Warren and Charlie on "Moats"

Buffett: "So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn't necessarily mean the profit will be more this year than it was last year because it won't be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that's tenuous in any way - it's just too risky. We don't know how to evaluate that. And, therefore, we leave it alone.  We think that all of our businesses - or virtually all of our businesses - have pretty darned good moats. And we think the managers are widening them.
Charlie?"

Munger:  "How could you say it better?"
Buffen:  "Sure. Have some peanut brittle on that one."


- From the 2000 Berkshire Hathaway annual meeting

Wide Moat Companies: Fat Pitch Approach and Low Turnover of Portfolio.

Fat Pitch method.

Great companies (wide-moat) selling at a discount are rare. So when you find one, you should pounce.

Over the years, a wide-moat company will generate returns on capital higher than its cost of capital, creating value for shareholders.

 This shareholder value translates into a higher stock price over time.




Move In and Out of Wide-Moat Stocks

IF YOU SELL AFTER MAKING A SMALL PROFIT, you might not get another chance to buy the stock, or a similar high-quality stock, for a long time.

For this reason, it is irrational to quickly move in and out of wide-moat stocks and incur transactions costs ( and also capital gain taxes in some countries).

 Your results after trading expenses (and taxes), likely won't be any better and may be worse.




Low Turnover

That is why many of the great long-term investors display low turnover in their portfolios.

 They have learned to LET THEIR WINNERS RUN AND TO THINK LIKE OWNERS, NOT TRADERS.

Does It Pay to Invest in Wide-Moat Stocks?

It sure does--but don't disregard valuation.

It makes sense, in theory: Companies with sustainable advantages--or those that Morningstar says have economic moats--should perform better over time than those companies without such advantages.


But does that translate into superior stock performance?

Morningstar analysts addressed that question Wednesday at the 2017 Morningstar Investment Conference.

Taking a step back, senior equity analyst Andrew Lane, a member of Morningstar's Moat Committee, reminded the audience that a moat represents a sustainable competitive advantage that should help a company generate superior profits over time. Narrow-moat companies are expected to out-earn their weighted average costs of capital over 10 years; for wide-moat companies, the expectation stretches 20 years.

But investing in companies with moats isn't a guarantee of superior stock returns.

"Valuation is critical," said Lane.

For proof, Dan Lefkovitz, content strategist for Morningstar Indexes, pointed to the performance of the Morningstar Wide Moat Focus Index, which has outperformed the S&P 500 during the trailing 1-, 3-, 5- and 10-year periods.

"The Wide-Moat Focus Index marries valuation and moat," he said. The index includes the least-expensive wide-moat stocks in Morningstar's coverage universe. (Read more about how the index is built here.)

What this means is that even in an overvalued market such as the one we're experiencing today (Morningstar's Market Fair Value graph indicates that the market is about 4% overvalued based on our estimates), investors should still be able to generate superior long-term returns by cherry picking undervalued stocks with moats.

Some areas ripe for the picking can be found in the healthcare sector--specifically among wide-moat drugmakers.

"This space has definitely been in the news during the past year plus," noted Michael Waterhouse, a senior analyst with Morningstar's healthcare team. "The pricing discussions have maybe been overblown. The long-term investor who's willing to ride out the volatility has opportunity."

Waterhouse suggested sticking with the undervalued wide-moat names with robust portfolios and superior pipelines, including Bristol-Myers Squibb (BMY), Roche Holding (RHHBY), Novartis (NVS), Sanofi (SNY) and Allergan (AGN).

Bridget Weishaar, a senior equity analyst who focuses on apparel for Morningstar, talked about wide-moat L Brands (LB), whose portfolio includes Victoria's Secret and Bath and Body Works. She likes the company's pricing power, sees tremendous growth potential in China, and expects e-commerce penetration to grow.

"Long-term, we think this is a wonderful company to own," she said.

Weishaar acknowledges that it may take time for the China and ecommerce stories to play out--and the company's mall exposure is a concern, given the falloff in mall traffic overall. In other words, expect some bumps along the way.

Her favorite name today is actually a narrow-moat company, Hanesbrands (HBI).

"The company is in category with fierce brand loyalty, and their pricing is appealing," she said. "We think they can be channel-agnostic in the next three years."

