Storm the Gates

If you didn't see the Elon Musk/Warren Buffet back and forth over the weekend, it was a bit entertaining.

To bring you up to speed, Warren Buffett is a big fan of investing in companies with long-term economic moats. What is an economic moat? This refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms.

On an earnings call, Elon Musk recently spoke about moats (quote below):

First of all, I think moats are lame,” Musk said during an earnings call for his Tesla Inc. on May 2. “They’re like nice in a sort of quaint, vestigial way. But if your only defense against invading armies is a moat, you will not last long. What matters is the pace of innovation. That is the fundamental determinant of competitiveness.

As you can imagine, this prompted some back and forth discussion & trolling. This also got me thinking, so I'd like to offer a few thoughts to unpack this.

Moats don't last forever

As someone who played plenty of Age of Empires growing up, a literal moat around a castle is seared into my memory. As you level-up in the game, your technological prowess grows from a weak battering ram to a trebuchet.

At one point you cared a lot about if your enemy had walls, and towards the end, it didn't matter at all.

What's my point?

A moat won't protect you from the enemy forever, especially if it doesn't change over time.

Investor vs. Entrepreneur

This back and forth between Elon Musk and Warren Buffett nicely illustrates the difference between an investor and an entrepreneur.

Buffet plays a largely hands-off role in company-building, while Elon is the exact opposite. If I was an investor like Buffet, I'd care a lot about businesses with economic moats, as I don't have the ability to exercise a lot of control over how the company operates on a day-to-day basis.

That's not true for Elon. He can continuously innovate and learn new things and chip away at the economic moats competitors have built.

I guess the takeway for me is that I'd prefer to storm the gates vs. play defense.