Castles, Companies Need Moats

Q A What does a “moat” refer to in business-speak? — P.O., Walnut Creek, California Just as with a castle, if a company has a wide moat, it will be hard for any enemies to attack it. Thus, a moat refers to the sustainable competitive advantages a company may have that can protect its market position and defend against competitors or would-be competitors. Competitive advantages can include patents, a strong brand, economies of scale, barriers to entry, and high switching costs. Think of Apple as an example. Its strong brand attracts many customers who associate it with high quality and good design, and once they’re in the Apple environment, it can seem like too much of a pain to switch out of it.

Boeing, meanwhile, encounters few new competitors because it’s so costly to start manufacturing aircraft. Q What is the U.S. inflation rate, and how does it compare to that of other countries? — S.S., Greenville, North Carolina A The United States’ inflation rate was recently about 2.5 percent, according to the International Monetary Fund, below the long-termaverage of about 3 percent per year. Meanwhile, it was 0.7 percent in Switzerland, 1.1 percent in Japan, 2.5 percent in China, 2.7 percent in the United Kingdom, 2.8 percent in Russia, 5 percent in India, 11.4 percent in Turkey, 22.7 percent in Argentina and 13,864.6 percent in Venezuela.

That Venezuelan rate reflects the phenomenon of hyperinflation, when inflation is occurring at rates higher than about 50 percent monthly. When prices rise that quickly, the money that people have in their pockets and savings accounts rapidly loses its value and the economy is dangerously destabilized.

Hyperinflation, often triggered by governments printing too much money, occurred in Germany after World War I and more recently in Zimbabwe. Want more information about stocks? Send us an email to foolnews@fool.com.