Moats, moats, moats

Rethinking Moats: How Investment Time Horizons Redefine Competitive Advantage

Moats are a cornerstone of investing—just ask Warren Buffett, who has spent decades singing their praises. But what if these supposed fortresses sometimes amount to little more than garden ponds, offering more illusion than protection? In this article, I’ll examine when moats can backfire, challenging conventional wisdom with a few counterintuitive insights. Because the real risk isn’t always the absence of a moat—it’s the false sense of security that comes with having one.

The Ultimate Portfolio Reality Check: Are You Kidding Yourself?

Alright, here’s a little exercise for you—if you’re brave enough. Open up your portfolio. Now, take a long, hard look at it. Turnover rate? Holding periods? Be honest. How long do you actually keep your stocks before they get the axe? A year? Two? Or are you like some people, holding for three months and calling it long-term investing?

Now, ask yourself: does your holding period actually match the way you analyze stocks? If you’re out here doing your best “Buffett impression,” talking about management, return on capital, and competitive advantages—but your trades look more like a Tinder date than a long-term relationship—you’re probably kidding yourself.

I mean, let’s be real here. If you’re expecting management to work their magic in under a year, you’re probably just setting yourself up for disappointment. Same goes for competitive advantages—they don’t collapse overnight, but they also don’t prove themselves in a quarter or two. Return on capital? That takes more than a couple of earnings calls to play out.

If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people.

—Jeff Bezos

So, if you’re analyzing with long-term principles but treating your stocks like an impatient kid shaking their presents before Christmas, well… you’re kidding yourself. (I promise this is the last time I say you are kidding yourself!)

But hey, it’s not like you’re alone. I’ve sat through earnings calls, nodded along like I totally understood the company, and then, a few months later, felt the urge to panic-sell because someone on Reddit said the stock was about to crash.

Investing Timeframes: Different Games, Different Rules

So, we’ve established that if you’re holding stocks for a year but analyzing them with a 10-year mindset, you’re setting yourself up for trouble. But here’s the thing—there’s nothing wrong with holding stocks for a shorter period. You just need to be honest with yourself from the start about the type of investment you’re making and the time horizon you’re working with. A stock can also start as a short-term trade and evolve into a long-term hold, but when that happens, it requires a fresh analysis.

The timescale you’re working with literally dictates which variables matter. I won’t cover every possible timeframe in excruciating detail, but let’s break it down into three broad categories—very short-term, medium-term, and long-term investing—each with its own set of rules and blind spots.

Short-Term Investing: Fundamentals? Never Heard of Them

If you’re a day trader, it really doesn’t matter if the CEO is a saint or a scam artist. The company could have the best business model in the world, or it could be built on pure delusion—it’s all irrelevant. For short-term trading, most traditional investing metrics are about as useful as a blind date set up by your aunt who swears - they have a great job (ok you probably have to be in China to get that one.)

• Return on invested capital? Doesn’t mean a thing.

• Competitive advantage? Nice for them, but not your problem.

• Growth potential? That’s for people with patience.

The only thing that matters is what the stock price will do in the next few hours or days. You’re playing a game of momentum, liquidity, and sentiment—fundamentals are just noise.

Medium-Term Investing: Multiples Enter the Chat

Now, if your holding period stretches to a year or two, the game starts to change. Valuation actually begins to matter—not because the company is suddenly a bargain in some deep, intrinsic sense, but because multiple expansion can boost your returns.

That said, even in this timeframe, long-term factors like ROIC, management quality, and competitive advantages remain mostly irrelevant—just as we covered earlier.

In short, medium-term investing is where valuation and sentiment take center stage, while actual business performance is still more of a background character.

Long-Term Investing: Welcome to the Land of Fundamentals

Now, let’s say you actually plan to hold a company for decades—Buffett style. Suddenly, the whole game flips:

• Competitive advantages? Absolutely essential—if they last.

• ROIC? Becomes the holy grail because compounding needs time to work its magic.

• Management honesty and skill? Now you actually have to care.

But here’s the catch: multiples stop mattering, and short-term news (a.k.a. noise) becomes irrelevant.

Let’s say you buy a stock at a P/E of 10 and hold it for 50 years. If, by some miracle, the multiple expands to 40, congratulations—you’ve got a 4x return. Sounds great, right? Until you do the math and realize that’s just a 2.81% annual return. Fifty years, and you barely outran inflation.

The takeaway? If you’re in it for the long haul, forget multiple expansion—it’s compounding real business growth that matters. Otherwise, you might as well have just bought an index fund and taken a very long nap.

Let’s have a closer look at moats.

Moats, moats, moats

Maybe it’s just my background in mathematics, but I have a low tolerance for fluffy, meaningless language—something the investing world seems to have in abundance. Ever read a math paper, then you know?

Terry Smith made a great point in one of his books: why ask for granularity when you could just say more details? And don’t get me started on deep dives—unless scuba gear is involved, I’m not interested. Need more color? Borrow some crayons from your kids.

Another term that always baffled me was moats. Why use a medieval defense strategy—one that’s been obsolete for centuries—to describe how resilient your business is?

I really didn’t get the whole moats thing at first. It just seemed like a clunky, outdated metaphor. But then I thought about it more and realized—there actually couldn’t be a better explanation for what this is. It’s ingenious.

Let’s take a step back.

The concept of a moat comes from medieval times when knights clanked around in shiny armor, and if you were smart enough to dig a trench around your castle and fill it with water, congratulations, you were a military genius.

It worked—until it didn’t. The moment someone invented heavy artillery, those poor castle owners realized they had spent all their time engineering a defensive masterpiece that was now completely useless.

Or to say it with Indiana Jones (I am sure it was him who said that - or at least something similar!) - Don’t bring a moat to a drone fight!

This is exactly how I feel about competitive advantages. A moat protects against the obvious attack—someone marching up to challenge you directly. But business threats rarely arrive in such a linear fashion. It’s not about defending yourself against the sword-wielding army storming the gates—it’s about being ready for the bomber planes flying overhead.

I love hiking at the Great Wall of China—once an incredible defense system, now… not so much.

I don’t think China considers it a key part of national security anymore. You’re free to take as many pictures as you want—quite the contrast to Sanya in Hainan, where I recently discovered that photographing the Chinese nuclear submarine fleet is not encouraged - to say the least.

You’ve got to love these translations, but I completely agree—shooting at military installations is a bad idea anywhere in the world.

But I’m digressing.

Disruption Doesn’t Knock—It Kicks the Door In

Sure, some companies get crushed by competitors with better execution—grinded down, outmaneuvered, outperformed. If you are up against Xiaomi you know what I mean. But more often than not, businesses that seemed to have an impeccable moat, one that should have stood the test of time forever, don’t die from a direct attack. They get blindsided by something entirely new.

Take Kodak—if photography had remained all about film, chemicals, and their proprietary patents, they’d still be a household name. German car companies? Unbeatable in internal combustion engines… until electric cars showed up and rewrote the rules. Nokia? They probably would still dominate mobile phones—if only the smartphone hadn’t come along and rendered their entire playbook useless. It’s not like someone just made a slightly thinner, shinier Nokia. Apple reinvented the whole concept.

And the list goes on. The real killer of once-great businesses isn’t a slightly better version of the same thing—it’s the thing they never saw coming.

Moats Get Destroyed Faster Than Ever