Invest in companies with strong and sustainable moat

Invest in companies with strong and sustainable moatInvest in companies with strong and sustainable moat

Moat companies are solid stocks which offer good returns over a period of time. In this article we would discuss about the moat concept and how an investor can would benefit from investing in such companies for long term.

Moat concept

The concept of moat is not new. The “economic moat” is coined by Warren Buffet. Warren Buffet used several times about such concept in his annual letters sent to shareholders since 1986. As per him, “in business, I look for economic castles protected by unbreachable moats”. He says, castles mean business and unbreachable moat is the competitive advantage one has over other in same sector or industry. This makes the company impossible for other competitors to touch its market share.

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Moat companies and their unique advantages

  • Such companies have strong brand
  • It is impossible for other competitors to touch their market share
  • Wider the moat, the wider the market, and the more competitive advantage it has.
  • It is almost impossible for other to replicate and come into such business and occupy their place.

How to identify economic moat companies to invest

Identifiable brand: The brand should be easily identifiable. Think about painting your house, you would recall Asian Paints. Think about instant noodles, you would buy Maggi noodles. There are several brands like Colgate, Nestle, Asian paints which are unique in nature and easily identifiable.

Long term profitability growth: Several companies work towards long term profitability growth and upfront declare about the investments they want to make to grow their profitability in future. If you observe, such companies provide sustained profitability growth.  

High switching costs: Companies that have products that have high switching costs have advantage. E.g. Think of Microsoft windows. If he want to switch to non Microsoft windows version, probably it would take several weeks or months for a person to learn. Hence the user would better switch off his idea to move to another product.

Low cost producer: There are several companies which operate at low cost to produce a product. It would be very difficult for competitors to produce such product at low cost or to sell the products at low price as their margins would get reduced.

Samples of moat companies with some analysis

1) Colgate Palmolive:

  • This is a moat company in oral care category
  • It has 50% market leader in this segment
  • Strong brand
  • Good distribution network to ensure there is supply to all areas


  • Earnings per share: Rs 22.76
  • Price earnings ratio (P/E ratio): 35.52
  • 5 year total returns (%): 227%
  • Market capitalization (Crore): Rs 17,916
  • Share price: Rs 1,470

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2) Nestle India

  • It has strong brands in noodles (Maggi), Baby food (Cerelac) and coffee (Nescafe)
  • It has a largest share in instant noodles (70%)
  • Good distribution network to ensure there is supply to all areas


  • Earnings per share: Rs 25.00
  • Price earnings ratio (P/E ratio): 42.45
  • 5 year returns (%): 191%
  • Market capitalization (Crore): Rs 45,331
  • Share price: Rs 4,980

List of major moat companies along with its financials and returns over last 3 and 5 years

Invest in companies with strong and sustainable moat

Conclusion thoughts: When you want to create wealth in long run, invest in such solid companies with moat concept for long term. I am sure we would grow our wealth by investing in such unique featured and strong growth moat companies which would be difficult for other competitors to replicate.

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Invest in companies with strong and sustainable moat


  • Rohan ADC

    Nice Article.

    Wish we had mentors like you in our respective fields.

    great Job

  • Sunith

    Hi Suresh:

    Want to invest 10 Lakhs for a period of 5 years. I am thinking of investing in Nestle and Asian Paints.. What kind of returns can I expect in a 5 year period ?.. Also – is investment in Gilt / Debt mutual funds better than doing bank FDs ?

    • Hi Sunitha, It would be very difficult to say about the future returns. These companies are specialised and are unique in their business. Instead of investment a lumpsum investments in them, diversify your investmnets in stocks, mutual funds and other investment options.

  • Piyush

    Another nicely written article. I believe other companies in this category with big Moat would be Dabur India, Procter and Gamble, Gillete India, Godrej Consumer. Off course Moat alone does not qualify it to buy it for long term. One has to look at macro-economics and market trends. Big companies like Microsoft also does not have enough Moat if they don't have strong presence in Tablet and smart phone markets. 

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