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How growth, return on capital, and the discount rate affects valuation

By Steady Compounder | October 6, 2020 | Comments 0 Comment

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Michael Mauboussin has written countless white papers on this topic. His paper published on 9 Jun 2020 introduced the concept of how stock duration and interest rates caused multiples of high-quality companies to justifiably shoot up.

High-quality companies have the following characteristics: Return on capital is significantly higher than the cost of capital, able to grow, and has a competitive advantage (i.e. moat).

How is value created?

Before we jump into new concepts such as stock duration, it is important to quickly recap on how value is generated.

A company creates value only when its investments generate a return higher than the opportunity cost of capital (COC).

This means that having a large total addressable market (TAM) with huge growth prospects does not make a good investment. Revenue and earnings may show growth but it offers little with aspect to value creation.

If a company generates a return on capital equaling COC, then it does not matter whether they grow. They are both worth the same multiple.

Mauboussin refers to this group of companies as commodity businesses that deserves a commodity P/E multiple.

The commodity P/E multiple

The commodity P/E multiple is the multiple you would pay for $1 of earnings into infinity assuming no value creation (return on capital = cost of capital).

You can find out the multiple by taking the inverse of the cost of equity capital. If the COC is 8%, the commodity P/E multiple is 12.5 (1/0.08 = 12.5).

This multiple is not constant. The multiple a commodity business commands is derived from the cost of equity capital for each period.

The concept of duration

Duration is a concept that bond investors would be familiar with. It measures how a change in interest rates would affect the price of a bond.

The faster an investor is paid back, the lower the duration. The longer it takes to be paid back, the higher the duration.

Let’s take a look at a simplified example.

Assuming a five-year $100,000 bond at 5%. This means the bond will pay you $5,000 at the end of every year.

This would all be fine and the price would remain the same (at $100,000) if interest rates doesn’t change.

If interest rates shot up to 10%, investors would expect to be paid 10% for their investments.

To achieve this interest rate, the $100,000 bond paying $5,000 (5%) annually would have to drop its price to $50,000. Only then it will be able to match the 10% interest rates given by the current market ($5,000 interest on $50,000 bond).

Generally, the longer it takes for an investor to be repaid, the higher the duration will be. And the bigger the magnitude the change in price of the bond when interest rates shift.

How duration affects stock valuation

Similar to bonds, stocks of businesses that reinvest heavily in the short run to generate higher cash flows in the long run have longer durations than companies that lack the opportunities to reinvest.

Duration sheds important insight into understanding the magnitude of an asset price change when interest rates change. Mauboussin highlights, “Long-duration assets are more sensitive to changes in interest rates than are short-duration assets…companies that can invest a lot today at high returns on capital will not only grow faster than the average company, their stocks will have valuations that are more sensitive to changes in the discount rate.“

Low interest rates

Low-interest rates are frequently associated with poor economic outlook and slow real earnings growth. This creates a conundrum where low-interest rates raises asset values (i.e. higher value for a stream of cash flows due to lower discount rates), but the prospects are reduced by slower expected cash flow growth.

Data from Robert Shiller suggests that the impact of slow growth will outweigh the former. The P/E multiple for the market has followed an inverted “U”.

Low median P/E multiples are associated with very low and very high interest rates while high median P/E multiples are associated with real interest rates in the middle of the range.

Mauboussin continues to explain, “Research shows that low Treasury yields allow industry leaders to generate excess returns and that the magnitude of those returns increases as yields approach zero. While the median P/E may come under pressure as a result of slower growth prospects, a handful of companies may continue to generate strong growth and return on incremental investment.“

How the math works out

Impact of growth rates on valuation

Mauboussin demonstrated how low-interest rates leads to bigger shifts in valuation multiple with the following:

Assuming the base year’s earnings are $100, slowing earnings growth from 10% to 7% reduces next year’s earnings by only 2.7% (from $110 to $107). However, the P/E multiple dropped a steeper 22.9% (from 32.3 to 24.9).

“Investors often calculate the P/E multiple using the current price and next year’s earnings. As a result, they sometimes believe that the market overreacts to what appears to be modest changes in the near-term earnings. But if expectations for the trajectory of growth really do shift down, the large apparent drop in the P/E multiple is completely justified.

