Course 206: More on Competitive Positioning
Wide Moats
In this course
1 Introduction
2 Porter's Five Forces
3 A Five Forces Example: Consumer Products
4 Getting Back to Moats
5 Types of Narrow Moats
6 Wide Moats
7 Wide Moats Versus Deep Moats
8 The Bottom Line

All things equal, we'd choose a wide-moat company over one with a narrow-moat rating for the significant competitive advantages that should enable the wide-moat firm to earn more than its cost of capital for many years to come.

Most wide-moat companies have some sort of structural advantage versus competitors. By "structural," we mean a fundamental advantage in the company's business model that wouldn't go away even if the current management team did. With a structural advantage, a company isn't dependent on having a great management team to remain profitable. To paraphrase Peter Lynch, these are companies that could turn a profit even with a monkey running them, and it's a good thing, because at some point that may happen.

We hate to sound like a broken record here, but the four types of moats that we identified in the previous lesson are incredibly useful when thinking about structural advantages a company may or may not possess. Keep the four types of moats in mind:

  • Low-Cost Producer or Economies of Scale
  • High Switching Costs
  • Network Effect
  • Intangible Assets

Next: Wide Moats Versus Deep Moats >>


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