Investing in What’s Difficult to Replicate

March 2026 Client Letter

The Hermès Paradox

I have never followed luxury brands closely, but one thing has consistently caught my attention: Bernard Arnault’s place near the top of global wealth rankings. At times, the chairman of LVMH, owner of brands such as Louis Vuitton and Tiffany & Co., has ranked alongside Jeff Bezos, Larry Ellison, and Warren Buffett as one of the richest individuals on the planet.

The technology entrepreneurs, I understand. The “Oracle of Omaha,” certainly. But the head of a luxury brand?

That curiosity lingered. When an unusually cold stretch of weather hit this winter, I found an excuse to explore it. I figured my parents could use something warm, so I stopped by Louis Vuitton to pick up a couple of scarves. While there, I struck up a conversation with a sales associate about how business compared with a year ago.

Afterward, I walked next door into Hermès.

I had heard of the Birkin bag, long considered the brand’s most coveted product, but I couldn’t have described one. What struck me immediately was what I did not see. The store was filled with home goods, silk scarves, and leather accessories. But no Birkin bags. The most sought-after products were nowhere to be found.

When I asked a sales associate where I might see one, she explained that none were on display. I asked whether one could be ordered. She smiled and said that isn’t
how it works. First, a customer must establish a relationship with the store. And that relationship involves a broader purchasing history over time.

In effect, the company’s most famous product is not something you can simply buy.

Hermès has operated with gross margins north of 70% and operating margins above 40% in certain periods. These are levels sometimes associated with software firms rather than traditional manufacturers. A company founded in 1837 as a harness workshop operates today with the profit structure and demand dynamics more typical of a modern technology platform.

That combination of scarcity by design, controlled distribution, and durable profitability raises a larger question: What kind of business can limit the availability of its most in-demand product and still strengthen the brand over time?

The answer, I would argue, is a business built on foundations that are deliberately difficult to replicate. Hermès business model does not rely primarily on advertising or short-term demand. It relies on decades of craftsmanship, controlled production, cultural positioning, and disciplined distribution. Those characteristics cannot be manufactured overnight. They require time, consistency, and restraint — qualities that resist quick replication.

In investing, we often find many of the most durable businesses share similar traits. They are built patiently over years, sometimes decades, and their advantages tend to resist quick imitation.

Costco: Discipline by Design

If Hermès demonstrates scarcity through controlled access, Costco demonstrates discipline through structural design.

Walk into a Costco warehouse and you may notice what is not there. The selection is limited. Product displays are simple. Marketing is minimal. The company carries a fraction of the products offered by a traditional retailer and operates on intentionally thin merchandise margins. Access to the store itself requires a paid membership, a deliberate gate that reinforces loyalty and recurring revenue.

What makes the structure compelling is that while the products are sold at low margins, the membership program tends to carry far higher economics. The annual
fee, spread across millions of members, generates recurring income that helps support the company’s disciplined pricing model. In effect, Costco can afford to keep product markups restrained because the membership itself carries much of the economic weight.

Costco’s structure has been refined over decades. Supplier relationships are negotiated with extraordinary purchasing power. Pricing discipline is cultural, not promotional. The company often resists maximizing short-term margins in favor of reinforcing long-term trust with its members. The result is a business model that competitors can observe but struggle to recreate. It is more than a warehouse full of goods. It is a system built on operational restraint, cultural consistency, and time.

Like Hermès, Costco’s strength lies less in what it sells and more in how it is structured.

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Key Takeaway

Time is an underrated competitive advantage.

The businesses we favor tend to be built slowly, with structures that competitors can see but rarely reproduce quickly.
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Alphabet: Compounding Data Over Time

If Costco’s advantage is built on operational discipline, Alphabet’s advantage is built on accumulated information.

