What is an economic moat?
An economic moat is a durable competitive advantage that lets a company defend its profits from rivals for years, much as a moat protects a castle. It can come from a trusted brand, lower costs, patents, network effects, or high switching costs. The wider the moat, the harder the business is to displace.
The idea, popularized by investor Warren Buffett, matters because competition normally wears down high returns: when a business is very profitable, rivals pile in and push returns back down. A moat is whatever keeps that from happening, so the company can keep earning strong returns on the money it invests.
For an everyday reader, the moat is often the single biggest reason high profits last. A cheap-looking stock with no moat can stay cheap as competitors chip away at it, while a wonderful business with a wide moat can compound value for a long time. Stock Insight rates each company's moat as wide, narrow, or none, and explains where it comes from.
| Rating | What it means |
|---|---|
| Wide | A strong, durable advantage that should protect profits for many years. |
| Narrow | A real but modest advantage that could fade if rivals adapt. |
| None | No clear structural advantage; profits are exposed to competition. |
Frequently asked questions
What are the main types of economic moat?
The common sources are a trusted brand, a cost advantage, patents or licenses, network effects (the product gets more useful as more people use it), and high switching costs that make leaving painful for customers.
How can I tell if a company has a moat?
Look for high and steady returns on capital over many years, stable or rising market share, and pricing power, the ability to raise prices without losing customers. Persistent strong margins are often a clue that a moat exists.