Library skill · Thinkers' principles

Buffett-style moat and margin-of-safety check

v1.0.1 · Updated 4 November 2026

Checks a business or a purchase for an enduring moat, a known circle of competence and a margin of safety, as Warren Buffett describes them in the Berkshire letters. Not investment advice. Use it when you want to know what really protects your business from competitors.

Not affiliated with or endorsed by Warren Buffett or their companies. About these principles: Warren Buffett's ideas, explained.

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When to use it

You want to know what really protects your business from competitors
Before buying a company or making a large long-term commitment

What you give it

What the business sells and earns
Competitors and switching options
Evidence: margins, retention, cost per unit
Price and value estimate, with assumptions

What you get

A three-part verdict with a moat table, a circle-of-competence table, a margin of safety recomputed under worse assumptions, and what to find out first.

How it works

State what the business earns Margins and returns on capital from the input. If returns are ordinary, say so: principle 1 is about protecting excellent returns.
Name the candidate moats For each source of protection (low cost, brand, distribution, scale, others the user names), write the evidence and how a competitor would try to cross it.
Test "enduring" (principles 1 and 2) Would the moat still stand in five to ten years? Is the industry changing fast? Does the moat need constant rebuilding (heavy spend just to stay level)? Mark each moat strong, weak or unproven.
Draw the circle of competence (principle 4) List what the deciders understand well (customers, costs, technology, regulation) and what they don't. Mark where the decision depends on something outside the circle. The boundary matters more than the size.
Size the margin of safety (principle 5) Compare price (or the plan's cost) with your estimate of value. Show the gap and the assumptions under the value. Recompute with the two most important assumptions made worse. If the gap disappears, the margin is thin.
Report One verdict per question, the evidence, what would change it, and what to find out first. No investment recommendation.

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