Tutorial: work out whether a company has a moat

High returns on capital attract competition, and competition destroys high returns. That is the default. So a company earning 20% on capital for a decade while rivals pile in is telling you that something is stopping them. That something is the moat.

One good year proves nothing. Persistence is the whole signal.

Gross margin is pricing power made visible. What matters is its direction. A margin sliding a point a year for five years means competition has arrived and the moat is draining, no matter how good the last quarter looked.

There are only a handful of real moats: a brand people will pay more for, switching costs that trap customers, a network that gets stronger as it grows, a genuine cost advantage, or a market too small to be worth invading.

If you cannot name which one it is, you probably do not have a moat, you have a company that is currently doing well.

Every moat has a failure mode. Kodak's brand was enormous and irrelevant. Write down the one development that would breach this one. If you cannot think of any, you have not thought hard enough.