The Role of Competitive Advantages in Quality Companies

Warren Buffet and his team are trying to figure out what criteria could we use to identify companies that have a moat. The ultimate measure is returned on invested capital over a long period of time, they say. You first look at that track record, have they been able to outperform for a significant period? Then you look inside, what accounts for that? Do they have a brand advantage? Is there a network effect? Did they have a friendly middleman? And then you probe that: Is the competitive environment rational?

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