What is a business "moat" and why does it matter for investors?

A business moat refers to a company's sustainable competitive advantage that protects it from competitors—similar to a castle moat. These advantages might include strong brand recognition (like Apple), high switching costs (like Microsoft's software), network effects (like Visa's payment system), or unique assets (like Waste Management's landfills). For investors, companies with wide and growing moats typically maintain pricing power, defend market share during downturns, and generate consistent returns over time, often making them more resilient long-term investments.

What does "prioritizing long-term advantage over short-term earnings" actually mean?

This means a company is willing to sacrifice immediate profits to strengthen its competitive position. For example, Amazon spent years reinvesting nearly all its profits into building its logistics network and AWS cloud infrastructure instead of showing higher earnings. While this reduced short-term profitability, it created enormous barriers to entry that competitors struggle to overcome. Companies in this collection make similar strategic choices—spending on R&D, brand building, or infrastructure today to secure stronger market positions and potentially greater profits tomorrow.

How do these stocks typically perform during market downturns?

Companies with wide competitive moats often demonstrate greater resilience during economic downturns and market corrections. Their established market positions, pricing power, and customer loyalty typically provide more stable revenue streams when conditions deteriorate. While no stock is immune to market volatility, businesses with strong competitive advantages can often weather storms better than their peers, sometimes even gaining market share from weaker competitors during difficult times. This relative stability is why many investors consider these stocks as core holdings for long-term portfolios.

What are "network effects" mentioned in some company descriptions?

Network effects occur when a product or service becomes more valuable as more people use it. For example, Visa and Mastercard become more valuable to merchants as more consumers use their cards, and more valuable to consumers as more merchants accept them. Similarly, Microsoft's productivity software is more useful because so many people already use it, making collaboration easier. Network effects create powerful competitive advantages because new competitors face a chicken-and-egg problem: users won't join without an existing network, but you can't build a network without users. This makes companies with strong network effects particularly difficult to compete against.

15 handpicked stocks

Moat Wideners

These companies are building unbeatable competitive advantages that competitors simply can't match. Our analysts have carefully selected businesses that prioritize long-term market dominance over quick profits, creating exceptional durability and growth potential.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17