Qualitative Valuation

Core Concepts

Economic Moats (Morningstar Framework)

An economic moat is a structural advantage that protects a company's profits from competition. Five sources:

1. Network Effects: the product becomes more valuable as more people use it (payment networks, marketplaces)
2. Switching Costs: customers face significant cost, effort, or risk in moving to a competitor (enterprise software, banking relationships)
3. Intangible Assets: brands, patents, licenses, or regulatory approvals competitors cannot replicate; brands must confer pricing power to qualify
4. Cost Advantages: structural cost advantages from process technology, scale, location, or unique resources
5. Efficient Scale: a market that supports only a few players, where new entry would drive returns below the cost of capital (utilities, pipelines, railroads)

Moat Width

• Wide moat (20+ years): multiple reinforcing moat sources, each backed by hard evidence
• Narrow moat (10+ years): at least one evidenced moat source with moderate durability
• No moat: commodity business with no structural advantage; competes on price

A moat claim is only as strong as its evidence. Do not award moat sources based on narrative — use the rubric below.