What it is
"Moat" is the metaphor: in medieval castles, a moat was the trench that kept attackers out. In business, an economic moat is whatever makes it expensive, slow, or impossible for competitors to copy your profits.The five common moat types
1. Network effects - each user makes the product more valuable for the next (Visa, Meta, eBay) 2. Switching costs - leaving the product is painful (Microsoft Office, SAP, Salesforce) 3. Intangible assets - brand, patents, regulatory licences (Coca-Cola, pharma, exchanges) 4. Cost advantages - scale, geography, or process let you sell cheaper (Costco, GEICO, Walmart) 5. Efficient scale - the market is too small to support more than one or two players (regional pipelines, airports)How to spot one
- 20%+ ROIC for 5+ years - the financial signature of a moat
- Stable or rising gross margins during competitive entry
- Customer retention > 90% in subscription businesses
- Pricing power - can the company raise prices in a recession without losing volume?