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Re MOAT - A Low Cost Wonderful Business at Fair Price ETF
Posted by: AlbertaSunwapta (IP Logged)
Date: March 9, 2014 01:31PM

Morningstarr doesn't shy away from the technologically driven moats like Buffett does. I think Buffett is right to avoid tech because in a downturn, such stocks can plumment just like ISRG and become seemingly "undervalued" but that apparent undervaluation can be a mirage (a "value trap") if new technology or competition arises during that recession and breaches the moat. So in my view, recessions are a huge threat to your technology shares. Buffett avoids that by avoiding the risk of technological threat and chosing copmpanies with a fairly predictable 20 year horizon. So during a boom, your technological moat businesses create great returns for you and probably put you in an absolute positive return position, but their short lifespans creates a huge downside risk during periods of market undervaluation which might be protracted enough to destroy that moat.

For instance, if the iPhone had arrived a year or two later, Blackberry would have provided a great and dramatic example of how a borad recession coinciding with a new technological competitior can create a value trap. (I hate that phrase - value traps are investor errors nothing more.) Nonetheless, as it was Blackberry still had a huge moat coming up to the 2008 crisis but by the time the crisis ended, technological obsolescene had destroyed its moat and probably put a lot of technologically orintated "value investors" in a hole.



Stocks Discussed: MOAT,
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Re MOAT - A Low Cost Wonderful Business at Fair Price ETF
Posted by: Grahamites (IP Logged)
Date: March 9, 2014 06:29PM

Alberta: Yes, Morningstar doesn't shy away from technology. But they keep an eye on the moat trend closely. If Blackberry had a wide-moat rating, I'd be pretty sure that Morningstart would change the moat-rating to narrow or even none after the introduction of the iPhone.

I take a different perspective on value traps. I think you have to differentiate between errors arising from bad processes versus and the unluckly outcome from a sound process due to forces of alterntive history. Also whether something is a value trap or not depends on the price you pay. Again take Blackberry for example, some investors bought it at mid teens because it's cheap from a balance sheet perspective. This is deserved and clearly an error. But you also have someone like the Yacktman Fund (Trades, Portfolio) which accumulated a huge amoung of shares below $10 because they were also factoring in a few catalysts that will pop the shares higher while the balance sheet is a lesser concern. Those investors who bought BBRY based on a Graham approach clearly fell into a value trap but the Yacktman Funds did not.



Stocks Discussed: MOAT,
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