Competitive advantages leave measurable traces: persistently high returns on capital and margins that hold up under pressure, screened automatically.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
MSCI World over the same period: +240.1 %
Past performance is not a reliable indicator of future results.
| Score | Number of stocks |
|---|---|
| -2 | 1,448 |
| -1 | 3,044 |
| 0 | 2,222 |
| +1 | 1,648 |
| +2 | 3,947 |
| +3 | 1,625 |
| +4 | 999 |
| +5 | 680 |
| +6 | 453 |
| +7 | 199 |
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. That gives three classes: high, medium, low match.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
A return on capital above 20% is the strongest measurable moat signal (+2).
Gross margins above 40% (defended against the prior year) show customers accept the price.
An FCF margin above 10% proves that book quality converts into real money.
ROE above 15% this year AND last year: one-off effects do not count.
These exact rules run over every stock daily.
After a free sign-up: the full profile in the rule editor to copy, adjust thresholds and save as your own starting profile.
See & copy all rulesThe backtest shows a total return of +151.9%. The MSCI World reaches +240.1% over the same period.
Survivorship-free since June 30, 2015: the index composition is applied point-in-time.
Historical period, quarterly rebalancing, no taxes or fees. Past performance is not a reliable indicator of future results.
Purely mechanical rule application, no curated-list effect: stocks with a high match can fall just like any other stock.
For long-term quality investors who would rather hold an outstanding company at a fair price than a mediocre one at a bargain price. If you want valuation checked too, combine with Two-Factor Value + Quality.
An economic moat (network effects, switching costs, brands, economies of scale) cannot be measured directly, but its traces can: a company that sustains returns on capital far above its cost of capital and gross margins above 40% for years, without competitors eroding them, most likely has one. This strategy, inspired by the quality philosophy Warren Buffett made famous, looks for exactly those traces: high and persistent returns on capital and equity, defended margins, strong cash generation and balance-sheet discipline. For banks, insurers and real-estate companies, return on capital, gross margin and leverage are structurally not meaningful, so these criteria are held neutral there instead of wrongly penalising them. What the strategy deliberately does not check is the price: quality and valuation are separate questions here.
The core signal is the return on capital: an ROC above 20% earns +2 points, 12 to 20% still +1; below 8% or without a value the score is −2, because without above-average returns on capital no moat is in sight. On top come pricing power (gross margin above 40%, +1) and margin defence: a gross margin at least at the prior-year level (+1). For banks, insurers and real-estate companies, these rules are not applicable: a dedicated neutral rule awards them a flat +2 instead of silently punishing them through missing or distorted metrics.
Three further checks round things off: FCF margin above 10% (+1, neutral for financials/real estate), debt-to-equity below 0.5 (+1, a real moat needs no leverage doping, also neutral) and durability: return on equity above 15% in the current AND the prior year (+1, the only criterion still scored for financials, since return on equity is meaningful for banks). The upper threshold is a uniform 5 points across all size classes (Buffett's quality thinking knows no size tiering) out of a maximum of 7; financials and real-estate companies top out at 3 and therefore stay in the middle zone.
Return on capital: ROC ≥ 20% (+2), 12–20% (+1), < 8% or missing (−2, neutral for financials/real estate).
Pricing power: gross margin > 40% (+1); gross margin ≥ prior year (+1, both neutral for financials/real estate).
Cash generation: FCF margin > 10% (+1, neutral for financials/real estate).
Balance-sheet discipline: debt-to-equity < 0.5 (+1, neutral for financials/real estate).
Durability: ROE > 15% this year and last (+1, applies across all sectors).
Financials/real-estate offset: a flat +2 for the gated criteria; only ROE durability is still scored there.
The strength: moat companies can raise prices without losing customers and reinvest at high returns: compounding works hardest there. The prior-year comparisons (margin, ROE) filter out one-off effects that a single point-in-time metric could fake.
Fidelity update as of 23 August 2026: seven of the eight rules are now gated for banks, insurers and real-estate companies and held neutral (+2 offset) instead of silently punishing them through metrics that don't apply or are missing; only ROE durability is still scored there. The upper zone therefore remains reserved for non-financials. Morningstar and other moat analysts do grant economic moats to financial institutions too (via deposit-cost advantages, for instance), it is just the specific metrics (gross margin, classic return on capital) that don't fit there. The numeric thresholds themselves (40% gross margin, 15% ROE) do not come from Buffett personally but from the Buffett reception by Mary Buffett and David Clark: the strategy is inspired by Buffett's quality philosophy, not a one-to-one implementation of his own criteria.
Limits: the strategy ignores valuation entirely: outstanding quality bought too expensively can still be a poor investment. And it is backward-looking: a moat currently being breached (technology shift, regulation) shows up in the numbers only with delay. Capital-intensive industries with structurally low gross margins rarely meet the margin criteria; the strategy has a built-in sector tilt towards asset-light business models.
For patient investors with a long horizon who want to hold few, outstanding companies for a long time: the strategy deliberately produces little turnover.