Bill Ackman: observation

Transcript context

…You said that barriers to entry… You said a lot of really interesting qualities of companies very quickly in a sequence of statements that took less than 10 seconds to say, but some of them were… All of them were fascinating. So you said barriers to entry. How do you know if there’s a type of moat protecting the competitors from stepping up to the plate? The most difficult analysis to do as an investor is that, is kind of figuring out how wide is the moat, how much at risk is the business to disruption? And we’re in, I would say, the greatest period of disruptability in history. Technology… A couple of 19 year olds can leave whatever university or maybe they didn’t even go in the first place, they can raise millions of dollars, they can get access to infinite bandwidth storage. They can contract with engineers in low cost markets around the world. They could build a virtual company and they can disrupt businesses that seem super established over time. And then on top of that, you have major companies with multi-trillion dollar market caps working to find profits wherever they can. And so that’s a dangerous world in a way to be an investor. And so you have to find businesses that it’s hard to foresee a world in which they get disrupted. The beauty of the restaurant business… Our best track record is in restaurants. We’ve never lost money. We’ve only made a fortune, interestingly, investing restaurants. A big part of it, it’s a really simple business. If you get Chipotle right and you’re at a hundred stores, it’s not so hard to envision getting to 200 stores and then getting to 500 stores, right? And the key is maintaining the brand image, growing intelligently, having the right systems. Now when you go from a hundred stores to 3,500 stores, you have to know what you’re doing and there’s a lot of complexity. If you think about your local restaurant, the family’s working in the business, they’re watching the cash register, and you can probably open another restaurant across town, but there are very few restaurant operators that own more than a few restaurants and operate them successfully. And the quick service business is about systems and building a model that a stranger who doesn’t know the restaurant industry can come in and enter the business and build a successful franchise. Now, Chipotle is not a franchise company. They actually own all their own stores, but many of the most successful restaurant companies are franchise models like a Burger King, a McDonald’s, Tim Horton’s, all these various brands, Popeyes. And there it’s about systems, but the same systems apply whether you own all the stores and it’s run by a big corporation or whether the owners of the restaurants are sort of franchisees, local entrepreneurs. So if the restaurant has scaled to a certain number, that means they’ve figured out some kind of system that works. And it’s very difficult to develop that kind of system. So that’s a moat?…

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