Why Moats Matter is a comprehensive guide to finding
great companies with economic moats, or competitive advantages.
This book explains the investment approach used by Morningstar,
Inc., and includes a free trial to Morningstar's Research.

Economic moats--or sustainable competitive
advantages--protect companies from competitors. Legendary
investor Warren Buffett devised the economic moat concept.
Morningstar has made it the foundation of a successful
stock-investing philosophy.

Morningstar views investing in the most fundamental sense: For
Morningstar, investing is about holding shares in great businesses
for long periods of time. How can investors tell a great business
from a poor one? A great business can fend off competition and earn
high returns on capital for many years to come. The key to finding
these great companies is identifying economic moats that stem from
at least one of five sources of competitive advantage--cost
advantage, intangible assets, switching costs, efficient scale, and
network effect. Each source is explored in depth throughout this
book.

Even better than finding a great business is finding one at a
great price. The stock market affords virtually unlimited
opportunities to track prices and buy or sell securities at any
hour of the day or night. But looking past that noise and
understanding the value of a business's underlying cash flows is
the key to successful long-term investing. When investors focus on
a company's fundamental value relative to its stock price, and not
where the stock price sits today versus a month ago, a day ago, or
five minutes ago, investors start to think like owners, not
traders. And thinking like an owner will makes readers better
investors.

The book provides a fundamental framework for successful
long-term investing. The book helps investors answer two key
questions: How can investors identify a great business, and when
should investors buy that business to maximize return?

Using fundamental moat and valuation analysis has led to
superior risk-adjusted returns and made Morningstar analysts some
of the industry's top stock-pickers. In this book, Morningstar
shares the ins and outs of its moat-driven investment philosophy,
which readers can use to identify great stock picks for their own
portfolios.

Auteur

Heather E. Brilliant, CFA Co-Chief Executive Officer Morningstar Australasia Prior to assuming her current role, Brilliant led Morningstar's global equity and corporate credit research teams, consisting of more than 120 analysts, strategists, and directors. Brilliant is a member of the CFA Institute Board of Governors and is a past chair of the CFA Society of Chicago. Elizabeth Collins, CFA Director of Equity Research, North America Morningstar Collins is responsible for leading Morningstar's team of North American-based equity research analysts. She has served as chair of Morningstar's Economic Moat committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. Morningstar is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. To find out more about Morningstar's approach to stock investing and receive a free trial of our research, visit: www.global.morningstar.com/whymoatsmatter

Résumé
Incorporate economic moat analysis for profitable investing Why Moats Matter is a comprehensive guide to finding great companies with economic moats, or competitive advantages. This book explains the investment approach used by Morningstar, Inc., and includes a free trial to Morningstar's Research.

Economic moatsor sustainable competitive advantagesprotect companies from competitors. Legendary investor Warren Buffett devised the economic moat concept. Morningstar has made it the foundation of a successful stock-investing philosophy.

Morningstar views investing in the most fundamental sense: For Morningstar, investing is about holding shares in great businesses for long periods of time. How can investors tell a great business from a poor one? A great business can fend off competition and earn high returns on capital for many years to come. The key to finding these great companies is identifying economic moats that stem from at least one of five sources of competitive advantagecost advantage, intangible assets, switching costs, efficient scale, and network effect. Each source is explored in depth throughout this book.

Even better than finding a great business is finding one at a great price. The stock market affords virtually unlimited opportunities to track prices and buy or sell securities at any hour of the day or night. But looking past that noise and understanding the value of a business's underlying cash flows is the key to successful long-term investing. When investors focus on a company's fundamental value relative to its stock price, and not where the stock price sits today versus a month ago, a day ago, or five minutes ago, investors start to think like owners, not traders. And thinking like an owner will makes readers better investors.

The book provides a fundamental framework for successful long-term investing. The book helps investors answer two key questions: How can investors identify a great business, and when should investors buy that business to maximize return?

Using fundamental moat and valuation analysis has led to superior risk-adjusted returns and made Morningstar analysts some of the industry's top stock-pickers. In this book, Morningstar shares the ins and outs of its moat-driven investment philosophy, which readers can use to identify great stock picks for their own portfolios.

Contenu

Preface ix

Acknowledgments xi

Chapter 1 Guiding Principles of Morningstar's Equity Research 1

Question 1: How Can We Identify Which Businesses Are Great? 2

Question 2: When Is the Best Time to Invest in Great Businesses? 6

Chapter 2 What Makes a Moat? 11

Moat Sources 13

Notes 33

**Chapter 3 Why Moat Trends Matter 35
**Contributed by Stephen Ellis, a member of Morningstar's Economic Moat Committee and head of Financial Services equity research at Morningstar

Moat Trends and Fundamental Performance 37

Five Key Considerations for Moat Trends 38

Intangibles 41

Cost Advantage 44

Switching Costs 47

Network Effect 51

Efficient Scale 54

Best Practices for Moat Trend Analysis 57

**Chapter 4 How Stewardship Affects Economic Moats 61
**Contributed by Todd Wenning, who oversees Morningstar's equity stewardship methodology

Meet Our Stewardship Methodology 62

Drilling Down 63

**Chapter 5 Applying Moats to Dividend Investing 81
**Contributed by Josh Peters, director of equity-income strategy for Morningstar and editor of the Morningstar® DividendInvestor*SM *newsletter

Why Dividends Matter 83

Which Dividends? 87

**Chapter 6 The Importance of Valuation 93
**Contributed by Joel Bloomer, Matt Coffina, and Gareth James, members of Morningstar's Moat Committee and contributors to Morningstar's valuation methodology

Valuation Concepts 95

Cost of Capital and Returns on Capital 96

Morningstar's Valuation Approach 97

Example: Calculating ROIC 99

Forecasting Future Free Cash Flows 102

The Morningstar RatingTM for Stocks 106

Fair Value Uncertainty and Cost of Equity 107

Notes 111

**Chapter 7 Do Moat Ratings Predict Stock Returns? 113
**Contributed by Warren Miller, head of quantitative research at Morningstar

**Chapter 8 Putting Moat and Valuation to Work: Portfoli…