You’ve no doubt heard the marketing goal of “beating the competition.” But the world’s greatest businesses flip that common thinking on its head.
They don’t just compete… They make competition irrelevant.
Monopolies are illegal here in the U.S. They have been since July 2, 1890, when the Sherman Antitrust Act was signed into law.
But smart, savvy companies know how to dominate their markets anyway. They build business models that are so efficiently unique that they’re exceptionally difficult to copy.
Bain & Company partners Chris Zook and James Allen write in their book, Repeatability: Build Enduring Businesses for a World of Constant Change, that “the most enduring companies are those that define and refine a repeatable formula that delivers the core of their advantage again and again.”
I touched on this topic back on Saint Patrick’s Day, complete with examples, writing:
Take Coca-Cola (KO). It doesn’t sell so many beverages because it’s lucky; it succeeds because its brand and global scale form layers of defense that are almost impossible to breach.
Or there’s Visa (V). It isn’t the largest payment network because mere fortune smiled on it. Visa worked hard to establish its enormous infrastructure and gain impressive consumer trust.
Both have big, brand-name competition. Yet Coca-Cola still controls 69% of the U.S. cola market compared with Pepsi’s (PEP) 27%. And Visa easily beats out Mastercard (MA) in both cards in circulation and transaction volume.
To quote Peter Thiel, co‑founder of PayPal (PYPL) and Palantir Technologies (PLTR), in his book, Zero to One, “Competition is for losers. If you want to create and capture lasting value, build a company that is fundamentally a monopoly.”
Or, to put that into investment terms, if you want to create a dependable, growing portfolio, buy into businesses that know how to make the competition a consistent non-issue.
The Markets Can Shake All They Want, These Companies Stand Strong
It’s that philosophy that turned Warren Buffett into the “Oracle of Omaha” and one of the world’s richest men.
He invests in companies with a “durable competitive advantage: an economic castle protected by a wide, unbreachable moat,” as he says. That way, they don’t have to spend time, energy, and money fighting constant battles.
They can focus instead on maintenance, their customer base… and their shareholders.
I know I’ve been quoting Warren Buffett a lot the past month or so. And mentioning “wide moats” more often as well.
For regular readers who faithfully click on every single Wide Moat publication you receive, I don’t mean to bore you. Truly. But I know there are a lot of people out there panicking right now. And even more are completely confused.
We’re all watching the markets make sharp drops one day, only to fall again the next, then bounce right up again on whatever piece of positive news comes out (whenever it does). Nobody wants to hold when they should be selling or sell when they should be buying, but nobody knows which is when.
The result is a whole lot of paralysis at best and reactionism at worst – with neither being helpful in building or maintaining a healthy portfolio.
That’s why I’ve been pointing to so many companies with especially wide moats. I want you to know there are still investments out there selling at attractive prices that shouldn’t let you down…
Even if this volatility continues for weeks or months more.
I’ll still keep finding those stocks and telling you about them. I have a whole list of articles I still need to write this week and next with intriguing information I can’t wait to share.
But first, I want to share how monopoly-minded businesses operate. That way, you can spend your time finding them, too, instead of focusing on all the chaos going on around us.
Despite what it may seem right now, this turmoil isn’t going to last. But companies that run like they rule their respective markets almost certainly will.
Monopoly-Minded Businesses Factor No. 1: A Clarified Core
Dominant businesses intentionally carve out a space in their sectors to dominate.
Take Alphabet (GOOG). It doesn’t operate the world’s biggest, most popular search engine because it put its hand in every market possible. Instead, it focused heavily and even exclusively on becoming the Internet’s gateway when it began nearly three decades ago.
As Alphabet expanded, it monetized that advantage through advertising. And it’s quite the giant today with unmistakable reach into areas like entertainment (YouTube), communication (Android), and now even autonomous driving (Waymo).
But it never lost touch with its core mission that made it the one to beat in the first place.
Monopoly-Minded Businesses Factor No. 2: Subtle Domination
Real moats can be big, broad, and in your physical face. But more often than not, they’re a much less obvious force.
Apple (AAPL), for instance, rarely talks about its integration moat: its seamless synergy between hardware, software, and brand loyalty that keeps users mentally and technologically locked into its network. But it’s most definitely there, making it easy for consumers to buy even more Apple products…
And difficult for them to walk away.
As such, while it still spends plenty of money on advertising, that’s only to maintain its anti-Microsoft, anti-Google edge. It knows what its proprietary products and services are worth, and so do its customers.
Monopoly-Minded Businesses Factor No. 3: Self‑Reinforcing Loops
Every monopoly business has network effects that get stronger with scale. In other words, they build on their successes to create even more successes.
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Google: More users → more data → better algorithm → more users
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Amazon (AMZN): More customers → more sellers → lower prices → more customers
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Netflix (NFLX): More subscribers → more content → more subscribers
These loops make it even more difficult for competitors to encroach on their territory. In fact, the more time that goes on, the closer to impossible it becomes to replicate.
Users know where to go for superior service, community loyalty, and reliable delivery. And so they keep coming back for more.
Identify companies that feature these three factors, and it’s hard to go wrong. Even when it seems like everything else is.
Regards,
Brad Thomas
Editor, Wide Moat Daily
P.S. Check out The Wide Moat Show on YouTube this week where my cohost (Nick Ward) and I will be breaking down eight monopoly-like stocks that are quietly dominating their markets.
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