Thursday, November 24, 2022

Investment with Moats Risk Management

 

While investing in equity, How to safeguard a Good story suddenly going bad, leaving no profitable exit…. lets choose companies with #unbreachable_moats. Capital flows to the point of maximum returns. When a company delivered outsized profits, its success attracts #competition. Other entrepreneurs enter the field with their own setup, often with #lower_priced_offerings, and take away the #first_movers market share. Competition forces the leader to cut prices and this whittles down his margins, impacting their bottom line directly.

Thus, over the time, the profits of most companies tend to regress to the mean. Legendry investors liked to invest in, the companies with big moat surrounding their business model and brand equity. Wealth creators in equity market guide big moats consists of following #matrix of

#early mover advantage

#high switching costs

#intangible assets

#network effect

# economies of scale.

If investors choose a company based on these moats, and do keep a close watch to ensure that the stocks script unfolds along the expected lines. One reason is that over the time lot of moats got breached, so timely moat tracking is must to keep value alive in equity. Next is to keep a watch on competitive advantage, other things could go wrong, say the management could slip up on execution, thus when you invest in a company with a visible economic advantage, you still cannot afford to let your guards down and let bottom line screwed up unknowingly. Its like building your investment castle, surrounded with big moats, having crocodiles within to create real value for your portfolio. One build, keep #tracking developments on the matrix of five, as mentioned above.

Disclaimer : This is purely a knowledge sharing article, not offering or influencing any deal or transaction or investments.

CA Yogesh Birla
Director
Birla WP Management Co.
read my blogs : www.YogeshBirlaCA.Blogspot.com


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