Want to learn more about economic moats and how to recognize them? Read this article!
“A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital” Warren Buffett
My most successful and long-lasting investments have always come about when I’ve invested in a company with a strong and enduring “moat”. Buffett worked out long ago that a company that’s able to sustain high returns over a multi-year period will generate outsized rewards for shareholders.
Many investors and analysts confuse a high ROIC with an economic moat. While a high ROIC can be an indicator of an economic moat, it’s dangerous to equate the two because more often than not the high ROIC is a result of temporary factors. The nature of capitalism is such that high returns are rarely sustainable. Other companies will notice those returns and capital will immediately be attracted to that industry. If a business can earn a ROIC of 20%, why wouldn’t I invest capital in…
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