It's a bit strange to think that an image typically associated with England and the Middle Ages might offer a framework for stock analysis. As we've already seen, in order to really think like an analyst, it's important to consider factors beyond just the numbers. After all, our quest is to find exceptional companies delivering outstanding performance, in which case we may need to put forth extra effort to find that "Holy Grail."
One helpful concept is that of an "economic moat." And while you may not hear it used as often as terms such as P/E ratio or operating profit, the concept of an economic moat should be one guiding principle in stock analysis and valuation. Eventually the idea may gain more of a following since we think it is the foundation for identifying companies that create shareholder value over the long term. In the meantime, we'll just consider ourselves lucky to have a framework that can separate really great companies from the merely good ones.
What Is an Economic Moat? >>