What History Teaches Us About Great Businesses: Lessons from Coca-Cola, Patek Philippe, and Railroads

Most businesses are like sandcastles—impressive while they stand, but eventually worn away by waves of competition, capital cycles, or time. But a few—just a few—seem to defy entropy. They don’t just last. They compound. And over decades, they become institutions.

What separates these businesses? History has a simple answer: moats.

At its core, a moat is a structural advantage—something that protects a business from competitors and allows it to sustain high returns on capital over long periods of time. This could come in many forms: brand power, network effects, economies of scale, regulatory barriers, customer loyalty, or unique product capabilities. Like a medieval castle with a surrounding moat of water, a business with a strong moat can fend off attack while continuing to grow stronger from within.

And not just any moats, but ones that are enduring—rooted in something deeper than this year’s pricing strategy or next quarter’s margin expansion. Moats that defend pricing power, hold customer attention, and build trust over generations. In this memo, we’ll explore how Coca-Cola, Patek Philippe, and even the railroads built their moats, and what those lessons reveal about intrinsic value, durability, and why certain businesses deserve far higher multiples than others.

Coca-Cola — Brand as a Cultural Moat

In 1886, Coca-Cola sold its first drink in a pharmacy in Atlanta. Its early years were humble—glass bottles in soda fountains, delivered by mule-drawn carts. But by the time World War II came around, Coca-Cola had already woven itself into the American identity. In fact, the company struck a deal with the U.S. War Department to supply Coke to every American soldier, anywhere in the world, for five cents a bottle. Over 5 billion bottles were distributed. To the troops, Coke wasn’t just a drink—it was home in a bottle.

That moment embedded Coke into something deeper than consumer preference—it became culture. It became patriotism. After the war, when factories remained overseas, Coke simply turned them into commercial bottling plants. The brand followed the flag, and then outlived it.

This is what a brand moat looks like in practice. It allows pricing power far above input costs. It reduces customer acquisition to near zero. And it embeds itself in culture—"the real thing," "open happiness"—slogans that transcend product features.

Think about how rare that is. In a world flooded with beverages—flavoured waters, kombuchas, energy drinks, seltzers—Coca-Cola has held its place not just as a drink, but as a symbol. Whether you’re in Colombo, Cairo, or Kansas, you know what a Coke tastes like. That kind of global emotional connection is a fortress.

And a moat like this isn't easy to replicate. You can't just outspend Coke. Brands are built slowly but lost quickly. Which is why companies with this kind of moat should be valued not just on this year’s free cash flow, but on the perpetuity of demand.

It’s also why investors who narrowly focus on declining soda volumes miss the forest for the trees. Coke's distribution, brand equity, and shelf space allow it to pivot across categories while maintaining margins. Powerade, Fanta, Dasani, Minute Maid—these aren't just products; they're outcomes of a platform with global reach and trust.

Patek Philippe — Rarity and Legacy as Moats

In the luxury world, Patek Philippe’s tagline says it all: “You never actually own a Patek Philippe. You merely look after it for the next generation.”

Founded in 1839, Patek Philippe has always taken the long view. Its watches are meticulously handcrafted, often taking up to two years to complete. And for much of the company’s life, it’s remained family-owned—eschewing mass-market temptations in favour of legacy. While other luxury brands chased scale, Patek cultivated patience.

Their archives are filled with names from history: Queen Victoria wore a Patek. So did Einstein, Tolstoy, and Picasso. These aren’t just buyers—they’re validators. And this legacy compounds with each generation. A product that gets handed down becomes more than a product. It becomes story.

This is a different kind of moat—scarcity, heritage, and emotional equity. Patek only makes around 70,000 watches a year. Demand exceeds supply. And resale value often appreciates over time. That’s not a function of utility, but emotional worth. Timepieces become heirlooms. In an era where so many products are disposable, Patek offers permanence.

Why does this matter for investors? It’s a business where the brand compounds internally—past customers validate future customers. The waitlist is the moat. Demand exceeds production, not from artificial scarcity, but from careful curation. Most crucially, the product is inseparable from its history. A business tied to legacy becomes timeless.

Luxury is one of the few industries where pricing power is enhanced by time and tradition, rather than eroded by it. While most tech gets cheaper over time, luxury products become more desirable as they age—if the brand holds. And Patek has held it for generations.

The investment lesson here is that some moats are not just about efficiency or network effects—they’re about taste, perception, and owning a piece of something eternal. It’s hard to model this in a spreadsheet, but the investor who ignores it altogether does so at their own peril.

Railroads — Network Effects and Scale Economies

The railroads built America. Their tracks connected a continent, transformed commerce, and industrialised the 19th century. But as an investment, the story was once tragic. In the early days, speculation ran wild. Railroads were overbuilt, overleveraged, and overloved. Many failed. The boom-bust cycle of the 1800s left behind ruins as well as rail lines.

Yet over time, a different picture emerged. Consolidation began. The excess was wrung out. Infrastructure costs acted as a barrier to entry. Regulation tightened. And what was once chaotic became essential. Today, the survivors—like BNSF or Union Pacific—are some of the most durable franchises in transport.