That would allow it to continue to compete successfully, as weak mall traffic can be offset by rising ecommerce sales.

http://news.morningstar.com/articlenet/article.aspx?id=804849

By Susan Dziubinski | 04-26-17
This analyst blog is part of our coverage of the 2017 Morningstar Investment Conference.
About the Author Susan Dziubinski is director of content for Morningstar.com.

Investing in economic moats. A lot of investors wasted time on margin of safety and suffered a large opportunity cost.

Overestimating and Underestimating an Economic Moat

For those who invest into economic moats, be mindful of two possibilities.

1.   Overestimating a moat:  

This means (over-)paying for value creation that will never materialize.

2.   Underestimating a moat:

This means there is a large opportunity cost.  

On finding a good business opportunity, invest in it as it is going to compound at high rate.  

This avoid the suffering of opportunity cost.

Wasting time on margin of safety and not a lot on opportunity cost is the problem of a lot of investors.



Moats matter in a long run.

Most of the investors own securities for a short period of time.

Moats matter in a long run.

Most investors focus on short-term changes in price and not long term changes in moats.

Finding moats means finding efficiency of business.


Quantitative versus Qualitative factors

The quantitative data in market tends to be very efficiently priced.

Qualitative insight is understanding the structural characteristics of the business.

All the information is in the past, but all the value is in the future.

The future value creation will come from the things you see today and not necessarily the information that occurred in past.

The economic moats have a significant effect in keeping the organizations at the top and it is a good defense of an organization against competitors.


http://investingjournal.io/investing/economic-moats-pay-dorsey/

Investing in Economic Moats

High profits attract attention which makes more people invest.

As a result,the profit of companies decreases over time for most of the companies as competition comes in.

There are companies who defy economic gravity by creating structural advantages, economic moats.

The moats insulate and buffer them against competition.

Thus, they keep super-normal returns on capital for a longer duration.


Insight of intangible assets having effect on Moats

1. Brands

Being well known is not sufficient.

There needs to be a change in the consumer behaviour by increasing the willingness to pay or reducing the search costs thus resulting in the increase of the value of the company.

2. Patents

Despite being legal, they are subject to expiry, challenge and piracy.

To rely on patents as a moat there is need of portfolio of them as it is hard to invalidate one or the other.

3. Licenses/approvals

It is not easy to get a license or approval and it serves as a solid moat.




Restraints to try new businesses

1.  Switching cost effect

Switching to competitive products is expensive and time-consuming.

Service relationships can be sold in the form of maintainance by attaching a service to the product.

By providing high benefit to cost ratio, it is more beneficial when switching business is being looked for.


2.  Network effect

There are two types of networks - radial and interactive.

Radial networks are less effective and robust.

By providing the service that increases the value of the company as the number of users expand and aggregate demand is increased between parties scattered at different places.

As soon as the number of nodes and connections is increased the network becomes hard to replicate thus becoming a strong moat.


3.  Cost Advantages

Process:  By inventing a cheaper way to deliver a product that cannot be replicated quickly.

Scale:  Spread fixed costs over a large base.  Relative size matters more than absolute size.

Niche:  Establish minimum efficient scale.



Role of Management

Management plays an important role in moats.

Managerial skills are inversely proportional to the quality of business.

Good managers look for ways to widen the companies moat.

Bad managers invest capital outside company's moat.



http://investingjournal.io/investing/economic-moats-pay-dorsey/

Advantages of Moats. Moats matter a lot as it adds to the intrinsic value of the company.

Advantages of Moats

Moats can buffer the mistakes of management and save the business from complete disaster because the business was strong and robust (e.g. Microsoft and New Coke).

Local differences can create moats.

Foreign companies are not allowed to own banks thus allowing Canadian banks to be more profitable.

Minimum efficient scale is more common as big companies may not invest in small businesses thus giving complete ground to the small companies.

Cultural preferences matter a lot since the things famous in one country might not do well in another country (e.g. food products), thus allowing these businesses to build moats around them.


Moats matter a lot as it adds to the intrinsic value of the company.

A firm which can compound cash flow for many years has more worth than the firm which cannot.

Companies with no moats, capital comes down fast, as compared to the companies with greater moats.

The value of an economic moat is also largely dependent on reinvestment opportunities.

The ability to reinvest a lot of cash at high incremental ROIC would make it a very valuable moat.

