Moat
InvestingDefinition
Warren Buffett's word for a durable advantage that protects a company's profits from competitors, the way a real moat protected a castle. Wide-moat businesses can quietly raise prices and keep market share year after year. No-moat businesses compete on price and watch their profit margins melt.
Five common sources of a moat: network effects (more users make the product more valuable, like Visa or Meta), brand and intangible assets (Coca-Cola, Hermes), cost advantages (Costco buys cheaper than anyone else), switching costs (Adobe, enterprise software where leaving is painful), and efficient scale (one or two players dominate a small market like US freight rail).
Five common sources of a moat: network effects (more users make the product more valuable, like Visa or Meta), brand and intangible assets (Coca-Cola, Hermes), cost advantages (Costco buys cheaper than anyone else), switching costs (Adobe, enterprise software where leaving is painful), and efficient scale (one or two players dominate a small market like US freight rail).
Example
Visa and Mastercard form an almost-unbreakable duopoly. Every merchant accepts their cards because every consumer carries them, and every consumer carries them because every merchant accepts them. Their operating margins are above 65%, which is extraordinary.
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