Here, next year’s earnings are revised down by 2.6% (from $115 to $112) but the P/E multiple decline is 25.3% lower. When return on incremental invested capital (ROIIC) is well above the COC, the value of the business is very sensitive to changes in the growth rate of NOPAT.

As we can observe in the following graph, growth and the P/E multiple have a convex relationship. In other words, small changes in growth expectations can lead to big changes in the P/E multiple.

This effect is amplified when the company growth rates are high.

“Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous.”

Warren Buffett

The key takeaway here is that growth doesn’t matter for businesses that generate returns close to the COC. However, for companies that are able to generate high returns on capital, it is a huge amplifier of value.

Impact of ROIIC on valuation

ROIIC indicates how much a company is required to invest to attain an assumed growth rate. A high ROIIC means that the company don’t need to invest heavily to grow, leaving a lot of cash on the table for shareholders and vice versa.

Take for example company A and company B, both of them aim to generate a 10% growth in earnings for the next year. From current year earnings of $100 to $110, an additional $10 in earnings.

All else constant, A generates 50% ROIIC while B generates only 25%.

A is only required to invest $20 of the current year’s earnings to achieve an additional $10 ($20 x 50%) in earnings the following year. This leaves $80 of the remaining earnings for its shareholders.

While B is required to invest $40 of the current year’s earnings to achieve an additional $10 (25% x $40) in earnings the following year. Leaving only $60 of the remaining earnings for shareholders.

Thus, a company generating higher returns on capital would rightfully command a higher multiple, assuming growth rates are constant.

Impact of discount rate on valuation

The cost of equity is comprised largely of 2 components – the risk-free rate (i.e. common referred at the yield on the 10-year Treasury note) and the equity risk premium (i.e. how much investors expect in return for assuming risk).

As of 1 Jun 2020, Aswath Damodaran’s estimate of the cost of equity dropped to 6%. The 10-year Treasury note offering historically low yields at 0.7%, while the equity risk premium accounts for 5.3%.

Mauboussin observes “Nearly 90% of the expected return from equities now comes from the risk premium, up from about 75% at the beginning of the year.”

Importantly, long-duration assets are highly sensitive to changes in the discount rate. In today’s environment of low expected returns, the valuation of these companies are substantially higher than before.

Conclusion

Nobody will know where interest rates are headed, but it is important to appreciate the relationship between the discount rate and long-duration assets. In other words, we should be mindful that an increase in interest rates will bring down the valuation of companies that are investing heavily today for higher future cash flows tomorrow.

It is also important to bear in mind that for most companies, return on capital will eventually drift lower with competition, maturation, obsolescence, and disruption. Without a moat protecting its returns, the company will suffer a multiple contraction as observed above.

You may find all of Michael Mauboussin’s work here.

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What makes Mastercard a compounding machine?

By Steady Compounder | May 21, 2020 | Comments 0 Comment

Investors who held Mastercard for the past 10 years, have been rewarded handsomely with a 27.4% returns compounded annually. A $10,000 investment would have returned approximately $113,000 over this period. In this article, we will discuss why Mastercard’s wide moat has allowed it to reinvest its earnings at high returns.

In this post we will discuss Mastercard’s business model, reasons for their high margin, and why Mastercard will likely continue to grow and compound returns for its shareholders.

How Mastercard makes money

Mastercard does not see itself as a credit card company. Rather it sees itself as a technology company in the payment industry.

Mastercard & Visa are commonly known as a tollbooth business. Before we begin, it is important to know who are the players in this space:

Account holder (That’s you and me)
Issuer’s Bank (Our bank)
Core Network (This is where Mastercard & Visa comes in)
Merchant (The store you buy your product from)
Acquirer’s Bank (The merchant’s bank)

Mastercard’s Business Model *(Taken from Mastercard’s 10K)*

Simply put, the role of Mastercard is to be the bridge between our bank and the merchant’s bank. While doing that, they collect a small fee of approximately 0.25% on the transaction. For example, when you buy your iPhone for $2,000, Mastercard will make $5 from the transaction.

The beauty of Mastercard business model is that it does not assume credit risk nor does it have to deal with end-users like us. It merely sits as a connecting network for the banks and collects a small fee.