If a firm has little ability to reinvest it would add a little to the intrinsic value of the moat.

Moats are not limited only to big companies.

Moats are beneficial in creating stability and building confidence.


Role of Management

Management plays an important role in moats.

Managerial skills are inversely proportional to the quality of business.

If the business is good, an average management would also do fine.

For bad business, a good manager is required.

Good managers look for ways to widen the companies moat.

Bad managers invest capital outside company's moat.

There are exceptions where a good manager can do good in bad businesses.

http://investingjournal.io/investing/economic-moats-pay-dorsey/

Unique assets

When limited assets are required to fullfill the delivery of a particular service, ownership of those assets is key.

Companies with well-located landfill assets represent a significant competitive advantage and barrier to entry in the waste management market because it is unlikely that enough new landfill locations will get government approval to diminish its share of this business.

Tell tale signs of good cash generation: Dividends, Share Buybacks and Accumulation of Cash on the Balance Sheet

Economies of scale refers to a company's ability to leverage its fixed cost infrastructure across more and more clients.

The result of scale economies should be operating leverage, whereby profits are able to grow faster than sales.

The combination of operating leverage and low ongoing capital requirements suggest that the firms should have plenty of free cash to throw around.

Tell tale signs of good cash generation are dividends, share buybacks, and an accumulation of cash on the balance sheet.

Another characteristic to look for when evaluating investments is predictable sales and profits. That makes financial results more stable and predictable.

Should there be high barriers to entry into this business, the firms in this business tend to have wide, defensible moats.

When they are trading at cheap prices, they are usually worth a good look.

It is easier to make money in some industries than in others.

It is easier to make money in some industries than in others.

Some industries lend themselves to the creation of economic moats more so than others.

These are the industries where you will want ot spend most of your time.

The economics of some industries are superior to others.

You should spend more time learning about attractive industries than unattractive ones.

Every industry has its own unique dynamics and set of jargon.

Some industries (such as financial services ) even have financial statements that look very different from others.

Wade through the different economics of each industry and understand how companies in each industry can create economic moats - which strategies work and how you can identify companies pursuing those strategies.

Here are some areas of the market that are definitely worth more of your time exploring.

• Banks and Financial Services
• Business Services
• Health Care
• Media

These are not the four areas of the market with worthwhile investments.

They are highlighted because they contain so many wide-moat companies.

There are great firms in even the least likely areas of the stock market.

The goal is to help answer a few essential questions:

• How do companies in this industry make money?
• How can they create economic moats:
• What quirks does this industry have that an investor should know about?
• How can you separate successful from unsuccessful firms in each industry?
• What pitfalls should you watch out for?

Over the long haul, a big part of successful investing is building a mental database of companies and industries on which you can draw as the need arises.

That will make you a better investor.

Confused about what stocks to buy? The answer could be as medieval as moats

When deciding where to put money in the stock market, how can investors wade through the barrage of information and tell a great business from a poor one?

Look for moats.

That advice comes from Heather Brilliant and Elizabeth Collins of the investment research firm Morningstar Inc. Similar to the way medieval castles are protected by moats, investment-worthy companies have “economic moats,” or structural barriers that can fend off competitors and can earn high returns for many years, Brilliant and Collins write in their newly published book, “Why Moats Matter: The Morningstar Approach to Stock Investing.”

It’s a method that is based on a concept by billionaire investor Warren Buffett and one that Chicago-based Morningstar(Nasdaq: MORN) has used for many years as a basis for the firm’s successful stock-investing approach, the authors say. (Brilliant is co-chief executive of Morningstar Australasia and global head of equity and corporate credit research for Morningstar, and Collins is Morningstar’s director of equity research for North America.)

Now, with the book, Brilliant and Collins are looking to show investors how they themselves can find good stock picks and determine when to buy them.

"When you focus on a company's fundamental value relative to its stock price, and not on where the stock price is today relative to a month ago or a day ago or five minutes ago, you start to think like an owner rather than a trader,” Brilliant says. “It's this mindset that we believe is key to helping people become successful stock investors."

Collins says economic moats stem from five sources of competitive advantage:

Cost advantage, when a company has high profit margins and sustainably lower costs than competitors;
Intangible assets, such as brand recognition and patents that can keep competitors at bay;
Switching costs, the expenses in terms of time, hassle, money or risk a customer would incur if it switches to a competitor;
Efficient scale, when the company is in a limited market with few competitors;
Network effect, when the value of the good or service increases as the company wins more customers.

