Joachim Andersen

Accelerated Learning

Moats: How Durable Advantages Keep Competitors at Bay

Moats illustrated by an older bearded man in a long dark overcoat and a younger man in a charcoal wool coat, seen from behind on a dark riverbank, looking across a misty moat at a golden-lit castle on a hill reflected in the water.
Moats illustrated by a castle protected by water: a durable advantage keeps competitors at a distance.


A Moat is a durable competitive advantage that protects a business from competitors, the way a moat full of water protected a medieval castle. It’s one of the mental models I find most useful, because it explains why a few companies earn high returns for decades while most see their profits competed away, and it applies just as well to careers.

The essence of Moats is to ask: “What protects this advantage from competition, and how long will that protection last?“


Origin: From Economic Castles to Durable Advantage

The idea comes from Warren Buffett. In his 1993 letter to Berkshire Hathaway shareholders, he described how the might of a few companies’ brands, products and distribution gave them “an enormous competitive advantage, setting up a protective moat around their economic castles.”

He made the term famous in Mr. Buffett on the Stock Market, written with Carol Loomis for Fortune in November 1999: “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

In his 2007 letter, he added: “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.”

Pat Dorsey, then director of equity research at Morningstar, turned the idea into a practical framework in The Little Book That Builds Wealth (2008), sorting moats into five sources that Morningstar still uses to rate companies.


Key Concepts

  • Returns That Last
    A moat lets a company earn returns above its cost of capital for a long time. Without one, rivals compete profits away. Morningstar calls a moat wide if it should last more than 20 years, and narrow if it should last about 10.

  • Intangible Assets
    Brands, patents and licenses keep competitors out or let a company charge more, like the official status US regulators give a handful of credit rating agencies.

  • Switching Costs
    When changing supplier is costly, risky or a hassle, customers stay, like with software a whole company is trained on.

  • Network Effects
    A product becomes more valuable as more people use it, which I touch on in Economies of Scale.

  • Cost Advantages
    Producing more cheaply than anyone else, through scale, location or process, lets a business undercut rivals and still earn good margins.

  • Efficient Scale
    Some markets only have room for one or a few players, like a pipeline between two cities, so a newcomer would make it unprofitable for everyone.

  • Porter’s Five Forces
    In 1979, Michael Porter showed that industry profits depend on five forces: rivalry, the threat of new entrants, the threat of substitutes, and the bargaining power of buyers and suppliers. A moat holds those forces back.

  • Helmer’s 7 Powers
    Hamilton Helmer names seven sources of lasting advantage: scale economies, network economies, counter-positioning, switching costs, branding, cornered resource and process power, each needing both a benefit and a barrier that stops rivals from copying it.


Some Examples

  • Airlines
    In the 1999 Fortune piece, Buffett noted that as of 1992, the money made by all US airlines since the dawn of aviation was “Absolutely zero.” He joked that, had he been at Kitty Hawk in 1903, he should have shot Orville Wright down. Aviation changed the world, but without moats, competition handed the gains to customers.

  • Newspapers
    In his 1991 letter, Buffett warned that newspapers, television and magazines “have begun to resemble businesses more than franchises”, as readers and advertisers gained new alternatives.

  • Lipitor
    Pfizer’s cholesterol drug Lipitor, the best-selling drug in history, lost its US exclusivity in November 2011. Generics arrived, and its revenue fell from $9.6 billion in 2011 to $3.9 billion in 2012. A patent moat has a known end date.

  • Toyota
    Helmer’s example of process power is the Toyota Production System. Even after General Motors studied it up close in their NUMMI joint venture, rivals struggled for years to copy it, because it lives in thousands of small routines.

  • Encyclopaedia Britannica
    Britannica sold 120,000 print sets in the US in 1990. By 2012, the internet and Wikipedia had shrunk print to less than 1% of its revenue, and it stopped the presses after 244 years.


Applying Moats

When I want to use this mental model, this is the simple process I follow:

  1. Name the Source
    Ask which source actually protects the advantage. If I can’t name one, there probably isn’t one.

  2. Test the Durability
    Consider whether it will still matter in 10 or 20 years, and what could make it irrelevant.

  3. Check the Numbers
    A real moat shows up as high returns on capital over many years.

  4. Watch the Direction
    Is the moat widening or shrinking? A shrinking moat is a warning, even while profits are high.

  5. Build a Career Moat
    Cal Newport argues that skills which are rare and valuable become “career capital” that you can trade for better work. Trust and relationships built over years are hard to copy too.

  6. Combine Skills
    Scott Adams suggests that being very good at two or more things that rarely go together beats being the best at one. As Naval Ravikant puts it: “Society tries to force people into narrow, hyper-specialized industrial boxes, yet human beings are naturally multi-varied.” Leaning into your distinct, unusual crossover of interests is how you build “specific knowledge” and capture attention.


Pitfalls and Limitations

  • Moats erode. Buffett warned that business history is full of “Roman Candles, companies whose moats proved illusory and were soon crossed”, and that “a moat that must be continuously rebuilt will eventually be no moat at all.”

  • Growth is not a moat. An industry can transform society and still destroy capital.

  • A great moat can be a bad investment at the wrong price, so I treat moats as one input rather than a buy signal (education, not investment advice).

  • A career moat can breed complacency. Rare skills today can be common tomorrow, so I keep learning, and so should you. Accelerating your learning, in that sense, is a necessity, rather than an option.


Related Mental Models

Moats remind me that an advantage is only worth as much as its protection and how long it lasts. By asking what keeps competitors out, whether that barrier is getting wider or narrower, and how I can build rare, hard-to-copy skills and relationships myself, I can spot the businesses and careers that are built to last.



To learn more about economics and how key parts of our world work,
check out: Wise: How to Attain a Deep Understanding of the World, History, Our Place in It, and How to Live Well



📚 Sources and References


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