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Author: elliotyoung One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 254104  
Subject: Berkshire and Wide Moat Alternatives Date: 2/24/2013 3:10 PM
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Many of us are familiar with Warren Buffet's desire to purchase stocks that have a wide economic moat.  A wide moat makes it difficult for other companies to come to the marketplace with a similar business.   A wide moat could be secret formulas, patents, having a low cost advantage, or other factors.   Morning Star likes this concept so much, that when it analyses stocks, it assigns one of three "economic moat ratings" to a stock.  

1.	No economic moat (no competitive advantage)
2.	Narrow economic moat (meaning they may have something, but it's not going to last quite as long as the wide moat firms)
3.	Wide-moat firms that have a competitive advantage, which Morningatar believes, is going to last 20 years or greater

To some degree, the advantage of economic moats has discussed on MI.  What this post attempts to do is to see how well the moat concept has worked for Morningstar.

Morningstar came out with a moat index (WMW) in October 2007, followed by an etf (MOAT) in April 2012.   


For the longer time periods (2007 to present and the past two years) the index (WMW) out performed Berkshire.  Also, both the WMW index and Berkshire have out performed the DOW and the S&P. The MOAT etf had not yet been established.

When looking at shorter time periods of a year or less, (Oct. 2012 when the etf MOAT was established, as well as one year or YTD) the etf MOAT and the WMW index have tracked similarly.  This makes it likely that had MOAT been established at the same time as the WMW index, they would have also performed about the same.

Also during these short time periods of a year or less, Berkshire has out performed the WMW index, MOAT, Dow and S&P.  

The table below shows approximate changes.  


						
					
				Index (WMW)	MOAT	Berkshire (BRK-A)Dow	S&P
Oct. 2007 to present			60%	NA	20%		0%	3%
Past 2 Years				27%	NA	21%		17%	17%
MOAT established April 2012 		13%	15%	27%		7%	9%
Past Year				13%	13%	27%		6%	11%
YTD					3%	3%	13%		6%	6%
Looking at the data, it is clear that Berkshire is always superior to DOW and S&P; so among the three, it makes sense to choose Berkshire. Others on this board have drawn the same conclusion. Warren is indeed one smart cookie. However when looking at short time periods of a year or less, it is unclear whether MOAT will out perform Berkshire but it is my guesstimate that MOAT will usually fare better than the DOW or the S&P. Elliot
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