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Why Moats Matter: The Morningstar Approach to Stock Investing Hardcover – July 21, 2014
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From the Inside Flap
Just as physical moats protect castles from enemies, economic moatsor sustainable competitive advantagesprotect companies from competitors. Legendary investor Warren Buffett devised the economic moat concept. Morningstar has made it the foundation of a successful stock-investing philosophy.
At Morningstar, we've always viewed investing in the most fundamental sense: We want to hold shares in great businesses for long periods of time. How can you tell a great business from a poor one? A great business can fend off competition and earn high returns on capital for many years to come. The key to finding these great companies is identifying economic moats that stem from at least one of five sources of competitive advantagecost advantage, intangible assets, switching costs, efficient scale, and network effecteach of which we explore in great depth.
Even better than finding a great business is finding one at a great price. The stock market affords virtually unlimited opportunities to track prices and buy or sell securities at any hour of the day or night. But looking past that noise and understanding the value of a business' underlying cash flows is the key to successful long-term investing. When you focus on a company's fundamental value relative to its stock price, and not where the stock price sits today versus a month ago, a day ago, or five minutes ago, you start to think like an owner, not a trader. And thinking like an owner will make you a better investor.
As you've probably guessed, this book won't tell you how to get rich quick by juggling stocks. What it will give you is a fundamental framework for successful long-term investing. The book will help you answer two key questions: How can I identify a great business, and when should I buy that business to maximize my return? If you get these two things right more often than not, you're well on your way to investing success.
Ours is not the only valid method for investing in stocks, but it's one that has worked well over the years. Using fundamental moat and valuation analysis has led to superior risk-adjusted returns and made Morningstar analysts some of the industry's top stock-pickers. In this book, we share all the ins and outs of our moat-driven investment philosophy, which you can use to identify great stock picks for your own portfolio.
To find out more about Morningstar's approach to stock investing and receive a free trial of our research, visit: www.global.morningstar.com/whymoatsmatter
From the Back Cover
"The search for the enduring economic moat is the holy grail of value investing. These modern-day protected business castles allow their owners to earn high returns on capital, the ultimate goal for any long-term investor. In Why Moats Matter, Heather Brilliant and Elizabeth Collins provide a wonderfully detailed map to help both small and large investors find these great companies."
—John W. Rogers Jr., founder, chairman, and chief investment officer, Ariel Investments
"Morningstar's Economic Moat framework is a useful complement to Michael Porter's five forces model, as it approaches the issue of franchise quality from an investor's perspective. Armed with Morningstar's moat framework, I've been able to make better assessments of companies' competitive positions, which is a critical element of my stock-picking process."
—Michael Luciano, investment analyst and U.K. pilot fund manager, Fidelity Worldwide Investment
Top Customer Reviews
Why Moats Matter implicitly has two parts. The first is a detailed run through of Morningstar’s equity research methodology – complete with an ending quantative back test showing that their undervalued stocks in companies with wide moats generate excess returns. The second is a one-by-one description of the moat in a number of industries. The authors’ stated goal is to provide the reader with the means to determine a company’s moat and margin of safety, to use in his own investment decision-making. Perhaps the less clearly stated goal is to advertise the merits of Morningstar’s research? Sell side equity research is a tough business and it’s not easy to compete with the Goldman Sachses of this world. The structure of the book certainly opens up for the risk that it becomes a (lengthy) promotional leaflet.
As I like Morningstar’s approach I might be biased, but I don’t think that the book crosses the “ad-brochure-line”. Also, even if it doesn’t exactly sparkle it’s not as dry as you might expect of a book on research methodology.Read more ›
In the chapter evaluating the methodology, they find no difference between moat stocks and non-moat stocks after one month!!!! However, moat stock have less variability in returns. The authors provide no information on longer time horizons than a month. My suspicion is that their methodology does not work. The chapter on evaluation is awful, because the methodology is so primitive. The moat strategy has probably been designed using past performance data. It is then not acceptable to use the same historical time period for evaluating the the strategy. I will not say more. No data provided on individual moats.
I am not surprised that there is no relationship between moats and returns. The methodology is simply too primitive. Check out the reference provided above for a deeper understanding. The authors should have thought about moat interactions, additional moats, and even competitors. I thought that the book would contain a dumbed-down version of the Morningstar methodology. True, to a large extent the book is marketing.Read more ›
Most Recent Customer Reviews
A general description of Morningstar rating method. Not too much detail information in here. If you want to know more about companies' competitive advantages, you should pursue... Read morePublished 1 month ago by catheegao
The information was not very good, repetitive in a lot of cases and I got the feeling that they were just promoting and cross selling the Morningstar brand.Published 7 months ago by James D
Easy to understand. Many examples. Very good book/learning.Published 14 months ago by Annette Vuuren
Useless because the book did not increase my knowledge about a companies' moat.Published 15 months ago by Alfredo Atwater
Very comprehensive discussion. Well worth taking the time to read.Published 17 months ago by Robert Houle
There are lots of books on investing but I would recomend this one as the first reading on the subject. Read morePublished 18 months ago by Antonio CL
I thought it was a great concise summary of their investment philosophy.Published 22 months ago by tj