The phrase “economic moat” describes a company’s capacity to keep a competitive edge over its rivals.
The comparison is to the protective moats that would have surrounded medieval castles.
A business can establish a competitive edge through size, intangibles, price, and prohibitive switching costs.
The renowned investor Warren Buffett is responsible for popularizing the term “economic moat.”
Always keep in mind that a competitive edge is essentially anything that enables a business to deliver a good or service that is comparable to what its rivals are offering while also outperforming those rivals in terms of profitability.
A low-cost advantage, such as inexpensive access to raw resources, is an excellent illustration of a competitive edge. Successful investors like Warren Buffett have a knack for spotting businesses with strong economic moats but modest share prices.