Sunday, June 17, 2018

How Do We Measure A "Moat"?

I believe many of you, similar to me, have your minds on World Cup and your portfolio have taken a back seat.

After all, with the trade tariffs news (US and Europe, US and China, US and Canada), Fed rate hikes, and ECB to phase out QE at the end of the year, I have major doubts the share prices will rise back next week.

STI have also fallen from 3,385.71, as of 26 Dec 2017, to 3,356.73 as of 15 Jun 2018. This is the first time in 6 months that STI have fallen below the 26 Dec 2017 level.

In addition, we are also having the "sell in May and go away till November" effect and most probably the World Cup effect.

So in order to sleep well, how should we invest?

I always felt investing in fundamentally strong companies that is constantly able to generate good earnings will generally help retail investors to sleep well. In order to do that, Simple Investor and I created Fundamental Scorecard website.

As of this month, Simple Investor has continued to improve his Full Analysis Scorecard with a "Moat Scoring".


I believe this is the first time someone has tried to measure a "Moat" of a company and I have to say it is quite accurate. I am really amazed!

Anyway here is what Simple Investor wrote on his Facebook:

"Let's talk about moat.

The term economic moat, popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.

Basically, it's a defensive structure. Some company has it, others, not so much.

With the recent update of full analysis, I want to showcase some examples of moat. Let's take a look at 3 companies.

The first example of a strong moat company is M1. From its past performance, we can deduce that M1 does indeed have a moat. After all, the telco industry was a oligopoly until the recent days. Remember the days where our mobile plans, internet and cable TV only got more expensive? As detected by the moat scorecard, M1 has a long term strong moat - but that is decreasing.

When looking at moat, one should also consider its durability and trend, in addition to strength. As we can see for M1, although things are not looking good, they still have enough power to put up a fight - but we would prefer to invest in a situation where the moat is stable or increasing, since results are unpredictable with moat destruction.


The next example is one with a weak moat. I'm sure Old Chang Kee is a familiar name to most of us, but when is the last time you bought something from them? And did you know a stick of fish ball is now $1.60? As we can see, Old Chang Kee faces some pressure when increasing prices, thus it only has a weak moat. Further inspection tells us this moat is decreasing, and history shows an even worse sign - company has dipped below moat criteria, breaking its historical trend. All these points us towards caution when dealing with the company.


The last example would be one without moat. SIA is a typical company with no pricing power, leading to a no moat scoring in our scorecard. These are the companies we try to avoid, especially in long term holdings.


What about Kimly, Sheng Siong, Ho Bee Land, Thai Beverages and over 700 other stocks? Check out full analysis scorecard at https://www.fundamentalscorecard.com/

Full analysis - understand a company in 5 minutes. By the way, what is shown is only the first page of full analysis scorecard. Other pages includes ratio and warning signs, shareholders concern, Net worth analysis, recent insider transactions, insider shareholdings, growth, value and income analysis.

*P.S can you spot our next upgrade? Hint: It's in the valuation column.

*Information in this post are not buy/sell recommendation. Always consult a professional should you need to before making investment decisions."

With that, I hope you will take a short break from World Cup and look at our Fundamental Scorecard website.

We do not expect you to be convinced to sign up immediately, but do ask us questions if you have, we are more than happy to answer your queries!

Please do your own due diligence before you invest in any of the companies discussed above.

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

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