Q: I’ve been reading about Warren Buffett’s investing style, and one concept that he’s mentioned often is looking for sustainable competitive advantages, or a “wide moat,” in stocks he buys. Aside from looking at Buffett’s portfolio, how can I find stocks with wide moats?
First, to help understand the term “wide moat,” think about a castle in the Middle Ages. If the castle had a wide moat, it wasn’t easy for invaders to get in. Similarly, if a company has a durable competitive advantage, it’s not easy for competitors to steal its market share.
These competitive advantages come in several forms, and if you can identify one or more of these in a company, it could be worthy of a closer look for your portfolio.