Moat
A durable competitive advantage that protects a company's profits from competitors. Types include brand power (Coca-Cola), network effects (Visa), switching costs (enterprise software), patents, and cost advantages (Costco). Wide-moat companies can sustain high returns on capital for decades.
Why it matters
Moat is the single best predictor of long-term investment returns. Companies with wide moats can sustain high ROIC for decades, compounding shareholder value. Without a moat, high returns attract competition and get competed away.
How to read it
The five sources of moat: (1) Network effects (each user makes the product more valuable), (2) Switching costs (painful to leave), (3) Cost advantages (scale or process), (4) Intangible assets (brands, patents, licenses), (5) Efficient scale (market only supports 1-2 players). Look for ROIC consistently above 15% as evidence.
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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