In the video below, Morningstar’s Paul Larson describes what an economic moat is, where is comes from, and why it matters in investing.
As a side note, we think a growing or stable moat is more important than the actual size of economic moat. A company with a shrinking moat is, by definition, experiencing a departure from past returns on invested capital (ROIC), returns on assets (ROA), and returns on equity (ROE). When those metrics decline, so go earnings, so go valuation, so goes price…not necessarily in that order.
Certainly worth the 8 minute video or you can read the transcript: The 5 Sources of Moat