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Not All Moats Are Created Equal

Morningstar recently delved into the differences between companies' competitive advantages and found that the source of a firm's moat had an impact on performance.

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Editor's Note: Since the publishing of this article, Morningstar equity analyst Matthew Coffina was named editor of Morningstar StockInvestor.

Identifying long-term competitive advantages, or economic moats, has long been at the core of our equity research methodology. We recently completed a study focusing on the sources of a company's moat for all of the names in our equity coverage universe. As part of this study, we explicitly identified the source(s) of competitive advantage for every company with a narrow- or wide-moat rating and detailed how each of these companies sources their moat from one or more the following five categories: intangible assets, cost advantage, switching costs, network effect, or efficient scale. We found some rather striking differences in groups defined by the source of competitive advantage.

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Paul Larson has a position in the following securities mentioned above: ABT, CMP, EBAY, HOG, ISCA, ISRG, PFE, WMT. Find out about Morningstar’s editorial policies.