Highly profitable stocks only beat the market if Buffett’s moat protects the profits. Without the moat, highly profitable stocks will get beaten up by the competition. Mean reversion acts on profits to drag down winners and push up losers. Investors should use some common sense and natural skepticism about profit charts that march all the way to heaven. It is a rare business that can resist competition. And such businesses are hard to identify. Buffett’s great skill has been to find those with defensible moats, which are his wonderful businesses. For those of us without Buffett’s talent, the
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