The Complete Idiot's Guide to Stock Investing Fast-Track by Ken Little

Author:Ken Little [Little, Ken]
Language: eng
Format: epub
ISBN: 9781615642748
Publisher: DK Publishing
Published: 2012-10-02T00:00:00+00:00

Durability of an Economic Moat

How long will an economic moat retain is protection? This is almost impossible to know for sure, but by looking at the industry where the company competes, you may be able to make a guess. We are unlikely to give up toilet paper, food, or energy anytime soon. However, moats built on cutting-edge technology may not be sustainable. Unless companies keep innovating, technology alone is not strong protection—someone is always looking for and finding a better solution. Microsoft became an economic giant on the back of its operating system, which is widely considered far from the best, but is installed on some 90 percent of personal computers. Microsoft built on this positioning by introducing a suite of office technology tools that only (at that time) ran on its operating system and are ubiquitous in businesses around the world. Other companies with durable brand names such as Coke, General Mills, and General Electric have years of consumer confidence filling their moats.

No moat exists forever or is beyond breaching. All companies, even those with the strongest brand, customer base, and financial strength must work to maintain their economic advantage. If competitors find a crack in the protection, they will exploit it.

STOCK TIP

Analyzing a company may seem like a daunting task, and it can be. The key is to focus on the important concerns such as revenues, earnings, and cash flows. Then you will see a clear picture of the company’s financial health.

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