📖Warren Buffett

Economic Moat

🌿 Intermediate★★★★★

The strongest businesses are protected by durable competitive advantages that repel competitors.

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In business, I look for economic castles protected by unbreachable moats.

— 1995 Berkshire Hathaway Annual Shareholders Meeting，1995

🏠 Everyday Analogy

Just as ancient castles were surrounded by moats to keep even the strongest enemies at bay, a good company must also have its own moat—advantages such as brand, technology, or scale that prevent competitors from imitating its model or stealing its customers. Only such a business can generate sustainable profits over the long term.

📖 Core Interpretation

A moat represents a company's sustainable competitive advantage, addressing the core question: Why can't competitors replicate this company's success?
💎 Key Insight：An economic moat — brand power, switching costs, network effects, cost advantages — is what allows a business to earn above-average returns for decades. Without a moat, competition will erode profits to mediocrity. Before investing, always ask: what stops a well-funded competitor from replicating this business in five years?

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❓ Why It Matters

Five primary moats: 1. Brand (Coca-Cola) 2. Switching Costs (Microsoft Office) 3. Network Effects (Visa) 4. Cost Advantage (Costco) 5. Franchise Rights (Railroads)

🎯 How to Practice

Every day, the competitive position of each of our businesses either grows stronger or weaker. If we delight our customers, eliminate unnecessary costs, and improve our products and services, we grow stronger.

🎙️ Master's Voice

In business, I look for economic castles protected by unbreachable moats.
Coca-Cola's brand is a moat—no one can replicate 130+ years of emotional connection. GEICO's low-cost structure is a moat—competitors can't match its direct model. Apple's ecosystem is a moat—once you're in, switching costs are high. Buffett searches for these protective moats.

⚔️ Practical Guide

✅ Decision Checklist

  • What prevents competitors from copying this business?
  • Is the moat widening or narrowing?
  • Would I compete against this company?
  • How long will this advantage last?

📋 Action Steps

  1. Identify the source of competitive advantage
  2. Assess moat durability over 10+ years
  3. Prefer moats that strengthen over time
  4. Monitor for signs of moat erosion

🚨 Warning Signs

  • No clear competitive advantage
  • Moat dependent on single technology
  • Competitors entering successfully
  • Pricing power declining

⚠️ Common Pitfalls

✕Having a moat does not guarantee perpetual profits — a moat requires ongoing maintenance and expansion.
✕A large market share does not equate to a moat — market share is an outcome, not a cause.

📚 Case Studies

1
Coca-Cola (1988)
Brand + Distribution Network Moat
✨ Outcome：The world's strongest beverage brand, with a distribution network spanning 200+ countries, strong pricing power, and a gross profit margin exceeding 60%.
2
GEICO Insurance (1995)
Cost Advantage Moat
✨ Outcome：The direct sales model eliminates agent commissions, resulting in operational costs 15% lower than the industry average.
3
Lessons from Nokia (1995)
The moat was completely destroyed by smartphones.
✨ Outcome：Demonstrates the principle in practice.
💡 Lesson：A moat requires ongoing maintenance.

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