This might be an unpopular opinion, but for the size of company we are investing in here (usually less than $10B) and because of the flexibility we have by only owning 10-20 companies, I don’t think moats really matter.
In fact, I think for companies at this stage…moats could actually be bad.
Yes, I said it…moats aren’t just not important. They are bad.
Hear me out…
We want our companies to be laser-focused on growing revenue, providing an awesome customer experience, treating employees well, high-gross margins, innovating, attracting customers, retaining customers, and getting customers to spend more.
Where in any of that is there any time to build a moat out? Not this early. MAYBE we could argue a moat could be Developer mindshare… or the accumulation of millions of data sets that our companies can draw insights from. But those aren’t the moats people generally talk about in moat discussions.
I think “moats” are exactly what our fast growing companies attack. They attack moats of other companies. Think about it.
If our companies were to establish moats right now, they would lose focus on what really matters. Growing revenue, gaining market share, pleasing customers, etc. And they’d probably start to get complacent and not want to disrupt their own moat that they sunk so much time and cost into building.
Additionally, no one is making us hold these stocks for 10 years. Obviously, we want to. But we don’t have to. If we start to see revenue growth slow, or customers leave, we can part ways and find a better place for our money.
So for us and our small, innovative concentrated group of companies… MOATS DON’T MATTER!!
Who’s with me? Who thinks I’m insane and it’s past my bedtime? I want to hear it.
All the talk of lack of moat with Zoom drove me to this post. That is just insane. Zoom has some of the best numbers I have ever seen…ever.
Also, the forecasting/concern of TTD’s growth in 8 years also played a part. What TTD does in 8 years literally does not matter. Not right now. What matters is that they have convinced investors they are one of the best companies around. Their products and improving revenue growth (I bet it improves more this year… maybe to 60%) are backing that up.
If they stop innovating and the numbers start to turn the other way, we can change our minds. We aren’t locked in for 8 years so we don’t have to make that decision right now.
I’d love to see CAGR estimates for Netflix, Apple, Amazon, Priceline, Google, the list goes on from 10 years ago. I bet 90%+ of those estimates were WAY LOW because almost all of the products those companies have that exist today did not exist back then. They released hundreds of new products (cough AWS, iPhone, Google Cloud Platform, etc) that literally created new markets and drastically expanded their TAM. Anyone who missed those companies 10 years ago because of someone underestimating their CAGR potential is probably kicking themselves.
Of course our stocks are “expensive” we’re probably going to lose 30%-40% sometime… maybe that’s already started (don’t argue this point it’s OT!!!). But guess what, that happened to my portfolio in Q4 2018. Down 35%. At that point I was still up more than 40% on the year.
As we all know, we recovered. Many of you went through the exact same thing and held… we all saw how the year ended and this year started. That’s why we hold the best damn companies we can find until THEIR numbers change.
Anyways, we’re probably going to see the bears start to come out and tell us how crazy and stupid we are. Get ready.
I know what I’m going to do. Hold the best damn stocks I can find until their numbers tell me to sell them
Not meant to spark a market timing discussion
Would love to hear your thoughts on if moats matter for our companies.
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