Defensive & Offensive Aspects of Moat

Photo: Cpl Barry Lloyd RLC/MOD [OGL (http://www.nationalarchives.gov.uk/doc/open-government-licence/version/1/)], via Wikimedia Commons

Sleep per Day: (Target) 7h30m / day (Actual) 7h30m / day (89 day average)

I remember disagreeing with Morningstar on whether Cheung Kong Infrastructure (HKEx: 1038) had a wide moat or not.

For Morningstar, a Wide Moat is defined as the ability to generate near-certain excess returns in the next 10 years and likely for the next 20 years. So by that definition, Cheung Kong Infrastructure definitely doesn’t possess a Wide Moat since most of its returns are capped by regulations.

But that’s the offensive aspect of Moat, which is the ability to grow returns.

To me, what’s more important is the defensive aspect of Moat, which is the ability to retain earnings after taking inflation into consideration, because being able to grow returns is betting on the future that may not materialize, and that by being careful with valuation one can use the margin of safety “to render… forecast unnecessary“.

So in a sense, there are stocks out there which Morningstar deems as Narrow Moat but which would absolutely fit my requirements for my dividend growth portfolio due to the defensive aspect of the Moat.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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