The company makes the bulk of its revenue by mainly charging a small percentage of the transaction and a fixed fee per transaction.

Some of the key metrics investors should track to measure if Mastercard’s business performance and moat would be:

Gross Dollar Volume (GDV) – How much we as consumers spend using a Mastercard in total.
Cross-border volume growth – The increase in consumers spending overseas.
Switched transactions – Number of transactions processed.
Number of cards issued
(Rebates + incentives)/Revenue – This is the amount Mastercard spends to attract financial institutions to carry its brand. An increasing ratio may mean the industry is getting competitive.

Rational competition

Industries that are dominated by a few key players (duopolies or oligopolies) often act like monopolies. Tacit collusion is normal and competition is rational, as industry players raise prices in tandem and compete for the share of the market. This “cooperative behaviour” allows companies to generate sustained high returns on capital.

“A basic industry with few players, rational management, barriers to entry, a lack of exit barriers and noncomplex rules of engagement is the perfect setting for companies to engage in cooperative behavior…and it is for this reason that the really juicy investment returns are to be found in industries which are evolving to this state.”
Marathon Asset Management

As a connecting network, Mastercard is effectively a duopoly with Visa. We can see that Mastercard has been able to hold their fees steady over the years as we can see from the crude take-rate (obtained by Revenue/GDV).

And this has translated into fantastic margins for Mastercard. Their gross margins are 100% as there are no variable costs associated with every transaction. With GDV and revenue growing at a fast clip as shown in the table above, Mastercard is able to spend its gross profits on marketing, R&D and the likes to expand its moat.

Their operating margins have consistently been above ~50% for the past decade. Except for its closest competitor Visa, there probably isn’t another company that is able to consistently generate such high operating margins.

Network effect

When it comes to an economic moat, there may be none stronger than a network effect once it has been set in motion. The idea is simple, as more customers carry a Mastercard, more merchants would accept Mastercard, which would then drive even more customers to own a Mastercard.

Over the years, we have seen this played out beautiful as the number of cards issued and merchants on-boarding grow. At of 2019, there’s approximately 2.2 billion Mastercard issued around the world.

Compounding machine

The characteristics of a compounding machine are: (1) Ability to generate high returns on capital in cash; and a (2) Long runway for growth. Let’s see how Mastercard fare in this aspect.

(1) Ability to generate High ROIC in cash

Over the past 5 years, Mastercard’s Return On Invested Capital (ROIC) has an average of approximately 60%. To put this in perspective, the average ROIC of the S&P500 companies hovers between 9% to 13%. As a quick rule of thumb, we typically want to look for at least a sustainable 20% ROIC.

Having a ROIC of 60% means that every dollar of retained earnings will generate an additional $0.60 of earnings.

Over a 5 year period, the company’s cash conversion is also above 100%. This means that every dollar in earnings translates to more than a dollar in cash.

Over the last 3 years, the company generated $20.1 billion of operating cash flow. And returned $18.4 billion to shareholders through share buybacks and dividends.

Mastercard is able to do so because it is a capital-light business that doesn’t require huge investments; freeing up plenty of cash for shareholders’ benefit.

(2) Long Runway for Growth due to Cashless trend

Without room to grow, a high return on invested capital alone would not generate wealth for investors. So let’s take a look at what makes Mastercard a compelling investment.

The company processed a gross dollar volume of $6.5 trillion in 2019, which seems already immense. However, the Total Addressable Market (TAM) size for payments is $235 trillion! And cash payment still accounts for 85% of transactions. The trend of moving towards a cashless society remains a powerful propeller for Mastercard’s growth.

This is especially so when an estimated $68 trillion of total payment (~30%) is still made in cash & check. In light of COVID-19, it will likely accelerate the trend of declining cash usage and hasten the change in consumer behavior towards cashless transactions.

In Mastercard’s latest research, contactless payment grew twice as fast as cash payment as consumers are concern about the spread of germs. Likewise, with social distancing in place, many are turning towards e-commerce for their shopping needs. This could potentially be a long-term consumer behavioral change in Mastercard’s favor.

