You’ve been investing for a long time. Why haven’t you made much money? The reason very likely lies in the moat. You know to invest in highly profitable companies. That’s not wrong. But when competitors see it, they also want a piece of the pie. What follows is an increase in product supply, falling prices, and thinning corporate profits. Such a company has no moat. If you invest in these companies, it’s no surprise you don’t make money.

So what is a moat? Simply put, it means my product can raise prices, and after raising prices, it still sells very well. You see me making a fortune and want to raise prices too. Sorry—your product will just become inventory.

When it comes to moats, no one explains it better than the two wise men, Buffett and Munger.

In Buffett’s view, the first criterion for whether a company can become a great company is whether it has a moat. The wider the company’s moat, the harder it is for competitors to cross, and the better the company’s operations will be. If a company’s moat is like a narrow, shallow ditch, that’s very unfavorable.

Munger said even more directly that a moat is a company’s core competitive advantage. These moats include brands, patents, economies of scale, and so on. High-quality companies generally have very deep moats. These moats keep widening and can help the company avoid more than 90% of its competitors.

So what are the benefits of a moat? High-quality companies with deep moats have many advantages. The biggest one is that they can raise prices to fatten corporate profits. This is true of See’s Candies, which Munger loves, and also true of Moutai, which Duan Yongping often mentions. Driven by market-oriented reform, in less than half a year, Feitian Moutai has already raised prices twice. Why? Because others cannot produce their flavor, yet market demand is huge. So prices follow the market, and price increases become inevitable. Once the product price rises, corporate profits rise. Is there an easier way to make money than that? This is the power of the moat—raising prices to increase profits, with customers running away? Not happening.

A moat is a company’s core competitive advantage. He who has a moat has the world!