What Is an Economic Moat?
Quite simply, an economic moat is a long-term competitive advantage that allows a company to earn oversized profits over time. The term was coined by one of our favorite investors of all time, Warren Buffet, who realized that companies that reward investors over the long term have a durable competitive advantage. Assessing that advantage involves understanding what kind of defense, or competitive barrier, the company has been able to build for itself in its industry. Moats are important from an investment perspective because any time a company develops a useful product or service, it isn’t long before other firms try to capitalize on that opportunity by producing a similar–if not better–product. Basic economic theory says that in a perfectly competitive market, rivals will eventually eat up any excess profits earned by a successful business. In other words, competition makes it difficult for most firms to generate strong growth and profits over an extended period of time since any ad
