The Concept Of Economic Moat In Evaluating Stocks

As an investor, what are the parameters you set while making investment decisions? Selecting stocks with consistent cash flow or brands with robust operating efficiencies is a good strategy.

Still, there are some uncertainties associated with stock investment. So what can you do? According to Warren Buffet, investments should be made in stocks with a wide economic moat.

The economic moat in the context of stock investment is something that provides a competitive advantage. The ‘moat’ indicates an edge a company has over its market competitors. A ‘moat’ separates it from its competitors. The pricing power of the company secures it from competition over a long period of time.

Tips to Identify Company with Economic Moat

Now that we are clear with the economic moat meaning, let’s get started with how you can identify companies with an economic moat: 

• Outstanding Performance Even in Slow Economy

Most businesses fail to perform when the economy slows down. But even when the economy is slow, companies with an economic moat perform well. The performance of the company will be better than its competitors.

Some companies with an economic moat have even performed well even during the pandemic.

• Increased Market Size

Companies having robust economic moats always stay ahead of their competitors. Their revenues and profits keep on increasing despite the condition of the economy. These companies stay ahead of any type of competition.