The difference between first & second level thinking (by Howard Marks)

Moats

Sustainable Competitive Advantage or as Buffet calls them "Moats". Moats can come from a combination of:

1. Supply side economies of scale
2. Demand side economies of scale (network effects)
3. Brand
4. Regulation
5. Intellectual property

The evidence that a moat exists is pricing power. If pricing power is dropping the moat is shrinking. 

BillG -"Intellectual property has the shelf life of a banana".

If the source of the pricing power is hard to identify, the source is usually brand.  

25 percent margins

“I’ve always said 25 percent margins are not a forever thing.” Bill Gates. Forbes, February 28, 1994

Moats created by existing network effects or others factors are brittle even though they are strong. All moats deteriorate over time the only questions are (1) is how fast the process happens and (2) can the company generate a new moat with the cash flow