Widening the Moat

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I’m currently reading “The Essays of Warren Buffett: Lessons for Corporate America,” by Lawrence A. Cunningham and Warren E. Buffett, as part of my dad’s investment reading challenge for this year.

I came across a passage the other day that really stood out to me:

“Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither.

On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous. When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.”

I love this passage, and there’s so much here to digest.

Buffett is speaking from the perspective of a business owner, but we can very easily modify the passage to apply to an individual’s financial situation:

Every day, our financial position grows either weaker or stronger. If we are making wise decisions, eliminating costs and growing our income, we gain strength. But if we neglect our finances, they will become strained and stressful.

The second paragraph discusses building positive daily habits, and continuing to increase the financial standing of the business.

As Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Buffett is agreeing, and pointing out that our long-term results will stem from what we practice daily.

Playing Defense – Widening the Moat

This “widening the moat” concept is the key takeaway I want to leave you with today. When times are good, your job is stable and the money is flowing in, it can become more tempting to spend more and take on additional financial obligations (new house, new car, etc.)

Instead of giving into this temptation to inflate your lifestyle and loosen up on tracking your finances, use this opportunity to “widen the moat” and build up additional defense.

As you know, “moats” were primarily used in medieval times as an extra defense method, right outside the walls of castles. In economics, an “economic moat” refers to the competitive advantage that one company has over other companies in the same industry (a term also coined by Buffett).

In this case, “widening the moat” would involve building up a larger emergency fund, contributing more to investments, establishing additional income streams, learning additional marketable skills, among others.

Continue to practice positive habits on a daily basis, and widen your moat with each paycheck that comes in. This helps you pay off debt faster, grow your net worth, and build wealth. By paying yourself first, you’re buying your future freedom. It also provides a formidable defense for difficult circumstances that may arise.

Related Reading: “Nobody Wants to Get Rich Slow”

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