Course · Act V: Good Investment, Bad Investment · Chapter 26
Moats and margin of safety
Competitive moats, risk, diversification and the margin of safety: telling a great company from a great investment.
Key terms
- Moat
- A durable competitive advantage: brand, network effects, switching costs, cost advantage, patents.
- Margin of safety
- (Estimated value − price) ÷ value. Room for error.
- Diversification
- Owning several unrelated investments so no single mistake is ruinous.
“Moats, Risk & Margin of Safety” is part of the full course: 5 puzzles on moats and margin of safety, with a story that carries through all five acts. Try this act’s free chapter, “Time Value of Money”, first.