Valuation in Context

Economic Moats

1

An economic moat refers to a companies ability to maintain competitive advantages over its competitors. They allow a company to protect its long-term profits and market share from competing firms.

2

The idea of an economic moat comes from the moats used by medieval castles, to protect their resources from outside forces. Economic moats play a role in making investments attractive.

3

Companies can have an economic moat in various ways. The most obvious ways are to be larger than competitors or to have a cost advantage which allows you to produce products at a cheaper price.

4

Other ways include that a company has exclusivity agreements with key suppliers or customers, ownership over a key patent or license, strong brand equity or being able to attract superior human capital. 

  • The best investments tend to involve companies having an economic moat. This essentially means that the company has a competitive advantage over its rivals. 

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