25 January 2011

Forex and Moat Stability

I noted in a recent tweet that there is an interesting point in the causality of financial analysis whether pristine financial management makes for a moat. As I have noted in the past, one can look at financial statements without regard to anything else, this can be reasonably accurate in a market which grows, when performed in a comparative manner over many statements.

The usual explanation would be that the moat is or is not showing in the statements. However my interest is more with companies which have a less stable moat than for example a company making a product which makes it traditionally attractive to investors. These moats though while less stable seem to have more of a motive effect in terms of huge potential growth.

We can call these creative moats. They exist in tech and many other areas. But presently they exist in Internet tech. That is because the fractal elements of the economy are coming from a wave of innovation enabled by the development of Internet technology. That is where the real growth structures seem to be developing.

Moat instability may be why investors stay clear of these companies, but the elements of stability and their consequences are what attracts investors as well. The point is that forex is like this, computationally. Why ? Well let us ask what moat stability is. In terms of what a moat is supposed to do, to be a structure which remains upon which the market can compute value, they seem extremely effective.

I think it is that they are responsive, they are what a moat really is, before it hardens into something else. A moat should be a dynamic responsive structure, expressing the way a company fits functionally well into fractal growth processes. It is a kind of structural adaptiveness. That according to this blog, is what forex is all about. It seems to express this sense of a moat.

In that sense it is not necessary to note the fact forex does not give one details about companies, it does, it is that responsive moment which one looks to trade in. But this does not give one information about an individual company.

No, but it may tell you about a generalized moat in the economy and one may look for evidence of its strength in companies. This is a sense of optimization as a process of construction, it is when growth processes are highly enabled.

In this case one can expect creative moats to be in evidence and to be effective over time. This is the real structural power of a moat, and where it gets its sense of a future valuation even in a statement now. That is, it is most useful to be able to look at financial data over short time frames.

Creative moats are in evidence then but over longer time frames, like 5 - 10 years hardened moats are in evidence. As I suggest they are different and one does probably not become another. Those who make money investing in hard moats may have a point in avoiding these companies, but they to me are the most interesting.

One could perhaps say that a strong creative moat will produce pristine financial statements. The concept of a moat here is computational, it is the responsive financial inputs into the economy that reaps rewards. That is a very functional view of a statement, but my view of markets is precisely that.

© 2011 Guy Barry - All Rights Reserved.