How We Think About Digital Moat Sources and Threats
A few weeks ago, I wrote a feature article for Investors Chronicle, one of the UK’s largest investing publications. The article focused on how the “digital revolution” has and will continue to impact the formation and destruction of economic moats. Since Warren Buffett began talking about economic moats more than 30 years ago, the competitive landscape has dramatically changed in most industries with the rise of software, internet, and platform-based business models.
At Ensemble, we insist on owning companies whose economic moats we believe will persist – and ideally grow wider – over the next decade and beyond, as well as companies that are creating economic moats. As such, we would be remiss if we didn’t consider how new technology and innovations affect our companies – both in good and bad ways.
To illustrate, one of the reasons we’ve broadly avoided the consumer staples space in recent years is that low-cost, targeted, and effective online advertising empowered start-up brands and disrupted a key “search cost” advantage that big brands held for many decades. Further, we’ve invested in companies we think are culturally agile and seek to embrace and integrate helpful innovations – for example, Starbucks’ use of mobile payments and Schwab’s robo-advisor capabilities.
Please enjoy the article and, as always, feel free to contact us with questions and comments.
As of the date of the post, clients invested in Ensemble Capital Management’s core equity strategy own shares of Starbucks (SBUX) and Schwab (SCHW). These companies represent only a percentage of the full strategy. As a result of client-specific circumstances, individual clients may hold positions that are not part of Ensemble Capital’s core equity strategy. Ensemble is a fully discretionary advisor and may exit a portfolio position at any time without notice, in its own discretion.
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