“I think the Holy Grail is to identify hidden moats”
Mohnish Pabrai

The Map is Not the Territory

Wall Street loves a detailed map. Investors rely on elaborate presentations and detailed financial projections to navigate the market. But often, these maps obscure the terrain.

We focus on the territory. Our method prioritizes the ‘essence’ of what makes a business tick over the noise of quarterly guidance. We look for the structural reality: Why does this business make money? What stops a competitor from taking it?

This focus on essence leads us to the ‘Holy Grail’ of investing: Uncovering the Hidden Moat. These are durable advantages that aren’t obvious to those just reading the headlines.

To find them, we must venture where the map is blank or marked “dangerous.” We look for value in the market’s blind spots—distressed sectors, unloved stocks, or misunderstood business models. It is a strategy that demands a contrarian temperament and a refusal to accept the consensus view.

“No formula in finance tells you that the moat is 28 feet wide and 16 feet deep. That’s what drives the academics crazy. They can compute standard deviations and betas, but they can’t understand moats.”
Warren Buffett

Durability Over Decades

My “Holy Grail” is not just a cheap stock; it is a fortress. We are looking for companies capable of dominating their market not just for quarters, but for decades.

This requires barriers to entry so high that competitors simply cannot scale the walls. Whether through intellectual property, network effects, massive scale, etc., these barriers shield the business from the erosion of capitalism. When we find this kind of intergenerational durability, we look for it to be supported by:

  • Decades of Market Dominance: This is the cornerstone. We seek companies with barriers to entry so formidable that they can maintain their leadership position for 10, 20, or 30 years.
  • Hidden Moats: Advantages that are currently invisible to the consensus view.
  • Anti-Fragility: Balance sheets built to survive—and thrive—during market crashes.
  • Capital Efficiency: High returns on equity with low capital requirements.
  • Loyalty: Unwavering commitment from all stakeholders.
  • Margin of Safety: Buying a dollar of value for fifty cents.

Finding these companies is rare, but holding them is the surest path to long-term compounding.

“I have always felt that the real secret of investing is to find companies participating in a great business enjoying something of a unique advantage over its competitors in the area of either a strong management or a monopoly situation or a protected niche.”
Phil Fisher

Fishing Where the Fish Are: Charlie Munger’s Lesson
by Li Lu

I had a twenty-year friendship with Mr. Munger; he is both a friend and a partner to me, as well as my teacher and family. Mr. Munger and his family spend every summer on a small island in Minnesota called Star Island, vacationing and fishing, which is one of his favorite activities. My wife, kids, and I have joined him for many of the past twenty years. Minnesota has over ten thousand lakes, and Star Island sits in the middle of a large one. Interestingly, every time we went fishing, Mr. Munger would take us to different places. We would take a boat from Star Island to the shore, switch to a truck towing a fishing boat, then drive for an hour to another lake to fish, and each time the location was different. Later, I asked him, “Charlie, there’s such a large lake next to Star Island. Why not just fish there?” He said, “You can try it.” I did try once, only to find almost no fish in the lake, making it very difficult to catch any. However, the smaller lakes we went to always yielded good fishing. I later discovered that Mr. Munger didn’t know in advance which island we would be going to for fishing. Instead, a fishing guide led the way. His name is Donnie, and his family has operated a bait business called Leroy’s for two generations, so he often searches for bait in different lakes year-round. Through looking for bait, he knows which lakes have fish, the different types, sizes, and seasonality of fish, and even the specific locations within each lake. That is his proprietary knowledge. Many people buy bait from him just to find out where the fish are. Mr. Munger always let Donnie lead the way, and we always caught many fish. I initially thought that all lakes had many fish, but my unsuccessful experience on the Star Island lake made me realize that indeed, not all lakes are the same. Thus, Mr. Munger summarized the fifth principle: investing is like fishing; you must fish where the fish are. He says there are two rules to fishing: the first is to fish where the fish are, and the second rule is to never forget the first rule. This fifth point is also very important for investors. Minnesota has over ten thousand lakes, but we don’t need to fish in the largest one. The same applies to individual and institutional investors. China’s GDP is $18 trillion, with many industries and companies. Some perform poorly, but there are also many excellent companies, companies not fully understood by everyone, and that are completely mispriced. Investors don’t need to understand every company, don’t need to master all macroeconomic parameters, government macro policies, nor do they need to accurately predict the next ten years. The key is to find that “lake” where you can catch fish. So, Mr. Munger’s advice to fish where the fish are is to emphasize the importance of selection. I also noticed that every time we went fishing with Donnie, we were the only group on the lake all day, ensuring we would catch the most and biggest fish. Lack of competition is an important reason for mispricing. Therefore, investors don’t need to overly research the macro environment, don’t need to understand all ten thousand lakes in Minnesota, nor do they need to thoroughly research the Chinese economy or the world economy. They need to find which lakes have fish, where there is a lack of competition, where they have good knowledge and an advantage. This is where they can establish their circle of competence, just like Donnie. Donnie, through finding and cultivating bait, built a unique ability to locate little-known, fish-rich lakes. Once everyone knows where the fish are, it becomes hard to catch them; this is his unique circle of competence.

“The real key to successful investing is to keep it simple and stick to what you know.”
Li Lu