Risk: Fast-changing landscape

The payment industry is a fast-changing one. In recent years with online transactions accelerating, we have seen the growth of payment aggregators such as Adyen and Stripe. And even more recently, we have seen Square threatening to take over the offline transactions. These payment aggregators threaten to take over the acquirers slice of the pie.

However, they are still reliant on payment networks and their technology is built on top of Visa’s and Mastercard’s technology. The real threat would come if Stripe venture into personal banking solutions and achieve huge success. Imagine using Stripe to store your savings and to process your online transactions, skipping the card network altogether.

That would be similar to what Alipay and Wechat Pay has achieved in China, with so many users on their network they are able to bypass the card networks altogether.

This still seems quite far-fetch for the players outside of China. And would likely trigger anti-trust lawsuits if a player becomes as dominant as Alipay or WeChat Pay. To achieve this dominance and bypass the card networks, everyone must be using Stripe’s credit card and bank account.

All-in-all, Mastercard is a company with a fantastic moat and a capital-light business. Though the fintech and payment industry is a fast-evolving one, understanding the dynamics would allow us to observe that these card networks are likely to retain its dominance for years to come.

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How Ferrari delivered outsized returns for investors with its economic moat

By Steady Compounder | April 25, 2020 | Comments 2 comments

“The most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle,”
Warren E. Buffett

An economic moat is a term popularized by Warren Buffett, as he drew references to how business is like a castle, and having a strong moat is essential to deter invaders. Buffett invests in businesses that have a sustainable competitive advantage to protect themselves against competitors eyeing a slice of the market share.

Why should investors care about a company’s economic moat? The answer can be explained by the economic theory, mean reversion. Most of the time, investors & forecasters have a tendency to extrapolate the current trend. Companies that previously generated high growth are forecasted to continuously generate a high return and vice versa.

In reality, high returns will likely revert to the mean. Mean reversion is like gravity to returns on capital. An industry becomes attractive when incumbents generate high-returns on capital, enticing competitors to enter. New entrants will compete for market share, driving returns down for the incumbents.

Without a strong economic moat, high returns on capital would not be sustainable. Familiar examples that illustrate this trend in Singapore would be bubble tea, yogurt ice cream, poke/acai bowl, fried salted egg chips, etc.. you get the point. Without a moat, the success of these trendy concepts will attract competitors to pop up and reduce the incumbents’ profitability.

The outliers

That being said, there are companies that have defied mean reversion and continued to generate high returns on capital (in excess of 20%) for investors throughout the years. Some examples that spring to mind include Hermès, Costco, Facebook, Coca-Cola, and Illumina.

“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Warren E. Buffett

A company’s moat is either expanding or declining, it never stays stagnant. As investors, it is our job to determine if the business has a sustainable moat and evaluate if management continues to invest in growing the moat. Popularized by Pat Dorsey, moats can be classified into the following categories: (1) Strong brands, (2) Patents or licenses, (3) Network effect, (4) Low-cost producer, and (5) High switching cost.

A strong brand name

“It’s not Christmas or New Year until you see Coca-Cola ads.” Or so the saying goes. Occupying a share of consumer minds is no easy feat. Brands such as Coca-Cola, Ferrari, Hermes, and Tiffany & Co brands have been extremely successful in occupying a share of our minds, allowing them to earn a much higher return than their competitors.

At the risk of this article becoming too long, we will discuss 1 of the 5 moats in this writing. Specifically, Ferarri (ticker: RACE) and how its strong branding has allowed investors to generate outsized returns over the years.

The birth of automobiles

Ever since the first introduction of cars in 1886, more than 2,000 carmakers have attempted to penetrate the market and most of them have ceased to exist. The automobile industry is notoriously competitive and capital intensive, companies often have to rely heavily on debt. Furthermore, it is also an extremely cyclical industry, where demand will taper off sharply (especially during times like these) as consumers will defer the decision to purchase a new vehicle when times are tough.

As a result, most carmakers have lumpy earnings and many generate negative Free Cash Flow (FCF). Making survival in this industry very challenging. As an example, General Motors (GM) generated a cumulative negative FCF of -$50.9 billion over the last 5 years. And they have made up for this shortfall by aggressively piling on debt to survive.

