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*AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 35 :* 01.03.2020

Economic Moat - Must for Long Term Investment
Last week we had seen list of various Qualitative and Quantitative factors which one needs to analyze to identify good companies for investing point of view.

Economic Moat of the Company :

Legendry Investor, Warren Buffet popularized the term 'Economic Moat' which refers to the ability of a business to maintain competitive advantages over its competitors in order to protect its longterm profits and market share from its rivals.Thus 'moat' works as a protective barrier which protects company's business from rival companies in the same industry.As a long term investor, to create wealth, one should invest in companies which have strong economic moat.

Warren Buffett explained the term 'Moat' in a U.S. News & World Report dated 12th June 1994
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"Look for the durability of the franchise. The most important thing to me is figuring out how big a
moat there is around the business. What I love, of course, is a big castle and a big moat with
piranhas and crocodiles."

Here,
Castle = A highly attractive business built upon a winning strategy and strategic brand.&
Moat = Barriers to competitor imitation and entry.

Some of the ways by which companies can create economic moat that allows them to have a significant advantage over its competitors include - cost advantage due to economies of scale;high switching cost; company's intangible assets like patents, brand recognition, government licenses,etc; or exceptional management or a unique corporate culture.

There are a few companies like Apple, Amazon, Facebook, Reliance Industries, HDFC Bank,Walmart, etc that are easily identified worldwide because of their wide economic moat. But having only moats are not always as obvious, especially with companies you may not be as familiar with.To identify stocks having wide economic moat, one needs to analyze stocks stock performance and financial statements.
Some of the things to look for:
* Consistent earnings even during bad Economic times.
* High level of cash on hand.
* Better financial performance compared to competitors in the same industry.
* Product Dominance in market.
* Powerful Intellectual Property
* High Brand Recognition

A company with a wide moat is usually a company worth investing in. Historically it has been seen that companies having wide moat have outperformed other companies and broader market in terms of wealth creation.

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