Valuation in Context

Economic Moats

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. 

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. 

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. 

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.  

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