A.I.M. Users Bulletin Board

[LemonHead]

Morning Bernie, Here are a few clips from Morning Star on how they describe economic Moat.

http://news.morningstar.com/doc/article/0,,80889,00.html

We've also made another change by incorporating the size of a company's economic moat into our calculation. "Economic moat" is a term used by Warren Buffett to describe the predictability of a company's future profits. Companies with big competitive advantages in mature industries (e.g., Pfizer PFE or Gillette G) are fairly predictable, so we rate them as "wide" moat companies, while companies with no competitive advantages (e.g., DaimlerChrysler DCX or Lucent LU) by definition have no economic moats. Most large-cap companies fall in between and get a "narrow" moat rating.

http://news.morningstar.com/doc/article/0,,77551,00.html

Basically, the idea of an economic moat refers to how likely companies are to keep competitors at bay for an extended period. All businesses that earn excess economic profits attract competition, and the bigger those profits are, the more capital will pour into those areas of the economy to compete with existing firms. That's the basic nature of any (reasonably) free market. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors, and it's this characteristic--think of it as the strength and sustainability of a firm's competitive advantage--that we're trying to capture with the economic moat rating.

Keith