Pat Dorsey on Fitting Business Strategy to the Moat
As investors, we are often quick to put on the CEO hat and contemplate business strategy of the companies in our portfolio. When it comes to a branded consumer business we may ask: Is the CEO right to extend the brand into a new product market? How will the latest acquisition affect the perception of the brand? What is the best strategy to fend off competition? Ultimately, the more informed we are about business strategy, the better investment decisions we can make. Or to borrow Warren Buffett’s famous words: “I am a better investor because I am a businessman and I am a better businessman because I am an investor.”
While it may seem easy to debate the merits of business strategy, the truth is that investors often struggle to ask the right questions or come to the right conclusions about which strategy a given business should be pursuing. In search for an analytical framework, we had the pleasure of recently learning from one of the thought leaders on wide-moat investing and management strategy: Pat Dorsey, President of Sanibel Captiva Investment Advisers.
In his hour-long session at Wide-Moat Investing Summit 2013 on July 9, Pat shared countless invaluable insights on wide-moat investing and, specifically, how business strategy can create and destroy competitive advantage. Below is an excerpt from the session transcript that highlights Pat’s thinking on the types of moats and the importance of fitting business strategy to the moat at hand.
Pat Dorsey on the Four Types of Moats
“The first is intangible assets, which is just what they sound like – brands, patents, approvals, licenses. Basically, some intangible thing that gives the company pricing power, enables it to price ahead above the competitive levels.