What it means
Popularized by Buffett, a moat is a structural advantage that allows a business to earn superior returns on capital over long periods despite competition. Sources include scale economies, network effects, switching costs, intangible assets (brand, regulatory licenses) and cost advantages.
Why it matters
Moats are the difference between a great business and a merely good one. Compounding wealth in equity markets requires identifying businesses whose moats persist for decades, not quarters.
How to use it
Test the moat: would a well-funded competitor with smart leadership erode this advantage in 5 years? If yes, no moat. ROIC sustained above 15% across cycles is the empirical signature of a real moat.
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