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The Nature of ValueHow to Invest in the Adaptive Economy$
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Nick Gogerty

Print publication date: 2014

Print ISBN-13: 9780231162449

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231162449.001.0001

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The Value of Moats

The Value of Moats

Chapter:
(p.169) Chapter Ten The Value of Moats
Source:
The Nature of Value
Author(s):

Nick Gogerty

Publisher:
Columbia University Press
DOI:10.7312/columbia/9780231162449.003.0010

This chapter looks at moats—the combination of capabilities that can help firms achieve long-term positive returns. All moated firms share three traits: (i) a unique mix of capabilities not shared by any competitor; (ii) the ability to capture high margins, using pricing power relative to competitors; and (iii) durability to survive over multiple competitive products or capability and economic cycles. These traits create shareholder value via sustained high return on capital (ROC). If any one of the three is missing, there isn't a moat. By keeping competitors at bay, a moat delivers high margins and thus high ROCs. The allocator's goal is to identify a few moats, offering high margins and returns on capital while protecting and growing the value of assets and invested capital.

Keywords:   moats, clusters, capabilities, shareholder value, capital allocation, investment

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