During his recent interview with Boston College, Mohnish Pabrai explained why most business moats are created accidentally. Here’s an excerpt from the interview:
Pabrai: So every single business on the planet eventually will cease to exist okay. So it is in the nature of capitalism that we will see creative destruction, and we’ve seen that in the past.
So how many companies are 200 years old? How many companies are 500 years old? How many of the companies around today will be around 100 years, or 200 years from now, or 50 years from now, 20 years from now?
So the basic tenant of capitalism is that almost everything is going to be competed away. Once in a while in a unpredictable manner for the most part we end up with some moats. Like we end up with a moat around Coca-Cola or we end up with a moat around Visa or Mastercard, or we end up with some moats around Louis Vuitton and so on.
The people who founded these businesses could not see these moats okay. They did not start these businesses saying I’m going to build the biggest soft drinks company in the world. I’m going to control payments in the world.
Go and study the history of these businesses. They’re all accidents. Accidental set of circumstances that leads…
If you look at something like Amex today and the trajectory it’s been through. It’d be very unpredictable where it would be. And so basically I think the reason all of this is difficult.. So on one hand we have this situation where almost everything in capitalism is going to disappear. Most businesses will disappear.
You can watch the entire discussion here:
https://youtu.be/nRE3sPHfUMY?t=4325
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