Like it protected castles from plunderers in olden times, a
moat protects a company from competitors in the business world. A company’s
moat can be thought of as its competitive advantages, namely its advantages
over competitors.
This moat can be narrow or it can be wide. A narrow moat is
a smaller competitive advantage over peers, while a wide moat can mean the
company has a significant advantage over peers, which likely protects its
results through multiple economic cycles.
Narrow and wide moats have minimum life expectancies of 10+
and 20+ years, respectively, which they are anticipated to benefit the company.
We often see that companies with wide moats are better able
to continue growing earnings and as a result, grow their dividends for many
years. These companies also usually have strong margins in relation to their
peers, as their moats protect their profits and market share.
Companies with wide moats can offer investors more peace of
mind as they are generally more stable blue-chip stocks.
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