Warren Buffett famously said he looks for companies with "wide economic moats" — metaphorical moats around a castle that protect the business from competitive attack. A company with a wide moat can sustain high profitability for decades.
The 5 Types of Economic Moats
1. Brand Power
Companies like Coca-Cola, Nike, and Apple can charge premium prices purely because of their brand. Consumers pay more for the logo, not just the product.
2. Network Effects
The more users a platform has, the more valuable it becomes. Facebook, Visa, and Uber become nearly impossible to displace once they reach critical mass.
3. Cost Advantages
Companies like Walmart and Costco leverage massive scale to negotiate lower costs than any competitor can match.
4. Switching Costs
Once a company adopts Microsoft Office or Salesforce, switching to a competitor is so painful and expensive that they rarely do. This creates "sticky" revenue.
5. Patents & Regulatory Licenses
Pharmaceutical companies (Pfizer, Eli Lilly) enjoy patent protection. Utilities have government-granted monopolies in their regions.
Moat Width Assessment
| Moat Type | Durability | Example | ROE Impact |
|---|---|---|---|
| Brand | 20+ years | Coca-Cola | High |
| Network Effects | 15+ years | Visa | Very High |
| Cost Advantage | 10+ years | Walmart | Moderate |
| Switching Costs | 10-15 years | Microsoft | High |
| Patents | 5-20 years | Pfizer | Variable |
How to Identify Moats
- Has the company maintained ROE > 15% for 10+ years?
- Can the company raise prices without losing customers?
- Does the company have market share dominance?
- Would it cost billions for a competitor to replicate the business?
How Aristockrat Detects Moats
Our AI measures "moat indicators" by analyzing 10-year consistency in ROE, gross margin stability, revenue concentration, and competitive positioning. Companies with the widest moats receive our highest Quality Scores.