Organizing our Library: Industries, Moats, & Business Models

We’ve long explored the most effective way to organize our library. A common approach is to use an industry classification like GICS to categorize listed companies. But this is not always helpful. It often doesn’t reflect the complex operating reality for many businesses. For example, how do you classify Amazon? Consumer discretionary retail? Information technology?

An industry classification also often doesn’t reflect how investors invest. While many investment teams are organized by sector, many investors look for similar attributes in companies across different industries. For example, an investor who owns Costco and understands the power of the low-cost model may also be interested in Ryanair or Basic Fit. A simple industry classification alone isn't a helpful discovery tool.

We’ve organized our library in 3 different ways:

1. GICS industry classification: MSCIs standard industry categorisation

2. Moats

3. Business Models

The added taxonomy of moats and business models aim to help you find new investment ideas. We group companies across industries with similar moats or business models. You can now follow any Industry, Moat, or Business Model to be notified of new material published on any company within these groups.

close

Zoom InZoom OutReset

You can view how GICS classifies industries here. We share context on how we categorize moats and business models below. As with any taxonomy, there is a layer of judgment involved. We only add a Moat or Business Model tag to companies we know and cover internally. If you find any company miscategorised, please let us know and we’d be happy to explore the specific case in more detail.

Moats

We organize all companies we cover into Moats according to Helmer’s 7 forces. Although it's imperfect, we believe such a classification can be a helpful discovery tool for investors. Follow your favorite moat types here.

close

Zoom InZoom OutReset

1. Scale Economies: Per unit cost declines as units produced increase. Scale economies also include procurement scale and distribution network density. Eg. Costco, Amazon

2. Network Effects: Value of the product increases as the user or customer base increases. Eg. META, GOOG

3. Switching costs: High financial cost and time of customers switching to a competitor. Includes productivity loss from downtime, changing routine, and retraining staff. Eg. AppFolio, Transdigm

4. Counter Positioning: Entrant has a superior business model (lower costs and / or ability to charge higher prices given the higher product value) that incumbents cannot replicate without significant cannibalisation of existing business. Eg. Netflix, ABNB, TSLA

5. Brand: Loyalty and trust drives higher pricing power. Eg. LVMH, Hermes

6. Cornered Resource: Preferential access to a unique resource that drives value such as management, technology, patents, property, etc. Eg. NVIDIA, UMG

7. Process Power: Operational and learning process that drives higher quality products and / or lower prices vs competitors. Eg. Toyota, Danaher, GOOG

Business Models

We also organize all companies we know and cover internally into Business Models. As we discussed above, there is inherent judgment in grouping companies together. Please reach out if you feel any company has been miscategorised and we'd be glad to discuss further. Follow your favourite business models here.

close

Zoom InZoom OutReset

1. Low cost operator: A company designed to be the lowest cost provider in the market. eg. Costco, Basic Fit, Ryanair

2. Franchisor: Firms that license trademarks to third-party operators. Eg. DPZ, WING, Marriott, etc

3. B2B Middleman: One-stop shops within a fragmented supply and customer base. Eg. Fastenal, POOL

4. Serial Acquirer: Companies that execute small, programmatic M&A as a cornerstone of the growth strategy. Eg. Lifco, Constellation Software, Judges Scientific

5. Mission Critical Products & Services: Companies selling mission-critical components or services with low-cost- high-benefit, high switching costs, and embedded in customer workflows. Eg. TransDigm, Spirax Sarco, DHR

6. Vertically integrated Retailer: Retailers that own supply, distribution, or delivery assets to provide a differentiated customer experience. Eg. AMZN, AO World, Wayfair, CVNA

7. Auctions & Classifieds: B2C and B2B auctions and classifieds platforms. Eg. Rightmove, ACV Auctions, Copart, Hemnet

8. B2B Software: SaaS and on-premise software with a focus on vertical market offerings. Eg. CRM, APPF, PCOR, VEEV

9. Marketplaces and Platforms: 2 or 3-sided marketplaces or platforms that aim to achieve network effects. Eg. ETSY, TTD, TKWY

10. OEMs with an installed base: Manufacturers with an installed base of product that typically generates consumable, maintenance or other recurring revenue. Eg. KONE, Spirax Sarco, Danaher

11. Unique IP or Brands: Companies with trademark, copyright, or patented IP or consumer brands with heritage and pricing power. Eg. Universal Music, LVMH

12. Physical Infrastructure & Networks: Unique fixed assets or networks. Eg. ODFL, Copart, airports, railways

13. Insurers & Financials: Insurance, reinsurance, and all categories of specialty finance, asset managers, etc. Eg. BUR, KKR, MKL, HGTY

IP Research Coverage

We have recently published or plan to publish material on the following companies that have also been categorised into Moats and Business Models as above:

USA: Heico, Transdigm, Loar Group, Danaher, Progressive, Markel, Kinsale, Brown & Brown, Ryan Specialty, Spotify, Microsoft, Wayfair, Amazon, Veeva, Appfolio, Procore, Credit Acceptance, Old Dominion Freight Lines, Carvana, ACV Auctions, Copart, O'Reilly, Tesla, Watsco, Ferguson, Fastenal, Intuitive Surgical, CCC Intelligent, FTAI, Autodesk, Corpay

ex-USA: Constellation Software, Lumine, Terravest, Diploma, Howdens Joinery, Burford Capital, Judges Scientific, Spirax Sarco, Ashtead, Fever Tree, The Gym Group, Dino Polska, Basic Fit, Bergman & Beving, Lagercrantz, Lifco, Momentum Group, Vitec Software, Sartorius, Eurofins, D'Ieteren, Mainfreight, bioMérieux, Idox, Safran, MTU

You will find a recap of IP Research published in 2023 here and a list of the most popular interviews published in 2023 here.

How do we choose what to cover?

1. Owner-operator: management’s economic fate is intertwined with that of the business

2. Management has high integrity

3. Management focus on ROIC and FCF per share

4. High quality governance

5. Business is customer obsessed

6. Structurally advantaged business model (brands, scale economies, network effects, low cost operators, etc)

7. Companies with a long growth runway

8. Win-win dynamic: customers, employees, suppliers, shareholders, regulators, local community all win as a result of the growth of the business

9. Stable legal jurisdiction

Please reach out if there is a company not listed that fits the profile above and we'd be glad to explore adding new coverage.