For more than two decades, Google’s search engine has processed billions of queries each day. Every search and click has contributed to a growing body of data that informs its algorithms and advertising systems. That feedback loop of query, result, and refinement builds on itself over time. It is not a single product advantage but a layered system of infrastructure, machine learning models, and advertising relationships that has evolved for more than 20 years.

Competitors can build search engines. They can invest in artificial intelligence. But replicating two decades of behavioral data, global scale, and advertiser integration would be extremely difficult to replicate quickly. Alphabet’s strength lies less in any single feature and more in the depth of its ecosystem: data centers, software models, and distribution partnerships that reinforce one another.

Like Costco and Hermès, Alphabet’s position is rooted in time. It is the product of years of iteration, reinvestment, and infrastructure buildout that tend to widen slowly and resist quick imitation.

NVIDIA: Engineering That Compounds

If Alphabet’s advantage lies in accumulated data, NVIDIA’s lies in accumulated engineering.

Long before artificial intelligence became a headline topic, NVIDIA was building graphics processing units (GPUs), specialized chips designed to perform many calculations at once. Over time it developed not only hardware but an entire software layer, most notably its CUDA programming platform, which allows developers to write code specifically optimized for its chips. That ecosystem has expanded over the years, embedding itself in universities, research labs, and enterprise data centers around the world.

During the pandemic lockdowns, many households encountered this technology in a different way. My two boys, like many others, spent evenings playing the video game Fortnite with friends across the country. At the time, I did not think much about the underlying hardware. Yet the same specialized chip design that rendered those digital worlds would later become foundational to large-scale artificial intelligence training.

Today, demand for advanced AI computing has brought NVIDIA’s hardware into sharp focus. But the true advantage is not simply the chip itself. It is the surrounding systems of software tools, developer familiarity, optimized libraries, and integrated systems that make those chips widely useful. Competitors can design silicon. They can invest heavily in research. Far more difficult to recreate is the global base of engineers, applications, and workflows that have formed around the platform over time.

Like Hermès, Costco, and Alphabet, NVIDIA’s position reflects time and discipline. Its moat is not a moment. It is an accumulation. And accumulation, once deeply embedded, is hard to displace.

Amazon: Layered Infrastructure at Scale

If Hermès reflects controlled scarcity, Costco reflects operational discipline, Alphabet reflects accumulated data, and NVIDIA reflects ecosystem depth, Amazon reflects infrastructure layered at scale.

Most investors experience Amazon through a package arriving at their front door. For years, that retail convenience defined the company. Today, retail is only the outer surface of a much deeper operation.

Amazon’s retail platform drives traffic. Advertising monetizes that traffic. Amazon Web Services (AWS) monetizes compute. Custom silicon lowers the cost of that compute.

Logistics networks and satellite connectivity extend physical and digital reach. Each layer reinforces the next.

Within its fulfillment centers, Amazon now deploys vast fleets of robots that move inventory, assist workers, and optimize picking and routing. Amazon has also developed robotics capabilities internally over time. What appears to consumers as simple delivery speed is supported by an increasingly automated, data-driven network. This combination of software, robotics, and logistics infrastructure is difficult to replicate.

Importantly, none of this was built quickly.

Amazon’s fulfillment network took decades and tens of billions of dollars before becoming a durable advantage. AWS began nearly 20 years ago as an internal tool before evolving into one of the world’s largest cloud platforms. Today’s investments in data centers, artificial intelligence infrastructure, and proprietary silicon reflect the same long-term orientation: absorbing near-term margin pressure to build assets that are difficult to replicate.

That capital intensity is itself a powerful barrier. Building global data centers, designing custom chips, integrating logistics systems, and deploying satellite networks require scale, patience, and financial flexibility that few companies possess. These advantages take years to replicate.

Competition in cloud computing remains significant. Execution must remain disciplined. Regulatory and capital demands are real. Yet Amazon’s evolution is clear. It is no longer simply a merchant selling goods efficiently. It is constructing the underlying systems through which goods are sold, data is processed, and applications are run.

Infrastructure, once embedded, tends to endure.

