There is a saying: Strong hands buy moats; weak hands buy headlines. As legendary investor Charlie Munger once said, “What really makes it work is… durable competitive advantage…. You really want an advantage that, nourished without overwhelming skill, will keep working for you for a long, long time. You want to avoid a business which is just so brutally competitive that nobody does well over the long pull.”
In my investment career, one thing I learnt is that business is a battlefield and capitalism is brutal. It’s not enough to just survive — you need to defend your turf. That’s where moats come in, and it’s one of the most important pieces of information investors want to evaluate before investing.
They’re the protective barriers that keep competitors at bay and drive long-term value for investors. If you’re focused on quarterly earnings, you’re playing the wrong game. Instead, think like Warren Buffett — invest in companies with durable moats that can fend off competitors year after year.
What is a moat?
A moat is a sustainable competitive advantage that allows a company to earn high returns over a long period. It’s the difference between being a flash-in-the-pan growth story and a resilient market leader. In business to business (B-to-B) markets, where loyalty is fleeting and brand power is weak, moats are built differently.
The Five Types of Moats
1. Intangible Assets
Think Apple which is one of the holdings in our fund. The brand loyalty, design reputation and ecosystem create more than emotional appeal — they form a hard-to-replicate barrier. You don’t just buy an iPhone; you buy into a world of seamless experiences, from iOS to AirPods. That branding and software integration is a moat, not a marketing gimmick.
2. Switching Costs
Look at Adobe, another one of our investments. Its Creative Cloud products are deeply embedded in the workflows of designers, agencies and media firms. Switching to another platform means re-training teams, converting files and risking productivity. Even if competitors undercut on price, the pain of switching keeps users locked in.
3. Network Effects
Take Shopify, yet another one of our investments. The more merchants who join the platform, the stronger its partner ecosystem becomes, from apps to payment integrations. That, in turn, attracts more merchants. It’s a self-reinforcing loop where scale begets more scale. Competitors struggle to match the depth of that ecosystem, even with better tools.
4. Cost Advantage
Amazon is also one of our investments. With its unmatched logistics infrastructure, aggressive reinvestment and obsession with efficiency, Amazon can undercut nearly anyone on price while still generating healthy cash flows. Its scale-driven cost base is a structural moat that makes it nearly impossible for smaller players to compete head-to-head.
5. Efficient Scale
Alphabet, the parent company of Google, is another one of our fund’s holdings. In search, maps and digital video, it dominates global markets that naturally support just one or two players. The infrastructure, data and regulatory barriers required to compete at scale create a protective moat. For most challengers, it’s just not economically viable to go head-to-head. Alphabet thrives where the winner takes the most.
So what builds a moat? Start with leadership. Founders with skin in the game think in decades, not quarters. Then look at the management with exceptional capital allocation skills. Strong gross margins and high free cash flow conversion tell you a company isn’t just growing — it’s doing so efficiently and with discipline.
But moats can erode. I’ve made the mistake of underestimating disruption. Blockbuster did too. That’s why I now test every investment against the five types of moats.
One lesson I’ve learnt: if a company relies too much on debt or financial engineering to appear strong, it’s not a moat—it’s a mirage. The best businesses are excellent capital allocators, have low capital intensity, clean balance sheets and the kind of customer relationships that don’t crumble under pressure.
This isn’t theoretical. In the YFS Intelligent Wealth Fund, the fund we manage, the businesses that delivered multi-bagger returns weren’t the fastest growers—they were the ones with the widest moats. The ones that customers couldn’t leave, competitors couldn’t touch and the market consistently underestimated.
If you want to build lasting wealth, stop chasing momentum. Find the moats. Understand them. Hold them.
Because in the end, it’s not about who runs the fastest — it’s about who builds the strongest castle.
Stop chasing the hottest thing in the market. Invest in a few exceptional companies with real moats. Over time, protecting your turf is the only way to win the long game and build lasting wealth.
When you find them, as Warren Buffett beautifully put it here, “If you’re a know-something investor…conventional diversification makes no sense. Simply add money to your top choices—the businesses you understand best, with the least risk and the greatest profit potential.” Businesses with strong and sustainable moats are key. When you identify such businesses, concentrate your investments instead of diversifying.
Let today be the day you decide to build or invest in a fortress, not a fleeting flame. Because in the end, it’s not who runs the fastest. It’s who builds the deepest, widest moat and protects it.
Awet Ghirmay, Head of Investment Research
If you want to learn more about this topic, please find the link here.
More information about our fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings
The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
