What is an example of a wide-moat company?

Classic wide-moat examples include Coca-Cola (brand), Visa and Mastercard (network effects), Microsoft (switching costs across Office, Windows, Azure), Costco (cost advantage + membership lock-in), ASML (technology monopoly on EUV lithography), and Moody's (regulated ratings duopoly with S&P).

How do I identify a moat in a stock?

Look for three things over 10 years: (1) return on invested capital sustained above 15%, (2) stable or expanding gross margins relative to peers, and (3) a clear, specific advantage — brand, switching costs, network effect, cost advantage, or regulatory protection. If you can't name the moat source in one sentence, the moat may not exist.

Can a moat disappear?

Yes. Technology shifts (Kodak, Blockbuster, newspapers), regulatory changes, and changing consumer behavior have erased seemingly impregnable moats. The early warning signs are declining market share, gross margin compression, and rising customer acquisition costs over multiple years.

What is the difference between a wide moat and a narrow moat?

Morningstar defines a wide moat as a competitive advantage expected to last 20+ years and a narrow moat as 10-20 years. Wide-moat businesses are rare — Morningstar covers around 200 globally — and tend to compound shareholder wealth over decades. Narrow-moat businesses can still produce strong returns but require more vigilance.

What Is an Economic Moat? 5 Types

The castle and the moat

Buffett describes every business as an economic castle that competitors are constantly trying to attack. The moat is whatever stops them. The wider the moat, the longer the castle keeps its profits. Most businesses have no moat at all — competition eventually drives their returns down to the cost of capital. The rare exceptions are the businesses Buffett spends his life looking for.

The 5 sources of economic moat

1. Intangible assets — brands, patents, regulatory licenses

Examples: Coca-Cola (brand), Moody's (regulated ratings duopoly), Pfizer (patents).

When you reach for a Coke instead of generic cola, you're paying for an intangible. When a pension fund requires investment-grade ratings, Moody's and S&P collect a toll. Intangibles show up as pricing power: the ability to raise prices faster than costs without losing customers.

2. Switching costs

Examples: Microsoft Office, Oracle databases, Adobe Creative Cloud, Apple iCloud.

Some products are painful to leave. The pain can be financial (Salesforce reconfiguration), operational (re-training thousands of users), or emotional (every photo in iCloud). High switching costs let companies raise prices over time while customers grumble but stay. The signature: 95%+ revenue retention rates.

3. Network effects

Examples: Visa, Mastercard, Meta, the CME, eBay.

The product gets more valuable as more people use it. Each new Visa cardholder makes Visa more valuable to every merchant. Each new merchant makes Visa more valuable to every cardholder. Network effects are the most powerful moat type because they compound: the leader gets stronger as it gets bigger.

4. Cost advantage

Examples: Costco, Walmart, GEICO, BHP iron ore, Saudi Aramco.

Some businesses can produce or distribute at structurally lower cost than anyone else. Costco's massive sales volume per SKU drives supplier pricing nobody else gets. GEICO's direct distribution removes the agent commission layer. BHP's Pilbara mines have the lowest iron-ore extraction cost on earth.

5. Efficient scale

Examples: regulated utilities, pipelines (Enbridge, Transurban), airport operators.

Some markets are large enough for one rational operator but not two. A second pipeline next to Enbridge would destroy returns for both. Regulators frequently grant or implicitly bless these single-operator zones, producing decades of stable, regulated returns.

How moats show up in the numbers

A real moat is visible on a 10-year income statement. The three signatures:

High and stable ROIC (return on invested capital) — above 15%. No moat → ROIC drifts down to the 8-10% cost of capital.
Stable or expanding gross margins relative to peers. A widening gap between leader and competition is a widening moat.
Consistent free cash flow conversion. Moated businesses don't need to reinvest every dollar they earn just to stay still.

Moat width vs. moat depth

Morningstar classifies moats as wide (advantage expected to last 20+ years), narrow(10-20 years), or none. The width is what matters for long-term compounding. A narrow-moat business can be a great trade; a wide-moat business is what you hold for 20 years.

Why moats erode (and how to spot it)

Moats are never permanent. Technology disrupted Kodak, Blockbuster, and newspapers. Regulation can open (US telecoms in the 1980s) or close (any nationalization). Customer behavior can shift (cable TV).

The early-warning signs:

Declining market share over multiple years
Gross margin compression without a clear cyclical explanation
Increasing customer acquisition costs (R&D + marketing intensity rising)
New entrants with structurally different cost or distribution models

Putting it into practice

Before buying any stock, write one sentence describing its moat. If you can't — or if your sentence is vague ("great products", "strong brand") — you don't have a moat thesis. You have a hope. See our curated list of best wide-moat stocks for examples of the sentence test done well, and our Buffett investment checklist for the full framework.

What is an Economic Moat? (With Examples)