Moat

Term of the week

What: A moat (aka competitive advantage) consists of a company’s unique and difficult-to-replicate inherent and structural characteristics that render its products or services superior (i.e. cheaper and/or better) to all other options offered by competitors.

Why: Companies need a moat to survive and even thrive during short-term economic downturns (resilience) and in the long run (endurance).

How: The main types of moats are network effects, intangible assets, cost advantages and switching costs. They protect the company’s profitability and market share and enable its business to grow for extended periods.

Conclusion: Long-term buy-and-hold blue chip investors should focus on companies with wide moats.