A company needs to have at least one of these elements to be considered to have an economic moat, says Collins.

“Companies with a moat have benefits that are so structural that it's inherently part of the business itself,” says Brilliant.

One example is computer technology company Oracle Corp. (NYSE: ORCL), which benefits from switching costs. Even though other software companies provide similar products and services, Redwood City, Calif.-based Oracle is deemed to have a wide moat because once its enterprise software is embedded into its clients’ systems, it is extremely difficult for the client to switch to another software provider.

“Even if something came along that was twice as good and half the price, the customer would have to think twice about switching because of the major disruption it would cause,” says Brilliant.

In contrast, Morningstar gives Apple Inc. only a narrow moat, mainly based on the switching cost of its operating system rather than its devices. Apple’s iOS may keep its users loyal, but as popular as iPhones and iPads are, it would be relatively easy for other companies to launch rival devices, the analysts say.

“We give Apple a narrow moat because the product cycle for devices and computers are still so fast,” says Brilliant.

Another company with a wide moat is San Jose, Calif.-based Ebay Inc. (Nasdaq: EBAY), which has a powerful network effect. It has not only become a leader in online auctions but also has expanded its business to payments through its acquisition of Paypal.

“Having both sides of the transaction was part of Ebay’s success,” says Brilliant. “As they grew, they became the obvious choice that nobody else could catch up.”

An example of a company that didn’t have that same network effect was Chicago-based Groupon Inc. (Nasdaq: GRPN).

“I love to talk about Groupon because that’s one where our moat methodology made it very clear from the very first day it was in existence that it was not a ‘moaty’ business,” says Brilliant. Even when Groupon’s stock was soaring, Morningstar held off on recommending it.

“We said, 'It doesn’t have a moat so it’s not going to last, and it ended up being the case, which is how our moat ratings work,” notes Brilliant. “It was very easy [for customers] to switch to Living Social, or other offerings, like Amazon. Groupon would’ve liked a network effect there, but we didn’t see it.”

In addition to determining economic moats, Morningstar’s analysts also give moat ratings to companies, which forecast whether a company will generate sustainable profits for a decade or more. “Moaty” businesses will be able to survive short-term fluctuations in stock prices and unpredictable changes in the market or industry.

So when the stock price falls on a company that has a moat, look at it as a buying opportunity.

“Each time your reevaluate your portfolio, think about the valuation question: Are the companies that I hold today undervalued, fairly valued or overvalued? Don’t put a discrete timeline on things. It all depends on the valuation and if it’s performing to expectation," Collins says.

Collins adds that there are two reasons to sell a stock. “One is that it’s no longer a compelling buying opportunity or has appreciated to the fair value estimate; the second is you no longer think the future is going to play out as you once did,” she says.

Understanding the value of a stock also requires looking beyond just the price. A $200 stock may sound expensive, but it may be a better value than a $20 stock that won’t bring you good returns.

“You’ll wait for a $500 pair of shoes to go on sale for $350,” says Brilliant. “In your mind, it's worth $500. But if you paid $350 for a $30 pair of shoes, you'd be feeling hugely ripped off. So it’s not really about the price; it’s about the underlying value of the item your buying."

Brilliant says the important thing to do as an investor is to focus on the long term and not get sucked in by the "movings" of the market at any given moment.

“Apply a framework like this and stick to it — because we know you’ll have better performance than following those waves in the market,” she says.

I-Chun Chen, Correspondent
Aug 26, 2014

http://www.bizjournals.com/bizwomen/news/profiles-strategies/2014/08/confused-about-what-stocks-to-buy-the-answer-could.html?page=all

Is McDonald's Losing Its Economic Castle?

May. 17, 2015 6:35 PM ET  |  7 comments  |  About: McDonald's Corporation (MCD), Includes: BWLD, CBRL, ZOES

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

• Is there really much to like about McDonald's anymore?
• Let's walk through its challenges, and whether it means the company's Economic Castle is deteriorating.
• We give our high-level thoughts on the turnaround plan and disclose our fair value estimate of shares.
• We also have some interesting ideas at the end of the article that many may be overlooking.