Why? The infrastructure is irreplaceable. Try building a new railway today. It would be virtually impossible due to regulation, cost, and land constraints. That makes incumbents entrenched. Scale economics matter too: the more volume you carry, the lower your marginal cost. Switching costs are high: once customers build supply chains around your rail line, they stay.

Railroads also show us something deeper: moats can be cyclical. At first, there were too many players, and no one made money. But consolidation, capital discipline, and time created scarcity and defensibility.

This is a powerful lesson. Sometimes, the strongest moats are forged in the aftermath of chaos. Airlines are arguably on a similar path. And in emerging markets, we may see the same process in logistics, power infrastructure, or even telecom.

Moats aren’t always born at IPO. Sometimes they are earned over decades.

The Other Side — No Moat, No Margin for Error

The absence of a moat isn’t just a competitive risk—it’s a terminal disease. Businesses without defensibility must constantly outwork, outspend, and outprice the competition. But over time, that’s exhausting.

Without a moat, your margins are the market’s to decide. Growth is expensive, not self-funding. Customer loyalty is transactional, not emotional.

We’ve seen this story before. Think of retail brands that were hot for a moment but vanished within years. Or SaaS companies that gained traction only to be undercut by cheaper, faster-moving alternatives. A moatless business can scale, but rarely sustains.

It’s why we’re sceptical of businesses chasing TAM without thinking about defensibility. What’s the point of a $100 billion addressable market if anyone can enter it? It may feel like an opportunity, but it’s often a trap.

Over time, value gets shredded. Not in a dramatic collapse, but in a slow bleed—market share lost bit by bit, pricing power slipping away, customers drifting to something newer or cheaper.

Valuation and Why Multiples Should Reflect Moats

A company with no moat must be evaluated like a depreciating asset. But one with a moat, especially one growing stronger, deserves a higher multiple—not because of a fancy narrative, but because of math.

A durable moat means cash flows are more predictable. Reinvestment can compound longer. Terminal value actually exists—because the business might still be around, and thriving, 30 years from now. That assumption changes everything.

Think of two companies earning $100 million. One is a commodity business with low margins, subject to pricing swings. The other is a brand-rich franchise with sticky customers. The market may value one at 8x earnings, the other at 25x. But that gap is rational—because it reflects longevity.

This is why Buffett paid 25x earnings for Coca-Cola in 1988 and still called it cheap. The price was high relative to the present—but low relative to what would come.

Multiples reflect durability. And durability, in turn, reflects history.

The Value Investor’s Dilemma — Everyone Wants the Castle

From a value investor’s perspective, businesses with strong moats often feel like castles on a hill. Everyone sees them. Everyone wants in. And that visibility has consequences.

First, there’s the problem of price. The best businesses rarely come cheap. Their quality is well known, and they typically trade at rich multiples—30x earnings, sometimes 40x or more. As a result, mispricings are rare. The classic margin of safety that value investors lean on becomes much thinner.

Second, and more importantly, is the risk of misjudging the moat itself. If you overestimate a moat—or fail to notice when it’s eroding—the consequences can be severe. Think Intel. For years, it appeared to have a strong technological and manufacturing moat. But it misstepped. It fell behind TSMC in foundry capabilities. And suddenly, what was assumed to be enduring turned fragile.

We’ve seen versions of this during the Nifty Fifty in the 1970s and the dot-com boom in the 1990s—investors rushing into quality or momentum without examining the moat’s substance. Sometimes the illusion of a castle is more dangerous than no castle at all.

Paying a premium for a moat only works if the moat endures. If it fades, you're not just overpaying—you’re holding a melting ice cube at luxury prices.

This is the paradox: the best businesses deserve the highest multiples—but only if you're right about their future. And because they’re rarely mispriced, patience is vital. Sometimes the moat is clear, but the price isn’t right. Other times, the price is attractive because the moat is in doubt. Navigating this requires judgement, humility, and a willingness to wait.

It also requires discipline to occasionally say no—to walk away from the castle when it's too crowded, or the price too high. There will be another drawbridge, another day.

Moats as a Compass, Not a Crutch

The lesson here isn’t just that businesses with moats are better. It’s that history gives us a compass—one that shows how moats are built, how they evolve, and how they can crumble too.

Coca-Cola teaches us the value of ubiquity and emotion. Patek Philippe shows us the power of restraint and legacy. Railroads remind us that time and infrastructure build moats too.

And above all, they show us that great businesses don’t just survive—they endure, evolve, and deepen their advantage over time.

As investors, we must respect the moat—but never worship it blindly. Moats are not divine. They are earned, eroded, defended, and sometimes lost. But when you find one that’s growing, resilient, and still underappreciated—that’s when history becomes opportunity.

That is the art of intelligent investing—not just valuing numbers, but recognising patterns, history, and the soul of a business. Great businesses are not just machines of profit—they are carriers of trust, tradition, and time-tested relevance. If you find one, hold on. And if you don’t, wait. Because the right castle, at the right price, can change everything.