Wide Economic Moat

DEFINITION of 'Wide Economic Moat'

A type of sustainable competitive advantage that a business possesses that makes it difficult for rivals to wear down its market share and profit. The term is derived from the water filled moats that surrounded medieval castles. The wider the moat, the more difficult it would be for an invader to reach the castle.

BREAKING DOWN 'Wide Economic Moat'

Businesses that possess at least one factor of Porter's 5 forces model would possess a wide economic moat. For example, a business that holds an exclusive patent for the creation of a miracle drug would effectively keep potential competitors out of its business. Having few or no competitors would allow the company to continually generate high levels of profit. Legendary investor Warren Buffett is renowned for his philosophy of investing in businesses with wide economic moat.

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RELATED FAQS
  1. What is an economic moat?

    The term economic moat, coined and popularized by Warren Buffett, refers to a business' ability to maintain competitive advantages ... Read Answer >>
  2. Why does Warren Buffett largely avoid investing in the technology sector?

    Learn about why Warren Buffett has traditionally avoided investing in technology companies. Read about his value investing ... Read Answer >>
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  4. Why did Warren Buffett invest heavily in Coca-Cola (KO) in the late 1980s?

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  6. Who uses Porter's 5 forces analysis?

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