What in the world is an Economic Castle?

Berkshire Hathaway's Warren Buffett has popularized the concept of an "economic moat," perhaps best described in common language as sustainable competitive advantages. But an Economic Castle? Are we just confused?

In short, no.

Whereas economic moat analysis focuses on the duration of a company's economic profit stream, as measured by return on invested capital less the costs of which to attain that capital, economic castle analysis focuses on the magnitude of economic profit creation over the realizable near term.

Unlike the substantial duration risk inherent to predicting economic profits 20, 30 or more years into the future, the economic castle framework posits that the strongest performing companies during certain phases of the economic cycle will be those that generate the most economic value over the foreseeable future.

http://seekingalpha.com/article/3190106-is-mcdonalds-losing-its-economic-castle?auth_param=ii05t:1ali5us:13045f7ae0127a1efc301785d852f4b2&uprof=44

Economic Moats: A Successful Company's Best Defense

Cash flow generation, debt-free balance sheets and a significant and sustainable competitive advantage in the marketplace are some of the reasons great companies stand out from the pack.

What is it that separates companies that thrive for decades from the ones that flounder for years?

The answer may lie in what is referred to as a company's economic moat, a phrase popularized by investing legend Warren Buffett. In this article, we'll introduce you to the concept and explain why it is so important to consider as a long-term investor.

What is an Economic Moat?
Economic moat refers to the character and longevity of a corporation's competitive advantage over similar companies competing in the same industry. If Company A is producing excess profits, competitors B, C and D will soon take note and attempt to enter the industry and do the same. As capital flows into the industry, the new competition will erode their profits, unless Company A has an advantage over its competitors.

An economic moat is a barrier that protects a firm and its profits from competing firms. Just like a medieval castle, the moat serves to protect those inside the fortress and their riches from outsiders. Without a wide economic moat, there is little to prevent competitors from stealing market share and thus profits.

Not All Moats are Created Equally
However, not all competitive advantages are created equal. Some companies' economic moats are sustained for decades while others disappear quickly. The trick is determining the difference. In addition, it is important to know when a company actually has an economic moat and when it does not. For example, some investors mistake a technological advancement with an economic moat.

Take, for example, Palm Inc.'s (Nasdaq:PALM) Palm Pilot product line. For a while, PALM enjoyed a considerable advantage, until competitors realized how lucrative this type of product was and entered with a vengeance. Once names like Sony (NYSE:SNE), Hewlett Packard (NYSE:HPQ), Research in Motion (Nasdaq:RIMM), Nokia (NYSE:NOK), and even Microsoft (Nasdaq:MSFT) stepped in, PALM's success was all but over and its share price dropped sharply.

This is an example of a company without an economic moat. If competitors are easily able to compete with little or no barriers to entry, a moat does not exist.


In contrast, other companies enjoy wide economic moats for long periods of time, reaping huge profits for many years. An example of a sustainable competitive advantage is Wal-Mart (NYSE:WMT). Wal-Mart's rise to massive market capitalization from its modest beginnings was largely a result of its aggressive cost controls and subsequent low price advantage over competing retail outlets.

Once Wal-Mart grew to a mega cap company, it enjoyed further cost advantages afforded by its size, buying power and enviable distribution network. Retailers that have attempted to go head to head with Wal-Mart on a price basis have not fared well. Wal-Mart's buying power and infrastructure have created a wide and sustainable economic moat. Competition cannot easily recreate the brand recognition, economies of scale and technical marvel that is Wal-Mart's distribution network.

A company's economic moat represents a qualitative measurement of its ability to keep competitors at bay for an extended period of time. This translates into prolonged profits in the future. Economic moats are difficult to express quantitatively because they have no obvious dollar value, but are a vital qualitative factor in a company's long-term success or failure and a vital factor in the selection of stocks.


How Moats Are Created
There are several ways in which a company creates an economic moat that allows it to have a significant advantage over its competitors. Below we will explore some different ways in which moats are created.

Cost Advantage
As exemplified by Wal-Mart's prolonged success, a cost advantage, which competitors cannot replicate, can be a very effective economic moat. Companies with significant cost advantages can undercut the prices of any competitors that attempts to move into their industry, either forcing the competitor to leave the industry or at least slowing or stopping its growth. Companies with sustainable cost advantages can maintain a very large market share of their industry by squeezing out any new competitors who try to move in.

