1. Evaluating Morningstar Wide Moat Stocks
Zachary Bishkin
Dr. Joshua Spizman

2. Agenda The Opportunity Defining Wide Moat Stocks The Method The Why
The Question
References

3. The Opportunity
Higher risk merits higher reward, so what if I told you that there is a type of stock with less risk earning higher returns?
Many popular economists say that the market takes care of inefficiencies, because as soon as you have identified one, it will go away.

4. (Google)
What do all of these companies have in common? Well the answer is that they all have a wide moat protecting them in their respectrive industries

5. The Wide Moat
a firm’s long term ability to earn consistent positive returns because of a competitive advantage that it possesses
5 Main types of “Moats”
Network Effect ( More customers-> Value to Customer Increases) Ex. Facebook
Intangible Assets ( Patents, Trademarks) Ex. Google(alphabet)
Cost Advantage ( Lower prices while maintaining profit) Ex. Target
Switching Costs ( Expensive to switch to competitor) Ex. Visa
Efficient Scale (One firm can serve the entire market) Ex. YKK(makes zippers)

6. The Why
The Gap

7. Morningstar Wide Moat Performance
Why can MorningStar reliably outperform the market with Wide Moat Stocks?
% Returns
Morningstar, a trusted resource for investors has two portfolios that use only widemoat stocks called the tortoise and the hare. Here are their returns, which collectively earn on average 9.1% returns since In the same period of time, the S&P 500, which is a good indicator of the overall market, has only returned 5.8%. Investors are always looking for a succesful investment technique, so has morningstar found something worthwhile
Morningstar StockInvestor Vol. 16 No. 5(November 2016)

8. The Method Fama-French 3 Factor Model (Regressional Model Analysis)
Beta(Riskiness)
Size(Smaller companies grow Faster
Book to Market(Undervalued companies have higher returns )
Here is the method for examining. The stocks, these are three statistical factors that we know to impact stock returns, so I would be using these known factors to create this regressional model to see if Morningstar has found a winning model, or if they have just capitalized on known factors.

9. References
Cofina, Matthew, “Plans for the Hare.” Morningstar StockInvestor Vol. 16 No. 3(September 2016)
"Economic Moat." Morningstar Investing Glossary. Accessed October 18,
Fama, Eugene, “Efficient Capital Markets: A Review of Theory and Empirical Work.” The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp 

Fama, Eugene F., and Kenneth R. French. "Size and Book-to-Market Factors in Earnings and Returns." The Journal of Finance 50, no. 1 (1995):
Fama, Eugene F., and Kenneth R. French. "Multifactor Explanations of Asset Pricing Anomalies." The Journal of Finance 51, no. 1 (1996): 55. doi: /
French, Eugene F. Fama and Kenneth R. "Common risk factors in the returns on stocks and bonds." Journal of Financial Economics, no. 33 (1993): 3-56.
French, Eugene F. Fama and Kenneth R. "The Cross-Section of Expected Stock Returns." The Journal of Finance (Wiley for the American Finance Association) 47, no. 2 (June 1992):
Malkiel, Burton G. A Random Walk Down Wallstreet. New York: Norton, 1999.
Malkiel, Burton G. “The Efficient Market Hypothesis and Its Critics.” The Journal of Economic Perspectives, Vol. 17, No. 1 (Winter, 2003), pp
Morningstar. Morningstar StockInvestor Subscriber’s Handbook. Accessed October 24,
"Welcome Letter." Matt Coffina to Morningstar Subscribers. In Morningstar StockInvestor. Accessed October 24,