CHICAGO, July 21, 2014—Identifying “economic moats,” or structural barriers that protect companies from competition, is the cornerstone of Morningstar’s equity analysis. Similar to the way castles are protected by moats, companies with economic moats are great businesses that can fend off competition and earn high returns on capital for many years. Morningstar’s new book, Why Moats Matter: The Morningstar Approach to Stock Investing (Wiley: ISBN: 978-1-118-76023-9), helps investors find superior businesses and determine when to buy them to maximize returns over the long term.
Why Moats Matter outlines the basic idea of economic moats, a concept pioneered by Warren Buffett, and gives investors a fundamentals-based framework for successful long-term equity investing. Why Moats Matter is co-authored by Heather Brilliant, co-chief executive officer of Morningstar Australasia and recently global head of equity and corporate credit research for Morningstar, and Elizabeth Collins, Morningstar’s director of equity research, North America. Other members of Morningstar’s equity and corporate credit and quantitative research teams also contributed to the book. In Why Moats Matter, Morningstar’s experts:
• Explain the concept of economic moats and moat trends and the five sources of sustainable competitive advantage—Intangible Assets, Switching Costs, Network Effect, Cost Advantage, and Efficient Scale.
• Establish the difference between business quality and undervalued stocks.
• Discuss standards for evaluating moats by sector and industry.
• Clarify how moats affect stock returns and stock valuation.
• Offer portfolio strategies for putting the power of moats and valuation to work.
“When Morningstar started analyzing stocks more than a decade ago, we began with some core principles that guide our research to this day. Then and now, our analytic work has centered on three primary elements—sustainable competitive advantages, valuation, and margin of safety—that we believe are the keys to outperforming the stock market over time,” Brilliant said. “Why Moats Matter delves into each of these ideas and is intended for investors with a long-term perspective. When you focus on a company’s fundamental value relative to its stock price, and not on where the stock price is today relative to a month ago or a day ago or five minutes ago, you start to think like an owner rather than a trader. It’s this mindset that we believe is key to helping people become successful stock investors.”
Why Moats Matter (ISBN: 978-1-118-76023-9; $40; Hardcover) is now available wherever books and e-books are sold. More information about Why Moats Matter, including author biographies and headshots, cover art, and methodology documents, is available at http://global.morningstar.com/whymoatsmatterPR. To view a video about economic moats and download sample equity research reports, please visit http://global.morningstar.com/whymoatsmatter. Morningstar applies this wide-moat philosophy in its Morningstar® Wide Moat Focus IndexSM, which consists of 20 stocks that represent the most compelling values as determined by the ratio of Morningstar’s estimated fair value to the stock’s current market price.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. Morningstar provides data on approximately 456,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 12 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $164 billion in assets under advisement and management as of March 31, 2014. The company has operations in 27 countries.
Investing in securities involves risk of loss. No investment process is free of risk; no investment strategy including Morningstar’s approach to stock investing can guarantee returns or eliminate risk in any market environment. The value of investments is not guaranteed and can fluctuate based on market conditions; therefore, an investment in a security or securities can result in the loss of principal. Diversification does not assure a profit or protect against loss.
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