“In business, I look for economic castles protected by unbreachable ‘moats’.” – Warren Buffett

Warren Buffett popularized the term “economic moats”, defining it as a business’s ability to sustain competitive advantages in its industry. This article delves into the details of his definition with examples of familiar companies for context. In medieval times, moats were designed to protect castles, it was what deterred or hampered invasions. Reapplying and modifying this definition to a corporate finance context simply means that the castle would be the firm, the moat would be its competitive advantage, and the invaders would be their competitors. Not all firms have moats, but “moatless” firms aren’t necessarily bad investments that will disappear over time. Moats simply give a firm a type (or a combination) of competitive advantage that competitors either find it hard to copy or incredibly expensive, or sometimes downright impossible to compete with. Some of ......