One of the bedrocks of Morningstar's approach to stock investingis that long-term competitive advantages really matter. We're always interested in buying great companies that will be able to produce a healthy amount of cash flow and returns on invested capital through thick and thin. We view these wide-moat companies as the core of an individual stock investor's equity portfolio.
But these great companies aren't great investments at any price. Paying too much for a stock is going to end badly no matter how incredible the earnings potential of the underlying company is. Today, wide-moat stocks aren't wildly expensive, but the great bargains of six months ago are long gone. Investors, therefore, need to exercise much more caution before jumping into equities.
Why Wide Moats Matter TodayOn a fundamental basis, wide-moat stocks hold a lot of appeal right now. There are a lot of potential risks to equity investors, and stocks with good competitive advantages are the best-positioned to withstand any potential shocks. The risks are no secret to anyone who has been following the market. Europe remains on the edge as leaders struggle to contain the sovereign debt crisis. China and other emerging markets might be overinvesting and could see growth slow. The U.S. housing market seems stuck in the basement. The jobs picture is improving domestically but could backslide. And the U.S. government still hasn't created a credible plan to pay down the national debt... read more.
No comments:
Post a Comment