Most Moats Aren’t Worth a Damn
I have spent years studying the value investing philosophy of Warren Buffett and other legends. Through that study, I have learned what style best fits me.
Some investors focus on “the new new thing”—chasing AI, robots, crypto, or the streaming wars. Others look for the latest consumer fad or the next hot cycle in luxury goods. I don’t particularly enjoy that style of investing. I prefer to focus on Structural Necessity.
In the financial world, this asset class is often called “Core Infrastructure” or “Regulated Utilities.” These are the backbone assets of the economy—toll roads, pipelines, grids, and hubs—that operate as near-monopolies.
While everyone quotes Buffett’s famous line about “moats,” they often miss the warning he gave at the 1995 Berkshire Hathaway Annual Meeting: “Most moats aren’t worth a damn.”
Why? Because you think you have a moat, but then it erodes. A better product, a smarter CEO, or a cool brand can all be swept away by time and innovation.
My strategy is different. I am not looking for companies that are “smart.” I am looking for assets that are prohibitively difficult to replicate.
I focus on things that hardly change—or change so slowly that the timeline is measured in decades, not quarters. I want assets where the barrier to entry isn’t just money, but physics, geography, and regulation. Critical barriers to entry are what matter, not just growth.
This isn’t a final blueprint—my framework is always evolving—but here are some examples.
“BNSF and BHE are huge… Both will require huge capital investments… Both will likely be important and profitable 50 years hEnce.”
Charlie Munger
1. The Airport: The Ultimate Captive Monopoly
Airports are a great example of this philosophy. People think the business of an airport is landing planes, but that’s actually the worst part of the business model.
The “Landing Fee” Trap vs. The Real Gold Mine
You might assume an airport can just raise landing fees whenever it wants. It can’t. In almost every major jurisdiction, landing fees are heavily regulated (often termed “Single Till” or “Dual Till” regulation). They are typically set on a “cost-recovery” basis, meaning the airport is legally capped on how much profit it can make from the runway itself.
The true moat is that building a rival airport is prohibitively difficult. This lack of competition secures the passenger flow, but the real profit engine is the terminal.
Once a passenger is through security, they are a captive audience in a monopoly environment. The airport effectively owns the “toll road” to their wallet.
- Vendors & Retail: The airport charges rent or takes a cut of revenue from every luxury store, duty-free shop, and restaurant. Unlike landing fees, these margins are often unregulated, and the airport holds immense leverage over tenants. This allows them to raise prices well above inflation.
- Renting vs. Owning the Moat: Not all airports are equal. Many operate on a “Build-Operate-Transfer” (BOT) model, where you lose the asset after 25 years. I look for the rare exceptions—like specific assets within TAV Airports or Aena—that have effectively perpetual ownership or extremely long-term concessions. That is the difference between renting a moat and owning one.
2. Seaborne Metallurgical Coal: An Irreplaceable Ingredient
Most investors hear “coal” and run away. They are thinking of thermal coal (burning rock to make electricity).
I am interested in Metallurgical (Met) Coal. This is not fuel; it is a chemical ingredient. You literally cannot make primary steel without the carbon from high-quality Met Coal.
The “Scarcity & Logistics” Moat
This is where the thesis moves beyond just digging holes in the ground.
- Geological Rarity: You can find low-quality coal everywhere, but “Premium Hard Coking Coal” (the stuff steel mills desperately need) is incredibly rare. It is concentrated in specific geological basins, like the Bowen Basin in Australia, parts of Appalachia, and regions in Mongolia. While new deposits might be discovered elsewhere, the geology is unforgiving.
- The Logistics Trap: Even if you find a new deposit, can you move it? A mine located 1,000 miles from a deep-water port with no rail infrastructure is at a massive disadvantage. A strategic incumbent mine doesn’t just have the coal; they have established logistics to the port.
- The Permit Barrier: Try opening a new coal mine today. It is nearly impossible. Regulatory pressure and environmental mandates have effectively frozen the supply. Even if a competitor managed to secure a permit, the upfront capital cost is astronomical and the timeline to first production is long—often measured in years, not months.
- The Result: The existing mines that have high-quality reserves and port access are not just businesses; they are irreplaceable assets. Will innovation eventually replace blast furnaces? Maybe one day. But we are likely talking about a transition measured in decades, not years. Until that distant future arrives, these specific mines effectively own a royalty on global construction.
3. The “Structural Necessity” Checklist
When I look at a new opportunity, I don’t care about their trendy marketing or their quarterly growth. As the airline industry has proven over the last century, growth by itself is no guarantee of making money. Instead, I look for four things:
- Necessity: If the business disappeared tomorrow, would society struggle to function? (e.g., Airports, toll roads, energy generation).
- Scarcity: Is it physically impossible or prohibitively difficult for a competitor to enter the market? (e.g., A new Met Coal mine or a new subway line).
- Substitution Risk: Can a new technology or fundamentally different approach solve the customer’s problem in a completely new way? I look for assets where the risk of substitution is extremely low for a long time.
- Pricing Power: Do they have a high value-add they can charge for? Can they raise prices to match—or even beat—inflation without losing customers?
However, a crucial distinction must be made: there are great businesses, and then there are great investments. Just because a company owns a Structural Necessity does not automatically make it a buy. My goal is to find these great businesses when they are also great investments—which means I need to find them at attractive prices. The all important Margin of Safety.
“I felt it was an opportunity to buy a business that is going to be around for 100 or 200 years. It is the most efficient way of moving goods in the country… The railroads will be essential to the country.”
Warren Buffett