What are some indicators of strong economic moat?
Using Ben Graham’s method, can traditional fast growing tech companies have economic moat? What are some examples and leading indicators of a developing economic moat of a company?
Depth of water, width, circumference, shape (circle is ideal), height from water to land, turbulence of water, color of water (green is most economic)
At a high level ask things such as:
-Once customers start using the product/service are they likely to switch to a competitor or even look for a competitive product/service at all? -Do competitors even currently exist? -Are there barriers to competitors entering the market or replicating the product/service at a similar level of quality? -Is price or quality more important to customers? -Does the customer have a high cost of failure if something goes wrong with the product/service? -Is the product/service a discretionary or non-discretionary spend for the customer? -How costly is it for the customer to switch to another product/service?
At the end of the day four primary characteristics will drive the economics of the business: pricing power, retention rate, customer acquisition cost, and fixed cost base. Constantly be thinking about if the company has any advantage in any of those areas, and think about why/how they have that advantage and why/how it could be maintained or lost. Also, try and think about the product/service from the perspective of the customer and the value created for them.
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