Feature

Moats Versus Boats - Part 6

In the final part, Raamdeo Agrawal elaborates on the different types of moats

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Published 5 years ago on May 04, 2016 2 minutes Read

There are 3 types of businesses based on moats – great, good, gruesome. Companies which earn 40% RoE, those are great businesses because the moat keeps becoming bigger. In good businesses you start with 20% and it remains 20%. So every time you want to grow the business you have to put in more capital. The real difficult part and this is 95% of the market is gruesome. These are companies with negative moats. The problem is not with the business but the manager trying to grow a bad business. Then it becomes a bottomless pit into which you throw capital. Loss making PSU companies are a prime example, just think of how much money the government has to pump in.

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