What is a corporate moat?

Q. What does it mean when a company has a “moat”? — V.C., Wilmington, Delaware

A. Moats have been used to keep intruders out of castles, and a company with a moat has one or more competitive advantages that can protect its market position and defend against competitors or would-be competitors.

There are many kinds of competitive advantages — such as a strong brand, valuable patents, economies of scale, high barriers to entry and high switching costs for customers. Boeing, for example, benefits from high barriers to entry: It would be extremely costly for any company to try to start building airplanes. Many customers might not change their cable company because it would be a big hassle. Apple’s powerful brand means that it can charge high prices for its offerings — and many customers end up with multiple Apple products, making it hard to switch away.

Q. How can I know what stocks my mutual fund holds? — P.H., Erie, Pennsylvania

A.

In general, you can’t know what a fund holds from day to day, but most funds release lists of their holdings at least monthly or quarterly. You should be able to find such reports on fund company websites, and also at sites — such as Morningstar.com — that offer information on a wide range of funds.

Don’t assume that any list is 100% up to date, though, because a fund may have sold some or all of its position in a stock since the report was issued — and may have loaded up on some other securities. Some fund managers also practice “window dressing” — selling some stocks that have taken losses and buying others that have gained before the end of a reporting period to look better to investors.

Finding winners with screens

There are more than 6,000 different stocks listed on the New York Stock Exchange and the Nasdaq Stock Market. It can be hard to figure out which of them might be terrific investments, so try online stock screeners to help narrow down a group of candidates for your portfolio to a manageable size.

When using a stock screener, you set some criteria describing the kind of stocks you’re looking for, and the screener will deliver stocks that meet them. For example, you might want stocks with market capitalizations of at least $5 billion, earnings growth rates of at least 10%, price-to-earnings ratios of 20 or less and dividend yields of 2% or more.

If the screener returns way too many results, you can tighten your requirements a bit or add another. If there are too few results, loosen your requirements or eliminate one.

Screening can be useful, but don’t trust it blindly. There may be amazing stocks out there with most, but not all, of your desired characteristics; if so, the screener will never bring them to your attention. Also, a screener is only as good as its data, so stick with reputable screeners using reliable data. If you’re not sure, just research any promising company more deeply.

There are many screeners out there, some free and some not. Some offer a pared-down free version and charge for more features.

For starters, check out the screeners for stocks and/or mutual funds at Finance.Yahoo. com, Zacks.com, Finviz.com, StockRover.com and Morningstar.com. Your brokerage may offer a screener for you to use, too. Many screening services not only let you play around with their screener, hunting for gems, but they also offer preset filters such as lists of promising dividend payers or fast-growing small stocks.

Don’t base any investment decisions solely on screening results, though, because they will always omit some factors that can be important, such as the quality of a company’s management and your confidence in it, the value of its brand(s) and its competitive advantages.