Competitive Advantage Analysis — Measuring Moat Depth and Durability

Every business eventually faces competition. The only question is how long it can maintain above-average returns before competition drives them down to average. The economic moat is your answer to that question — and measuring it systematically is the core skill of competitive advantage analysis.

Why This Matters

Buffett coined the term "economic moat" in 1986, borrowing the image of a medieval castle's water-filled barrier. The broader the moat, the longer the castle can withstand siege. In business, the moat is whatever structural factor allows a company to earn returns above its cost of capital for years — sometimes decades — without being competed away. But moats are not binary (present or absent) — they exist on a spectrum of width and durability. A company can have a moat that is wide but narrowing (a warning sign), narrow but widening (a compelling opportunity), or wide and stable (a quality compounder). The investor's task is to identify not just whether a moat exists, but its trajectory.