My guest this week is Pat Dorsey, who was the longtime director of equity research at Morningstar, where he specialized in economic moats: sources of sustained competitive advantage that allow a few companies to deliver huge returns over time. Several years ago he left Morningstar to form his own asset management firm, Dorsey asset management, and build a portfolio of companies with wide moats like those he studied at Morningstar. And while moats are critical, equally important is how companies allocate the capital generated--or made possible--by the existence of the moat. A special thank you to Brian Bares who introduced me to Pat, and to Will Thorndike--an earlier guest on the show. In the vast majority of conversations you hear on this show, I'm meeting the guest for the first time. I mention this to encourage you to connect me with anyone whose story or way of looking at the world might resonate. Always feel free to contact me with ideas. Pat and I begin our discussion with the key differences between the sell side and the buy side, and then discuss all aspects of moats and capital allocation. For comprehensive show notes on this episode go to http://investorfieldguide.com/dorsey For more episodes go to InvestorFieldGuide.com/podcast. To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Show Notes 2:23 – (First question) – Transition from the sell side to the buy side and the biggest surprise 3:40 – What is a moat 5:16 – What part of the stock market universe has a moat 6:57 – Pat’s framework for identifying moat, starting with intangibles 8:32 – The power of brands 9:44 – what chance does an upstart have to come in and usurp a well-established brand 12:24 – Switching costs as part of the framework for identifying a moat 14:55 – The third component of identifying a moat, network effects, and what businesses should do to effectively build one 17:29 – Last component, cost advantages/economies of scale 19:29 – How do you analyze these four components into an investing framework that can be built into an actual strategy 21:13 – How does Pat think about this from a mis-pricing standpoint 23:37 – How does Pat incorporate current price of a company in consideration for future returns when pricing a moat 25:39 – How should a company with a moat operate to protect that characteristic, especially when it comes to their capital allocation 26:51 – Which characteristic of a moat does Pat find most intriguing 30:35 – What makes for good and smart capital allocation 35:58 – What is Pat’s process for identifying the best investment opportunities 38:38 – What are good economics when looking at a company 41:03 – If Pat could take any business, but have to swap leadership, what would he choose. 44:13 – Back to his process of finding investment opportunities 46:05 – Kindest thing anyone has ever done for Pat Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag