In the investment world, a company’s “moat” represents its competitive advantage, the fortress keeping rivals at bay and ensuring sustainable profits. But how do you gauge the depth and width of this metaphorical trench? Enter Michael Mauboussin’s invaluable checklist, a roadmap to dissecting a company’s defensibility.

Charting the Landscape:

  • Overview: Mauboussin asks us to consider the company’s life cycle stage, return on capital, and investment trends. Is it a young disruptor with a skyrocketing ROE, or a seasoned giant experiencing declining returns? Understanding the stage sets the context for the analysis.
  • Lay of the Land: Next, we zoom out to explore the industry dynamics. Profitability levels, market share trends, and pricing patterns reveal the competitive landscape. A stable industry with high margins and loyal customers suggests a wider moat.

The Five Forces and Beyond:

Porter’s Five Forces framework forms the core of the analysis:

  • Supplier and Buyer Power: Are powerful suppliers squeezing margins, or do informed buyers dictate pricing? Weak forces point to a stronger moat.
  • Substitutes and Switching Costs: Do readily available alternatives threaten the company’s dominance, or are customers locked in by high switching costs? The less attractive the alternatives, the deeper the moat.

Barriers to Entry:

This section delves into the structural advantages keeping competitors out:

  • High Entry Costs: Does the business require massive upfront investments, intricate licenses, or economies of scale that deter new entrants? Such hurdles widen the moat.
  • Reputation and Differentiation: Does the company boast a well-established brand or unique product differentiation that customers trust and value? These intangible assets act as formidable deterrents.

Rivalry and Disruption:

Mauboussin reminds us to consider the competitive battleground:

  • Industry Concentration and Pricing Coordination: Are a few giants controlling the market with tacit pricing agreements? Such oligopolies can be tough to crack.
  • Disruptive Innovation: Is the industry prone to sudden shifts that could render current players obsolete? The ability to adapt and innovate strengthens the moat.

Firm-Specific Advantages:

Beyond industry-wide factors, Mauboussin highlights company-specific strengths:

  • Economies of Scale and Scope: Does the company benefit from efficient operations and diversified revenue streams? Such advantages make it a formidable competitor.
  • Distribution Networks and Brand Power: Does the company possess established distribution channels and a powerful brand that inspires customer loyalty? These are cornerstones of a strong moat.

Collaboration and Complements:

Finally, Mauboussin reminds us to look beyond direct competition:

  • Complementary Businesses: Do other businesses benefit from the company’s success, expanding the overall pie and strengthening the ecosystem? This collaborative dynamic reinforces the moat.

Quotable Gems:

Throughout the checklist, Mauboussin sprinkles insightful quotes:

  • “It’s easier to build moats than climb walls.” – Pat Dorsey
  • “Sustainable value creation happens when a company generates returns on investment that exceed the cost of capital.” – Mauboussin

Tips and Tricks:

  • Don’t rely solely on financial metrics. Qualitative factors like brand strength and customer loyalty are crucial.
  • Consider the moat’s sustainability. Can it withstand technological disruption or changing consumer preferences?
  • Compare moats across companies within the same industry to identify the strongest defenders.


Mauboussin’s checklist provides a comprehensive framework for assessing a company’s moat. By considering the industry dynamics, firm-specific advantages, and the potential for disruption, you can make informed investment decisions and identify businesses with sustainable competitive advantages. Remember, a wide and deep moat can weather market storms and deliver long-term value for investors.

So, the next time you encounter a promising company, grab this checklist and dive into its competitive moat. You might just uncover a hidden gem ready to deliver extraordinary returns.


Prof. Dr. Prahlada N. B
29 December 2023
Mogadishu, Somalia.

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