Why Moats Matter: The Morningstar Approach To Stock Investing

Finding great businesses at great prices is the holy grail of investing. How can you tell a great business from a poor one? A great business is one that can fend off competition and earn high returns on capital for many years to come. Such companies have economic moats—structural advantages that protect them from competitors, just as physical moats protected castles from enemies. Even better than finding a great business is finding one at a great price.

This book will:

• Introduce Morningstar's approach to stock investing
• Explain the concept of economic moats and the five sources of sustainable competitive advantage—Intangible Assets, Switching Costs, Network Effect, Cost Advantage, and Efficient Scale
• Establish the difference between business quality and undervalued stocks
• Discuss industry standards for evaluating moats
• Help determine how moats affect stock returns and stock valuation

Heather Brilliant, CFA is global director of equity and credit research and chief equities strategist for Morningstar. In this role, she leads the global equity and corporate credit research teams, consisting of more than 120 analysts, strategists, and directors in four offices around the world. Her team focuses on providing in-depth, fundamental equity and credit research based on sustainable competitive advantages and long-term valuation analysis. Brilliant is a member of Morningstar’s Economic Moat committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar.

Elizabeth Collins, CFA, is director of equity research for Morningstar. She is chair of Morningstar’s Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. Collins is also responsible for leading the basic materials team.