To the new investor,

Another term you may have heard of but don’t fully understand.

Economic Moat.

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Moats were constructed around castles during the medieval age to protect them whilst under attack.

It’s similar with Economic Moats. This relates to how safe a current company is from a startup due to having one of three main differentiating factors.

The first of these is...
- Barriers to entry

Some industries can have extremely high financial or regulatory barriers to entry.

An example of these are airlines.

Many of the flight routes and airport slots have already been purchased and are dominated by the big players in that market.
Many flight routes and airport slots have been purchased and are dominated by the big players in the industry.

British Airways ($IAG), American Airlines ($AAL), Delta Airlines ($DAL) already own thousands of jets collectively.
It would be very difficult for new airlines to fly the most popular andprofitable routes due to the airlines above having huge economic moats.

The jets themselves can cost up to $300million; per trip a journey can cost up to £2million.

Not an industry you can walk(fly) into!
- Brand Integrity

One of the biggest brands that come to my mind is Coca-Cola ($KO). Immediately you can imagine their logo, the font, the colours, even the taste.

A consumer will always pick the product that they know and feel familiar with.
Competitors try to make better soft drinks than $KO but have been unable to remove them as the worlds best-selling producer.

Due to their status, $KO maintain a high pricing power for their products, consumers will pay up to 5x more for a well known name than a store brand.
- Economies of Scale

Supermarkets are a great example of economies of scale. They’re able to produce, transport and sell goods at a larger scale than their smaller competitors.

This, in turn, leads to lower average costs.

Walmart ($WMT) is a classic example of this.
$WMT operate over 11.5k stores across the globe and turn over $514 billion in annual revenue.

They’re able to maximise their revenue by procuring products at such a low cost.

These items are then sold at lower costs than competitors.
They appeal to a large, bargain hunting customer base whilst still achieving high profit margins.

If you made it this far then thank you for reading this thread. I appreciate your engagement!

I hope you found it informative and helpful!
You can follow @jackkimber.
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