Welcome to the Investing for Beginners podcast, episode 362. Today, Dave and Andrew explore the concept of competitive advantage period (CAP), a valuation tool associated with Michael Mauboussin. They'll discuss how CAP helps explain why certain businesses maintain higher valuations over longer periods and its implications for investors.
[00:00:32] Introducing competitive advantage period (CAP), a valuation concept associated with Michael Mauboussin's writings.
[01:08] CAP explained: Period where outstanding businesses maintain excess returns due to competitive advantages.
[02:38] CAP helps explain why certain companies have higher valuations for longer periods.
[04:09] Traditional 10-year DCF models may be too short for companies with strong moats.
[06:32] Scale economy shared: A self-reinforcing moat that strengthens as a company grows.
[09:40] Companies like Visa and Mastercard strengthen moats by working with potential competitors.
[15:24] Market may value companies differently based on expected duration of competitive advantage.
[17:42] CAP valuation must be logical; unreasonable growth projections can lead to absurd results.
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