Glossary
Economic Moat
A durable advantage that makes a company hard for competitors to attack, named after the ditch that used to protect a castle.
The word was popularized by Warren Buffett and the course uses his term for it. The idea behind it is that profits attract competition, so the question worth asking about a profitable business is what stops somebody else doing the same thing for less.
The examples people give are structural rather than clever. A network gets more valuable as more people join it, which makes a payments network hard to displace. Switching costs make leaving expensive, which is why enterprise software tends to stay put. Patents protect pricing for a fixed number of years. A brand customers ask for by name can charge more than a chemically identical product beside it.
A moat is an argument rather than a measurement. No company page prints one and no filing carries a field for it, which is why naming the advantage and naming what would erode it has to be done in words. Moats also narrow. An advantage that held for a decade can be taken apart by a change in technology or a change in the rules.
Learn this properly
Lesson 14: What Are Conviction Stocks?A conviction stock is a company you understand well enough that a bad week doesn't change your mind about it. Here's what that research looks like, and where conviction stops and stubbornness starts.
Related terms
- Bull CaseThe written argument for why a company will do well, stated as specific claims about the business rather than about the price.
- Bear CaseThe written argument against a company, naming what would have to go wrong and what would show it was happening.
- Gross MarginThe share of each dollar of revenue left after paying the direct cost of producing what was sold.
- Value StockAn informal label for a company trading at a low price relative to measures such as earnings or book value.
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