Moat, a term first coined by Warren Buffet.
“In business, I look for economic castles protected by unbreachable moats.”
What is an economic moat?
A company’s ability to maintain competitive advantages and fend off its competition in order to protect its long-term profits and market share. Moat investing is based on a simple concept: invest in companies with sustainable competitive advantages trading at attractive valuations.Morningstar turns the moat investing philosophy into an actionable investment strategy.
Morningstar has identified 5 sources of competitive advantages (or moats): Switching costs:
Whether in time or money, the expenses that a customer would incur to change from one producer/provider to another Intangible assets:
Brands, patents, and regulatory licenses that block competition and/or allow companies to charge more. Network effect:
When the value of a service grows as more people use a network Cost advantage:
Allows firms to sell at the same prices as competition and gather excess profit and/or have the option to undercut competition Efficient scale:
When a company serves a market limited in size, new competitors may not have an incentive to enter.Related: Moat Investing: Resilience, Not Reliance
Related: The Angel That Wasn’t
In order to avoid overpaying for moat companies, Morningstar assigns each company a fair value based on its projected future cash flows and assesses its current price against this fair value. This forward-looking valuation approach allows long-term investors to look beyond a company’s current price and potential noise in the market.Leverage Morningstar’s forward-looking moat investment philosophy across global equity markets through VanEck’s suite of Moat Investing Funds. VanEck’s moat investing suite: moat companies, attractive valuations, Morningstar’s Equity Research.