Keep pulling the thread on Pat Dorsey.
The analysis at Morningstar found that most companies with sustainably high returns on capital derived their advantage from intangible assets, high customer switching costs, network effects, or scale advantages.
Morningstar adopted the "moat" framework as a core point of view to differentiate its equity research, which Pat Dorsey describes as a commodity.
Pat Dorsey argues that Return on Invested Capital (ROIC) is a less useful metric for identifying competitive advantages today because modern value creation often comes from expensed assets like software development rather than capitalized assets.
Pat Dorsey suggests that Adobe's aggressive pricing may be a contributing factor to customers' willingness to switch to new AI-powered tools.
Pat Dorsey's investment philosophy has evolved to weight management quality at approximately 70% and the business's moat at 30%, a reversal from his initial weighting when Dorsey Asset Management launched in 2014.
Pat Dorsey believes Warren Buffett's famous quote about wanting a business an "idiot can run" has done more harm than good for investors by causing them to underweight the quality of management.
Dorsey Asset Management decided against investing in CoStar partly due to a perceived misalignment of incentives, as the CEO had sold a significant amount of stock and would suffer less than shareholders if the company's expensive effort to compete with Zillow failed.
Pat Dorsey believes that founder-run businesses are not inherently better than non-founder-run businesses and that privileging founders is a "huge mistake" many investors make.
Pat Dorsey asserts that skill in capital allocation is a rare trait among CEOs of large public companies, as they typically rise through ranks based on operational and political skills.
Dorsey Asset Management's largest position is in ASML, which Pat Dorsey describes as a well-managed monopoly in a key part of the semiconductor value chain.
Pat Dorsey argues that a standard Discounted Cash Flow (DCF) model can undervalue businesses with strong moats because it mathematically assumes that returns on capital will fade to the cost of capital over time.
The primary driver of sell decisions at Dorsey Asset Management has been the realization that the initial investment thesis was wrong.