In investing, businesses that patiently construct the foundational layers of modern commerce and computing often become among the most difficult to displace.

Of course, even durable businesses operate within broader market cycles.

Market Backdrop: Noise and Fundamentals

So far this year, markets have been unsettled. Major indexes have moved in and out of positive territory, and leadership has rotated across sectors. Historically, strong gains are often followed by digestion, and this year has reflected that pattern.

Recent weeks have added new headlines. Headlines around tariffs and trade policy have introduced additional uncertainty. Renewed geopolitical tensions in the Middle East have unsettled equity and energy markets. War is always a human tragedy, and the images are sobering. From a market perspective, however, investors tend to assess these events based on their potential global economic impact rather than their emotional intensity.

Historically, regional conflicts have generated bursts of volatility, particularly when energy flows are involved. Markets typically adjust as participants evaluate the likely scope of disruption and its implications for global growth. While no outcome is ever certain, broad equity markets have generally proven resilient once initial uncertainty clears.

Beyond the headlines, the broader economic foundation appears constructive. Corporate earnings continue to expand across many industries. Companies investing heavily in artificial intelligence infrastructure—data centers, custom silicon, cloud capacity—are still reporting revenue and profit growth. The capital expenditures drawing scrutiny today resemble investments that in past cycles often became long-term competitive advantages.

We appear to remain in the infrastructure phase of the AI buildout. Chips, servers, robotics, and data centers are being deployed in large numbers, while the application and productivity layers are still developing. If so, today’s spending may represent groundwork rather than excess.

Inflation, while not eliminated, has moderated from prior peaks. Monetary policy remains data-driven, and the Federal Reserve retains flexibility as conditions evolve. Stabilizing interest rates, combined with earnings growth, can provide a supportive backdrop for equities over time.

Risks remain, and markets rarely move in straight lines. Periodic pullbacks are part of the process.

But when I step back from the daily noise, I see more structural positives than negatives: earnings growth, significant long-duration capital investment, inflation pressures that have eased from prior peaks, and a policy environment that is less restrictive.

Within client portfolios, diversification across asset classes and equity sectors has helped navigate this uneven environment with relative stability. That diversification is intentional.

We do not invest based on headlines or short-term forecasts. We invest in businesses we believe are positioned to compound over time—businesses constructed deliberately, with economics that resist imitation.

If earnings continue to grow, history suggests they tend to matter more than the noise.

Bringing It Together

Hermès controls distribution. Costco controls structure. Alphabet compounds data. NVIDIA compounds engineering. Amazon layers infrastructure.

Different industries. Different products. Different management teams.

Yet the common thread is deliberate construction over time.

These businesses did not emerge overnight. They do not depend solely on short-term demand or promotional momentum. Their competitive positions reflect years, often decades, of reinvestment, operational discipline, and strategic patience.

In each case, advantage is the product of accumulation.

At Richard C. Young & Co., Ltd., our philosophy has long centered on a similar principle: diversification and patience built on a foundation of value and compound interest. We seek to align client capital with businesses that, in our view, have advantages that are difficult to erode, whose structures are difficult to replicate, and whose economics allow them to reinvest and strengthen over time. That does not eliminate volatility, nor does it guarantee outcomes. But it does, in our view, tilt the odds toward durability.

Diversification remains essential. No single company, no matter how well constructed, is immune to change. But a portfolio composed of businesses developed deliberately across industries and models can create resilience.

In a market often focused on speed and quarterly results, we continue to favor businesses shaped by time, discipline, and reinvestment.

What is difficult to replicate is often difficult to displace.

And compounding, paired with patience, remains one of the most powerful forces in investing.

As always, we welcome the opportunity to discuss your portfolio and any changes in your financial situation. If you would like to review your positioning or have questions, please call us at (800) 843-7273.

 

Warm Regards,

 

 

 

 

Matthew A. Young
President and Chief Executive Officer