Buy stocks with wide moats to protect your profits

Companies with wide "moats" – attributes that give them an enduring competitive advantage – tend to thrive over the long term. Dr Mike Tubbs explains how to identify them and how to invest in them.

Coca-Cola advert
Coca-Cola boasts the world’s strongest brand, which keeps competitors at bay
(Image credit: © Coca-Cola)

One of Warren Buffett’s best-known expressions is “economic moat”. It refers to some companies’ ability to maintain competitive advantages over their rivals, helping them protect their profits and market share. An example of a company with an especially wide moat is Coca-Cola, in which Buffett’s investment vehicle, Berkshire Hathaway, has a $24.8bn stake.

Buffett first paid $1bn for a 6.2% stake in Coca-Cola in 1988 after the shares had fallen in the 1987 stockmarket crash. He felt it was a good company with a wide moat and was poised to recover. Buffett’s confidence in the firm was well founded: Coca-Cola’s shares rose 26-fold between May 1988 and April 2022. The company’s wide moat is based on it having the world’s strongest brand, while its massive size and geographic reach help it keep a lid on costs through economies of scale.

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Dr Mike Tubbs

Highly qualified (BSc PhD CPhys FInstP MIoD) expert in R&D management, business improvement and investment analysis, Dr Mike Tubbs worked for decades on the 'inside' of corporate giants such as Xerox, Battelle and Lucas. Working in the research and development departments, he learnt what became the key to his investing; knowledge which gave him a unique perspective on the stock markets.

Dr Tubbs went on to create the R&D Scorecard which was presented annually to the Department of Trade & Industry and the European Commission. It was a guide for European businesses on how to improve prospects using correctly applied research and development. He has been a contributor to MoneyWeek for many years, with a particular focus on R&D-driven growth companies.