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.
Gap to MSCI World: -64.5 percentage points total, -2.4 per year
Index, start = 100
Past performance is not a reliable indicator of future results.
Based on all 16,182 stocks with a score. Not rated are stocks that the profile does not classify because of a size limit or an exclusion rule.
| Score | Number of stocks | High match | Medium match | Low match |
|---|---|---|---|---|
| -2 | 2,061 | 0 | 0 | 2,061 |
| -1 | 2,809 | 0 | 0 | 2,809 |
| 0 | 2,179 | 0 | 0 | 2,179 |
| +1 | 1,475 | 0 | 0 | 1,475 |
| +2 | 3,838 | 0 | 3,838 | 0 |
| +3 | 1,604 | 0 | 1,604 | 0 |
| +4 | 965 | 0 | 965 | 0 |
| +5 | 699 | 699 | 0 | 0 |
| +6 | 392 | 392 | 0 | 0 |
| +7 | 160 | 160 | 0 | 0 |
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, here for example “High return on capital (ROC > 20%)”.
In this profile, each rule that is met counts +1 to +2 or −2 points.
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 signing up for free, you can copy the full profile in the rule editor, adjust its thresholds, and save it as your own starting profile.
See and copy all rules for freeIndex, start = 100
The backtest shows a total return of +175.6%. The MSCI World reaches +240.1% over the same period.
The same strategy with the same settings, started at every possible date. Each dot is a separate run over 5 years.
The periods overlap heavily, neighbouring runs share almost all periods. The spread therefore looks smaller than it would for independent periods. Past results say nothing about future ones.
Strategy calculated without fees and taxes, dividends reinvested.
Point-in-time composition since June 30, 2009: each period uses the members at that time. Stocks that left the market early may be missing, which favours the result.
Historical period, quarterly rebalancing. 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.
Dots per card, in this order: Profitability, Balance sheet & risk. Filled means at least one rule in the category is met.
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.