The Biggest Moat in the World

Had some back and forth the past few days with some folks about Google’s stellar Q3 results. I have owned a decent sized position in Google since I launched the Tarpon Folio two years ago, and added more shares this summer. They got way too cheap.

As I told some folks earlier, though, benefiting from last Friday’s surge in price wasn’t due to any particular insight into the quarter on my part. Good things happen when you combine moats with cheap prices. And Google is simply the most competitively advantaged company in the world today – bar none.

From Prof. Bruce Greenwald at Columbia, via the highly recommended book The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies:

The quest to identify a single ingredient that explains Google’s remarkable results and resilience is itself misguided. Google is the rare company that seems to have strong elements of all three of the most important sources of competitive advantage identified – economies of scale, customer captivity, and cost. More remarkable is that Google displays multiple manifestations of each of these categories of advantage: Google achieves scale both by the relative size of the fixed cost and network effects, it retains customer captivity of both consumers and advertisers because of habit and switching costs, and it secures a major cost advantage through proprietary technology and learning.

Google is also, among other things, way out front in terms of turning computing power into a utility. If you invest in technology companies and have not yet read The Big Switch by Nicholas Carr, put that margarita down this instant and go buy it here right now.

Disclaimer: My investors and I own shares of Google. This post in no way constitutes investment advice. Commentary on this blog should never be relied on in making an investment decision.

Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.

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