Monday, May 08, 2006

Microsoft, Where is your "Moat"? May 8, 2006

I would like to quote Warren Buffett saying about "moat"......

"We like to own castles with large moats filled with sharks and crocodiles that can fend off marauders -- the millions of people with capital that want to take our capital. “We think in terms of moats that are impossible to cross, and tell our managers to widen their moat every year, even if profits do not increase every year. We think almost all of our businesses have big and widening moats."

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

I have written about Microsoft on April 29, 2006 and believe that it is a good company to own for the long-term. The most significant question regarding whether Microsoft is a good buy or not is down to its "moat". And, I do believe that Microsoft has strong "moat". RT Wolf has kindly allowed me to share his wisdom on Microsoft "moat".....

"The biggest thing that Microsoft has going for it is that people don't like change. People don't want to have to learn a new operating system or new way of doing things. Technologically savvy people often forget that other people don't want to spend time learning how to use a tool like a computer and would rather use it. If companies were to initiate changes to mac or linux, they would have to spend considerable time, effort and money retraining everyone. It's cheaper just to go with what works well enough. This is definitely a strength for Microsoft. In the operating system and office productivity suites arena, it is almost the same thing."

"Another biggest component of Microsoft moat: very high switching costs. The incompatibility and closed-source nature of Office formats is also a switching cost."

Remember, to invest successfully, one has to wait for the fat pitch!

Happy investing,
Dah Hui Lau (David)

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1 comment:

Anonymous said...

I have trouble taking your critques of MSFT seriously when you have a glaring grammatical mistake in your headline. Please be more careful!