Why Moats Matter: The Morningstar Approach to Stock Investing
By Heather Brilliant and Elizabeth Collins
At Trader Plus we have a strong aversion to books with logos on the cover. Nothing screams out self-published quite the same, and despite the growing quality of self-published trading and investing books they are yet to reach the tipping point towards consistent quality.
In this case we’ll make an exception, because the logo belongs to Morningstar and the publisher is multi-national Wiley – both early indicators of quality despite the adage to never judge a book by its cover. So does it live up to the branding? In a word, yes.
Heather Brilliant and Elizabeth Collins deliver a compelling case for the introduction of the concept of moats into your fundamental analysis techniques. Moats refer to those barriers that particular companies are able to establish to limit the effectiveness of competitors (for example, through protecting their work with patents or making it difficult for customers to switch to competitors). Unlike other texts that rely on generalised examples, Brilliant and Collins provide scenarios from actual trading companies to illustrate these concepts.
Where the book offers particular value is through its later chapters focusing on industry sectors and specific analysis techniques to assist with each. Even if you have no intention of doing this analysis yourself (and, surprise surprise, there are some operators out there that do offer this particular research) it’s useful skimming to get a better understanding of a company’s potential performance and performance issues unique to that sector.
The negatives aspect of this book is that it is walking a very narrow line between highlighting the pathway or the pitch. Of course the authors are relying on real-world examples from Morningstar’s knowledge bank – they would be derelict if they didn’t. But by showcasing the extent of the analysis and the high level of granularity required, many traders may feel that the moat is just too wide for them to personally fully harness this valuable tool.
Market: Beginner – Intermediate
Verdict: Worth the investment. Although you may never use the techniques yourself, many of the methods contain valuable insights to approach valuations and analysis of potential investment opportunities. Well worth the read to not only hone in on practical applications, but also get a broader feel for an interesting arena of professional analysis.