Graco, Inc. (NYSE:GGG)

Pat Dorsey: Graco Inc:

Companies with niche-market moats can generate fabulous returns on capital while making very mundane products. For example, I doubt that you’ve ever thought much about industrial pumps, but it turns out that you can make a lot of money manufacturing high-quality paint sprayers and pumps for food processing. A wonderful little firm in Minneapolis called Graco, Inc. makes both, and it generates 40 percent returns on capital in the process.

How is this possible?

• First, the total market for high-end industrial pumps is not all that large, limiting its attractiveness to large, well-financed competitors.

• Second, Graco spends liberally—about 3 to 4 percent of sales—on research and development, ensuring that it continually stays at the cutting edge of customers’ requirements.

• Third, Graco’s products often deliver results that are highly visible to the end consumer, but represent a small fraction of total production costs. Think of the stain and lacquer on a piece of furniture or the paint job on a new car—the finishing touch is not expensive relative to the product’s total cost, but it’s the first thing the consumer sees. As a result, Graco can extract premium pricing from customers like furniture manufacturers or automakers. The extra spending doesn’t affect the cost of the table or the sports car very much, but it definitely boosts Graco’s profit margins.

— source: Pat Dorsey book:
📖 'The Little Book That Builds Wealth'
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The aforementioned book is my favorite investing book because it is the best resource for learning about economic moats (competitive advantages). If that sounds interesting, here’s a very brief, simplified overview of moats, by Pat Dorsey:

Economic Moats Explained
📺 https://youtu.be/ptIGzhgIE3o
(5 minute video | Morningstar)

This is all about the 2nd Industrial Revolution, aka as The Technology Renaissance which will disrupt a myriad of ways we use to live our lives, both domestically and abroad.