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Why Moats Matter

An economic moat provides a gauge of a company's competitive advantages and overall strength, and it is a highly valuable tool for investors of all levels.

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Narrator: What do moats have to do with successful investing? No, we're not suggesting you go out and buy a medieval castle. We're suggesting finding companies that have carved a moat around their business that keeps competitors at bay. We believe these economic moats are one of the keys to investing success. Over the next few minutes, we'll explore how to identify an economic moat, take a deep dive into two wide-moat firms and see what makes them tick, and talk to practitioners about how they have been using this strategy successfully for years.

Individual investors may assume that the deck is stacked against them compared with sophisticated institutions. They see these large investors piling money into private equity deals, getting in on the ground floor on the next hot IPO, and spending sums of money to speed up already fast high-frequency trading systems. But the truth is individuals and others with a long-term time horizon can actually have some distinct advantages over those that are more focused on the near term. Instead of being worried about what is going to happen next quarter or even next year, individuals just like some of the most successful investors of all time, can truly take a long-term view of the world, and this different view gives them a distinct perspective.

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