“What you really should have done in 1905 or so, when you saw what was going to happen with the auto is you should have gone short horses. There were 20 million horses in 1900 and there’s about 4 million now (the year 2001). So it’s easy to figure out the losers, the loser is the horse. But the winner is the auto overall. 2000 companies (carmakers) just about failed.“
Warren E. Buffett

The bright red car

Amidst the pack of car markers, Ferrari has the ability to charge astronomical prices for their vehicles. The power of the Ferrari brand is clearly evident here in Singapore. Despite our stringent speed limits and countless traffic lights, drivers still own Ferrari because the brand signifies wealth and affluence.

Ferrari’s moat allows it to earn outsized returns against other carmakers. The company has consistently commanded an average of 50% gross margins, while its competitors languish at an average of 15% gross margins.

In other words, the car which costs $50,000 to make can be sold at $100,000 for Ferrari. Its competitors, on the other hand, produce cars at the same cost of $50,000 but are only able to charge $59,000.

The fat margin leaves a lot of room for Ferrari to invest in widening its moat (e.g. invest in R&D and marketing) or to reward its shareholders.

Taking a look at their pricing power, Ferrari is able to command € 381,474 (SGD 588,000) per car on average. Competitors such as Ford and GM are only able to charge a fraction at $25,000 (SGD 35,600) and $16,000 (SGD 22,800) per car on average respectively.

During the 2008-09 global financial crisis, we saw the United States’ new car sales plummeted by 40%, sending GM and Chrysler into bankruptcy while Ford had to take a substantial loan from the government to stay afloat.

Car sales fell across the board for most carmakers, except for the company that made the bright red car. Despite the industry buckling down, Ferrari managed to see a 26% jump in the U.S. with its vehicles sold increasing to 6,587 in 2008, an increase of 122 from the previous year. And during 2019, it only saw a 1% decline in revenue.

The brand of Ferrari is so strong that its revenue growth continues to stay resilient through crises such as the 2008-09 financial crisis, Europe debt crisis, and trade war.

It targets the ultra-rich, and the company produces a limited number of cars each year. The long waiting list of up to 2 years, created a real sense of exclusivity for customers who can get hold of one. Even if customers have the cash to purchase a new vehicle, there is a limited quantity. This discourages those on the waiting list from withdrawing their orders even during bad times. And even if they do drop out, there is a long list of customers to take up their spot!

The moat surrounded Ferrari has proven to benefit investors immensely. Since its spin-off in 2016, it has delivered a CAGR of 37.3%, delivering a 400% return prior to Covid-19 within a short span of 4 years. Comparing this result with Ford, GM, or even the S&P 500, Ferrari has generated astounding returns for its investors.

To sum it up, having a strong brand that occupies a large share of consumer’s minds is a great moat, enabling companies to sustainably generate high returns on capital. As investors of quality compounders, we need to monitor if management is engaging in activities that widen the moat. Such as spending on marketing, increasing customers’ satisfaction, etc.

My Investing Framework

By Steady Compounder | April 10, 2020 | Comments 0 Comment

I started my investing journey around 14 years ago, after reading Rich Dad, Poor Dad. The idea of acquiring income-producing assets resonated and I have since started consuming books after books and resources on the web regarding investing. Today, I focus mainly on growing companies with a wide moat and great management in place.

Looking back on my investing journey, I first started out using a mix of fundamental and technical analysis. I was thrilled when I saw gains of 30% to 50% within a short time frame of 6 to 12 months. It got me to dive deeper into the subject and I subsequently learned about deep value investing, buying companies so cheap, that I could make 30% to 50% if the company was liquidated.

However, those were one-off returns and I was lucky that some of my early investments turned out okay.

Technical analysis paints a nice story as to why the share price moved up, down or consolidate (sideways). It is impossible to be consistently right on the patterns and I find myself questioning “What does historical price movement has got to do with the future and is it reflective of business fundamentals?”

Deep value investing, otherwise also known as cigar-butt style investing is as its name sounds, it gives you one last puff. Once the stock revalues upwards, it will be sold off and we will have to hunt for the next idea. Deep value stocks are often cheap for a very good reason. Usually, they are either facing structural decline or they are in a cyclical industry. Both of which could be adverse to your wallet. And nobody knows when the stock will revalue, waiting for the stock revaluation is like watching the paint dry.

