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Stocks 405: The Fat-Pitch Strategy

Introduction to The Fat-Pitch Strategy The Fat-Pitch Strategy: Look for Wide-Moat Companies The Fat-Pitch Strategy: Always Have a Margin of Safety The Fat-Pitch Strategy: Don't Be Afraid to Hold Cash The Fat-Pitch Strategy: Don't Be Afraid to Hold Relatively Few Stocks The Fat-Pitch Strategy: Don't Trade Very Often Summary of The Fat-Pitch Strategy
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The Fat-Pitch Strategy: Look for Wide-Moat Companies

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The Fat-Pitch Strategy: Look for Wide-Moat Companies

Companies with wide economic moats reside in profitable industries and have long-term structural advantages versus competitors. These companies are "fat pitches" with predictable earnings, returns on capital higher than the cost of capital, and long-term staying power.

Things To Know

  • Time is on your side with these companies.

Wide moats are valuable

The beauty of a wide-moat company is that the odds are pretty high that the actual intrinsic value of the firm will increase over time, leading to higher shareholder value. In other words, time is on your side with these companies. By contrast, companies with no economic moat generally destroy shareholder value over time—when you buy a no-moat company, you're making a speculative bet that the stock will bounce up just long enough for you to sell it. That's a very tough game to play, and generally only seasoned pros should attempt it.