Economic Moat

An economic moat is a structural advantage that keeps competitors from catching up. The image is the water around a castle, and Warren Buffett popularised the term.

A few forms recur: brand strength, patents and regulatory barriers, switching costs that make changing a nuisance, network effects where more users mean more value, and cost advantages from scale.

A company with a moat can raise prices without losing customers. It can protect margins through inflation, and its profitability does not collapse easily when competition intensifies.

To check for one, look at several years of margins. High margins sustained over time mean something is holding competitors off; margins eroding in an otherwise good business mean there is no moat.

Moats are not permanent, though. A technology shift can dissolve a barrier that looked solid — as it did for film cameras and paper maps. Keep asking whether the moat still holds.