Economic Moats and Stock Performance: Is Warren Buffett Wrong?

This study examines Warren Buffett’s investment strategy of focusing on companies with wide economic moats. We find companies with wide economic moats outperform those without such advantages in terms of overall returns, supporting Buffett’s approach. However, these companies do not necessarily outperform the broader market. Companies lacking economic moats underperform the market, highlighting the importance of sustainable competitive advantages. The study proposes a zero-value long–short portfolio strategy to capitalize on the performance disparity between wide-moat and zero-moat firms. Notably, we demonstrate that the value/growth indicator is superior to economic moat width for explaining stock returns, suggesting that while the concept of economic moat is valuable for understanding competitive advantage, it might be less useful for making investment decisions.