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Want to invest in resilient stocks? Find stocks with economic moats

by , 22 July 2014

Castles had moats to protect themselves against invasion. The wider and deeper the moat, the smaller the chances of the castle coming under attack.

An economic moat is a similar idea. It serves the same purpose. An economic moat is a critical feature when you're looking to invest.

An economic moat gives a company sustainability.

Let's take a closer look at what you should look for in an economic moat…

What is an economic moat?

Economic moats come in a host of different varieties. Different moats include:
  • A strong brand;
  • A patent; and
  • Regulatory constraints.
In essence an economic moat is something a company possesses that prevents other companies from stealing its customers, Phil Oakley in Money Week explains.

Companies that have economic moats are very much in demand from investors.

Investing great Warren Buffett is a big fan of companies with economic moats. He believes that economic moats are central to reducing your risk as an investor.

Why invest in companies with economic moats?

The advantages of economic moats is they allow the company to be very profitable. And there’s a good chance that a company’s economic moat will continue to help it prosper in the future.

The secret to investing in companies with economic moats is to try to snap them up at the right price. And once you’ve bought them, keep a hold of them for the long-term

This allows you to benefit from the company’s future success. And the capital appreciation in the company’s share price. And to receive dividends.

Warren Buffett has large stakes in companies with huge economic moats. These include Coca-Cola, American Express and Gillette.

So there you have it, if you want to invest in resilient stocks, find stocks with economic moats.

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Want to invest in resilient stocks? Find stocks with economic moats
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