Definition
An economic moat is a sustainable competitive advantage that allows a company to protect its market share and profitability from competitors. The term, popularized by Warren Buffett, draws analogy to medieval castle moats. Types include: brand (Coca-Cola), network effects (Facebook), cost advantages (Walmart), switching costs (enterprise software), and intangible assets (patents). Wide moats allow companies to earn above-average returns for extended periods. Moat analysis is central to long-term value investing.
Example
Apple's moat combines brand loyalty, ecosystem lock-in (switching costs), and network effects (app developers). Despite premium pricing, customers rarely switch, allowing sustained high margins that competitors cannot easily erode.
FAQ
What is Moat?
A sustainable competitive advantage that protects a company from competitors.
Why is Moat important?
Moat helps investors evaluate fundamental analysis and make more informed decisions.