I was sent a copy of Pat Dorsey’s “Little Book That Builds Wealth” for a review. Loved it.
Dorsey spend the bulk of the book talking about moats. What are they, how to spot them and what do fake ones look like.
Perhaps the most valuable lesson a potential shareholder can learn is what is a business moat and why does it matter.
Dorsey says: “Durable companies- that is, companies that have strong competitive advantages- are more valuable than companies that are at risk from going from hero to zero in a matter of months because they never had much of an advantage over their competition…… Companies with moats are more valuable than those without.”
He goes on the tell readers how to identify a and more importantly, how to recognize an advantage that is not enduring but temporary giving potential investors a “false sense of a moat”. He give great examples from the dot.com era as evidence of what seemed at the time like an enduring advantage but proved fleeting in the end, leaving shareholders crushed.
Chapters 8 and 9 are the key ones and they talk about “eroding moats” in businesses and how to actually find a business with a moat. In both chapters he gives concrete examples to illustrate what he is talking about.
There are other chapters such as valuation tools, what does management really matter, and when to sell. for me though, all of those chapter are secondary to the identification of a moat in a business. Without that, the other lesson and tools seem to me to be secondary as those calculations, if based on a flawed initial premise mean nothing.
The book is worth reading more than once if for no other reason the lessons in it are so important, it behooves investor to really understand them.
