Widening the moat

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Widening the moat.

"Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as "widening the moat." And doing that is essential if we are to have the kind of business we want a decade or two from now."

Warren Buffett, Berkshire Hathaway Shareholder Letter 2005

Brambles is one of our significant Australian shareholdings. It is the world's largest owner of pallets (you may have seen their blue wooden CHEP pallets) and is a quality business with a successful track record of profitability and growth over a long period.

Brambles' management has taken Warren Buffett's words to heart. As part of its recent 2016 outlook, management indicated it would step-up the rate of investment into the business, even if this means that profit growth will be limited in the short term. This news was not particularly well received by the market.

We take a longer term view and support Brambles' plans. Brambles owns hundreds of millions of pallets and other specialist equipment used to ship goods. This business is very competitive, and in order to maintain and grow market share, the company needs to buy more pallets and equipment and make customers want to use their gear rather than competitors'.

The additional investment (a tiny part of which is interesting — think sensors on a pallet to show customers how much of their product has moved, and to where) will result in better customer service and will help the company to do more business with current customers and win new customers. This will ultimately deliver higher long run profits and a more valuable company.

As the share price declined on short term views we took the opportunity to increase your holding in the company.


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