Economic Moat Thinking

Economic moat thinking starts with defense before growth. Ask what keeps rivals from copying this business for the next decade. Moats can come from brand strength, switching costs, network effects, structural cost advantage, or regulation. Without a moat, high returns invite competition and fade. With a moat, a company can protect margins, reinvest well, and compound owner value over long periods.

When investors skip moat analysis, they often mistake cyclical momentum for durable quality. Revenue may rise for a few years, then competition compresses margins and valuation follows. Most permanent disappointments come from businesses that looked exciting but lacked staying power. If the edge cannot survive competition, long term returns usually fail to match the early narrative.

Use a moat checklist: pricing power, customer switching friction, cost curve position, and structural barriers to entry. Then test durability over five to ten years rather than one good year. Focus on businesses where moat quality and capital returns reinforce each other. A moat without returns is weak execution, and returns without a moat are often temporary.