Retreat from risk: buy stocks with moats

A moat represents a castle’s first line of defence against intruders. An ‘economic moat’ does the same thing for a company – and it’s a critical feature to look for before you invest in any stock, says Phil Oakley.

A moat represents a castle's first line of defence against intruders. The bigger and deeper it is, the better. An economic moat' does the same thing for a company and it's an absolutely critical feature to look out for before you invest in any stock. An economic moat gives companies staying power. As we'll discuss in a moment, the moat can come in a wide range of guises from a brand, to a patent, to regulatory constraints but in essence, it's any aspect of the business that allows it to keep making money, and stops other firms from stealing its customers.

Companies with economic moats are highly sought after. They are central to the success of US investor Warren Buffett, for example. According to Buffett, buying companies with moats is a great way to reduce your risk as an investor. That's because if a company's advantages have allowed it to make good money in the past, it will probably have a decent chance of continuing to do so in the future.

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Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.