Economic moats a term coined by Warren Buffett just simply means structural business attributes that allows companies to generate high returns on capital. The businesses I love are ones that have strong economic moats, allowing companies to protect their profits from new entrants.
One classic case in Singapore of a business that lacks a strong economic moat is the bubble tea business. Due to the lack of barriers to entry, new entrants flooded the market resulting into the erosion of profit margins. Hence, we should always be asking ourselves what is the competition advantage the company has over its competitors. In this post, I would be explaining the 4 sources of economic moats.
- Network Effect
- Cost Advantages
- Intangible Assets
- Switching Costs
