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The Dhandho Investor SUMMARY Chapter 9 Dhandho 202: Invest in Businesses with Durable Moats
Every once in a while a business with a secret sauce for enduring outsize profits emerges. Moat allows businesses to earn supernormal profits. Example of businesses with deep moats: Coca-Cola, Citigroup, BMW, American Express and more. How to identify moats? Look at it’s financial statements. The balance sheet tells us the amount of capital deployed and the income and cash flow statements tell us how much they are earning off that capital. Example: if a Chipotle store costs $700,000 to open and it generates $250,000 a year in free cash flow, every three years it can take that cash flow and open another Chipotle. When it starts franchising, the return on invested capital is exponentially higher. There is no such thing as permanent moat. When you are using DCFs, better to not calculate for longer than 10 years.
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