Warren Buffett’s imminent retirement prompts me to wonder how future letters to Berkshire Hathaway shareholders will be written. They are fun to read because they delicately explain the investment view sometimes through personal stories.

Last week, I discussed one of Buffet’s “principles” that I consider core when analyzing companies. I would not call them “official” principles since these concepts are often contained in the Berkshire Hathaway annual reports, letters, and his lectures and are identified and interpreted by authors who follow Buffett.

Nevertheless, the work to organize and summarize the wisdom of Buffett into principles or strategies gives lifelong learners like me a foundation to apply them and build investment experience.

The concept of building economic goodwill is important to understanding how shareholder value is created. A business that builds sufficient economic goodwill would be able to sustain demand from its customers even during tough times.

If there is excessive goodwill, this leads to another core principle — the economic moat. A moat is a defensive structure surrounding forts and castles to make it difficult for attackers to penetrate the walls during a siege.

Similarly, an economic moat is the characteristic of a business that makes it hard for competitors to successfully assail their market share. Often referred to as a company’s competitive advantage, the moat can be characterized by its size, cost structure, brand, or network.

In the Philippines, and to borrow from Buffett, finding economic moats is simple, but not easy. It is simple because the concentration of market power is everywhere. As noted in a 2019 study by the World Bank, the economy is hampered by industry structures that lack competition.

Buffett’s use of “economic” in economic moat should not be confused with something to do with the economy. “Economic” in this context can mean something intangible or that the value is based on the buyer’s or seller’s estimate. It can be compared to the term “accounting,” which is something that is measured and the value is recorded in the books, such as accounting goodwill or profit.

What investors would be looking for is competitive advantage amid competition. Investments in the brand, the future of technology, the people, location, and/or a combination of the critical factors can create a wide enough moat to sustain returns from the economic goodwill generated.

The most observable economic moat are the malls of the SM Group, specifically the largest ones located along EDSA from end to end. Connected to the densest thoroughfare, it has incorporated mass transport hub infrastructure, and built entertainment, residential, and office assets that ensure an ecosystem exists to support increased foot traffic in the malls.

This is partially what malls compete for — foot traffic. If a mall has sufficient foot traffic, tenants can compete for a share of the wallet of the consumers behind the foot traffic. Given location and network both in terms of infrastructure and tenants, SM Malls have a clear economic moat.

Another example is GCash. The diverse portfolio of product offerings in the app and acceptance of both consumers and firms makes GCash almost ubiquitous to physical cash, which makes switching costs very high. While there are other e-wallets, the first mover advantage has given GCash a wide economic moat.

Economic moats are the infrastructure that enable companies to sustain shareholder value creation. Moats are solid but not permanent in a dynamic setting, primarily because competition is always there and laying siege. While building moats is important, we should not forget the need for them to be maintained.

The examples of economic moats above are fairly visible to most investors. We see them every time we go to the mall or open the app to pay. But not all companies have moats that are easy to perceive. Which is why analysts should be on the lookout for such companies that have wide moats and massive economic goodwill, but the market is not necessarily aware of them.

These are the types of investments that Buffet is known to discover regularly and are behind the consistently superior returns of Berkshire Hathaway. Analysts need to investigate companies, pound the pavement, and like Buffet, take time to analyze their financial statements.