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Updated: April 7, 2014 19:50 IST

Giants in the castle

MONEY-WIZARDS
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War in the market: Who reigns supreme? Photo: K. Murali Kumar
The Hindu
War in the market: Who reigns supreme? Photo: K. Murali Kumar

How do you find safe companies to invest in?

In our last column, we learnt the importance of owning companies that have powerful brands that are loved by their customers. The legendary investor Warren Buffet used to liken such companies to medieval castles with wide moats. The stronger the brands owned by a company, the wider the moat. Castles with wide moats are more resilient to enemy attacks.

Invincible

In fact, the best companies not only have wide moats, but several crocodiles swarming in the moat. Have you ever wondered why pretty much two companies control the Cola market? The world over, when people think of a Cola, they think of either Pepsi or Coca-Cola. Some markets may have a small third brand like “Thums Up” in India, but beyond that the competition does not exist.

But things can change with even the most popular companies and market leaders. Ten years ago, the Finnish company Nokia was the market leader in mobile telephony. Yet today, Nokia stands humbled by Samsung and Apple, who were not even manufacturing mobile phones 10 years ago! Apple, a computer manufacturer launched the first iPhone as recently as 2007. Nokia had to sell its phone business to Microsoft. This is particularly true in the technology sector where the rate of change is high.

We as investors need to identify companies with wide moats that can stand the test of time. This will help us eliminate around 90 per cent of the stocks available for investment in the stock exchanges. Our short list has become really short from a long list over 1,000 stocks!

Young World Money-Wizards Quiz # 32: Which wide moat company owns the popular brands Duracell and Gillette?

If you know the answer, email it to youngworld@money-wizards.com The first five correct answers within seven days will each be awarded flipkart e-vouchers worth Rs. 250. The results and the answers will be published at www.money-wizards.com.

About Money-Wizards: A company in financial literacy and money education. They conduct workshops and after school classes on money education for school children. If you want Money Wizards programmes in your school or neighbourhood, write to Info@Money-Wizards.com

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