Companies with economic moats always look expensive and they trade with premium multiples to the market. How can we invest with a suitable margin-of-safety and generate superior returns if we're consistently buying expensive stocks?It's a fair criticism. Indeed, companies that can consistently out-earn their costs of capital should trade with premium multiples and frequently do. In bull markets such as this one, quality doesn't come cheap and good moat-buying opportunities seem far and few between.
But here's the key thing to remember -- economic moats affect value in the long-term while the market's focus is on short-term results.
Why does this matter? Because if we're patient investors -- and if you're reading this blog, you're probably in this camp -- we only need to wait for the market to overreact to some short-term news (a bad quarter, etc.) that doesn't impact the company's competitive position and then look to capitalize on the opportunity. In other words, use the market's short-termism to our long-term advantage.
Opportunities to buy quality companies at good prices do present themselves over the course of the business cycle -- and purchasing premium companies at market average prices is a strategy I'll gladly endorse.