Economic moat

Knowledge Sharing 332 views 3 replies

Sathish M

Management Accountant

40581 Points Posted on 24 March 2016

What is 'Economic Moat'

Economic moat is the competitive advantage that one company has over other companies in the same industry. This term was coined by renowned investor Warren Buffett.

The wider the moat, the larger and more sustainable the competitive advantage. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Replies (3)

Prerana Shenoy

33 Points Posted on 24 March 2016

Thank you for the information sir

Prashant Rajput

An insatiable Learner

889 Points Posted on 24 March 2016

I had come across the word Business moat in ET in an investment related article.Sustainable competitive advantage popularly known as business moat.That's it.You have explained quite a bit.My question is- are those two terms same or what? And where did you come across this term economic moat?

Sathish M

Management Accountant

40581 Points Posted on 24 March 2016

In 2007, Warren Buffett gave an extended talk to a group of MBA students at the University of Florida.

During it, Buffett spends some time talking about his famous concept of the “economic moat,” or a business’s sustainable competitive advantage allowing high profits and discouraging would-be competitors.

We believe in the concept of an economic moat. If you can buy companies with an economic moat at a low price, that’s often a good investment. Our quantitative value philosophy does just this by focusing on cheap firms with historical evidence for an economic moat, which we measure using long-run (8 yrs) return on assets and capital, margin strength, and cumulative free cash flow.

You can read the complete article @ https://www.valuewalk.com/2015/09/warren-buffett-on-economic-moats/