The author demonstrates through both historical data and simulations that this “evidence” against market timing is mathematically obvious and essentially useless for investment decision-making.

Asness argues that legitimate criticisms of market timing should focus on investors’ lack of skill rather than cherry-picked scenarios of perfect incompetence. His 25+ years of out-of-sample data confirms these findings, showing the argument remains as flawed today as it was when first proposed.

Warren Buffett: Lessons from the Oracle of Omaha

June 12, 2025

In this special celebratory episode from The Investor’s Podcast, host William Green shares his personal observations from attending the annual shareholder meeting in Omaha where the announcement was made, describing it as the most joyful meeting he’s ever attended.

The episode features powerful highlights from Green’s previous conversations with legendary investors including Joel Greenblatt, Nick Sleep, Thomas Russo, Chris Davis, Chuck Akre, and Christopher Bloomstran, all discussing Buffett’s profound influence on their investment approaches.

Chris Davis: Navigating Todays Turbulent Markets With Bill Miller

June 6, 2025

Two legendary portfolio managers, Chris Davis and Bill Miller, engaged in a comprehensive discussion about navigating today’s volatile investment landscape, drawing from their combined decades of experience managing billions in assets.

The conversation, structured around nine key topics, covers everything from investment temperament and market volatility to emerging technologies and geopolitical challenges. Miller, famous for outperforming the S&P 500 for 15 consecutive years while managing the Legg Mason Value Trust, and Davis share insights on stewardship, patience, and contrarian investing approaches. The discussion emphasizes the importance of long-term thinking, adaptability, and maintaining perspective during uncertain times.