Size Advantage
Being big can sometimes, in itself, create an economic moat for a company. At a certain size, a firm achieves economies of scale. This is when more units of a good or service can be produced on a larger scale with lower input costs. This reduces overhead costs in areas such as financing, advertising, production, etc. (To learn more, read What Are Economies Of Scale?)

Large companies that compete in a given industry tend to dominate the core market share of that industry, while smaller players are forced to either leave the industry or occupy smaller "niche" roles. Two examples of industry giants are Microsoftand Wal-Mart.

High Switching Costs
Being the big fish in the pond has its advantages. When a company is able to establish itself in an industry, suppliers and customers can be subject to high switching costs should they choose to do business with a new competitor. Competitors have a very difficult time taking market share away from the industry leader because of these cumbersome switching costs.

An example of a switching cost would be changing your cable or satellite provider. Whether its Comcast (Nasdaq:CMSCA), DirecTV (Nasdaq:DTV) or EchoStar Communications (Nasdaq:DISH) providing your service, once you have that company's system in place, the switching costs can be a big deterrent to changing providers.

Intangibles
Another type of economic moat can be created through a firm's intangible assets, which includes items such as patents, brand recognition, government licenses and others. Strong brand name recognition, enjoyed by companies like Coca-Cola (NYSE:KO), McDonald's(NYSE:MCD) and Nike (NYSE:NKE), allows these types of companies to charge a premium for their products over other competitor's goods, which boosts their profits. (For more on this, see Advertising, Crocodiles And Moats and The Hidden Value Of Intangibles.)


For another example, consider drug companies like Pfizer (NYSE:PFE), Merck (NYSE:MRK), GlaxoSmithKline(NYSE:GSK) or Novartis (NYSE:NVS) and the intellectual patents on specific drugs they hold. Their rights to specific pharmaceutical products can effectively bar all competition from successful drugs for the duration of the patent, giving the company guaranteed long-term profits and market share. Once the patents run out, they are susceptible to competition from generic drug manufacturers.

Soft Moats
Some of the reasons a company might have an economic moat are more difficult to identify. For example, soft moats may be created by exceptional management or a unique corporate culture. In contrast to a wide moat, the strength and impact of the competitive advantage aren't as considerable and are more susceptible to competitive pressures.

While difficult to describe, a unique leadership and corporate environment may partially contribute to a corporation's prolonged economic success, even while operating in a less than robust industry. (For more insight, read Governance Pays.)

An example of unique corporate culture transferring to the bottom line might be the story of Google (Nasdaq:GOOG); many people attribute the company's unconventionally open and innovative corporate culture as a contributor to its success.


Difficult to Define But Vital
Economic moats are generally difficult to pinpoint at the time they are being created. Their effects are much more easily observed in hindsight, once a company has risen to great heights. Indeed, many of the retail outlets that were decimated by Wal-Mart's historic growth in size did not see the threat coming until it was much too late.

From an investor's view, it is ideal to invest in growing companies just as they begin to reap the benefits of a wide and sustainable economic moat. In this case, the most important factor is the longevity of the moat. The longer a company can harvest profits, the greater the benefits for itself and its shareholders!




By Chris Gallant on October 04, 2009
http://www.investopedia.com/articles/fundamental-analysis/08/moats.asp

Unbreachable Moats - Sustainable competitive advantage

Wise Words from Warren Buffett: Durable Competitive Advantage

Warren Buffett - The Most Important Part of a Business

From profits, come dividends. And from dividends, come investors' incomes.

When looking at companies such as British American Tobacco (LSE: BATS),GlaxoSmithKline (LSE: GSK), SSE (LSE: SSE) and Diageo (LSE: DGE), the market is looking at the incoming stream, but placing insufficient value on its dependability.

Better still, the market tends to mis-price such companies, seeing them as dull dividend machines, when it should be valuing them as dull, safe dividend machines.

Sage perspective

Warren Buffett, of course, is another investor with an eye for such businesses. If his well-known "economic moat" isn't another way of saying "businesses with high long-run sustainable profitability" then I don't know what is.

http://www.fool.co.uk/news/investing/2012/06/12/profits-for-the-long-run.aspx

How Management Affects Moats - Morningstar Video