In order for me to build up wealth, I switch my approach to looking for companies with a wide moat and can continuously reinvest its earnings at a high clip. The book 100 Baggers by Chris Mayer illustrate this approach the best, quality companies that have a long runway are able to continuously reinvest for growth.

This brings me to the 2 basic rules of compounding:

The longer you let it work, the bigger its impact – time, not rate of return, is the most important factor in the compounding formula
If you lose big money even a few times in your compounding journey, you will not receive its benefits, even in the long run (Google Long-Term Capital Management for example.)

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
Warren Buffett

With that in mind, the following are the list of filters I learnt and apply over the years to steadily compound my wealth:

1. Do I understand the business?

Value investing require us to be able to reasonably assess the intrinsic value of a company. Companies with complicated business models or accounts would go straight into the “too hard” pile. As Warren Buffett puts it “I don’t look to jump over 7-foot bars: I look around for 1-foot bars I can step over.”

There are plenty of companies with a simple business model which has generated above-market returns over the years. Names like Starbucks, Google and Monster Beverage should be familiar to many and easily understood.

2. Does the company have a wide moat?

Moats are what protects the company’s profits from its competitors and wide moats enable a company to generate a high return on capital. A company’s moat is either widening or narrowing. Here I am looking for companies who are continuously investing to widen the moat and focus on the long term outlook of the company.

Companies such as Amazon and Monster beverage have delivered >100x returns for their shareholders as they were willing to sacrifice short-term results and focus on widening their moat.

3. Is the company able to reinvest at high returns?

I prefer companies that do not issue dividends and is able to sustainably reinvest its earnings at above 15% returns. For compounding to work its magic, the company should have a long runway for growth. I look for companies whose revenue are small relative to the potential market.

For example, Facebook currently captures approximately 20% of the global digital advertising market and the digital market is expected to grow 12% per annum over the next 5 years.

4. Does the company generate high Free Cash Flow?

Not all earnings are created equal. Charlie Munger once joked about his friend John Anderson’s construction equipment business at Berkshire’s AGM. The company makes 12% return on capital yearly, shows a profit every year but there is never any cash. The profits are all the metals sitting in the yard. In order to keep going, the cash is constantly ploughed back into the business and there’s neither growth nor cash for the shareholders.

I look for companies that are able to generate high Return on Tangible Assets (ROTA) of at least 20%. A company that shows high ROTA is able to bring in income with relatively little assets.

In Warren Buffet’s 2019 shareholder letter, he highlighted that the companies Berkshire owns typically earn more than 20% on the net tangible equity required to run their businesses without employing excessive levels of debt.

5. Competent and Shareholder Friendly Management

“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
Warren Buffett

Here I am looking for management who are great capital allocators, open communicators and preferably with significant skin in the game. Judging management is really more of an art than science, here are some key indicators I look out for:

Ownership – Do the executives & directors have a stake? For this I look at the portion of net worth the management has that is tied up to the company’s stock. The classic example is Warren Buffett with more than 90% of his net worth in Berkshire Hathaway!

Insider Trading – As Peter Lynch says, insider buys only if they feel that the stock price is going to increase!

Remuneration – Is there an agency problem? Is management excessively remunerated compared to net income of the company and is it exorbitant compared to competitors? I will also look at their remuneration structure, are they compensated for long-term capital allocation skills or short term results (e.g. next year’s EPS growth)?

Capital Allocation – Based on their past records, have they generated at least a dollar for every dollar retained in the business?

Related Party Transactions – Red flag that warrants further investigation if its a significant percentage.

Shareholder Letters – Are they frank in their annual letter to shareholders, highlighting both success and failures. I regard Warren Buffett from Berkshire and Ronnie Chan from Hang Lung as the gold standard in this area.

As minority shareholders, we are passive in deciding how a company is managed and run. Here, we must select competent management with a demonstrated interest for shareholders to generate positive returns for us as shareholders.

While not perfect, this investment framework has helped me pick up high quality companies over the year that would compound my wealth steadily. As Peter Lynch says “In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

P.S. Below is an advert on Wall Street Journal posted by Warren Buffett back in 1986 which outlines his filter for investments. Enjoy!

Tag: moat