Economic Moat

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Economic Moat

Informal; a competitive advantage over other companies in the same industry. This comparative advantage may be cost-related; that is, one company may be able to produce a good or service more cheaply and can therefore sell it for less. However, the economic moat may also be intangible; one company's name recognition may encourage more consumers to buy its products. A "wide" or "deep" economic moat indicates a company with an economic moat difficult to overcome. See also: Comparative Advantage, Absolute Advantage.
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It began earlier in the week when Musk, in Tesla's latest earnings call, said economic moats are "lame." A moat is a term coined by Buffett to describe a company's competitive advantage.
Healthcare stocks, after all, tend to have narrow economic moats due to their reliance on patents with a limited shelf life to ward off competitors.
This is because, he argues, they are poised to lose business to companies with more flexible "economic moats" that allow them to disrupt today's investment-product distribution landscape.
I like Warren Buffett's phrase: Firms strive to create "economic moats." This idea goes back to economist Joseph Schumpeter.
Bill Bergman of the investment advisory firm Morningstar recently wrote about "economic moats" and why Walgreen Co.
"One way we at Morningstar separate strong companies from their weaker counterparts is to seek out those with economic moats. Having an economic moat allows a company to generate outsized profits and returns over long periods of time.
Given how tough it is to build an economic moat in the industry, investors should back up the truck when wide-moat retailers become cheap.
He notes that there are four types of economic moats: lowcost provider, high customer switching costs, intangible assets and the network effect.
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