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88 of 89 people found the following review helpful
5.0 out of 5 stars Accessible, solid, grown-up
I retired at 51 on my investments and have spent much of my time trying to counterbalance the instant-gratification claims of so many of those selling seminars and "help" to the investor.

While few people would be so foolish as to pay $40,000 for a Honda Civic despite that car's solid engineering, many will buy a stock with no concept of what its...
Published on July 24, 2004 by The Honest Conn Man

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17 of 18 people found the following review helpful
3.0 out of 5 stars Great overall understanding of the market, but a little out of date
Morningstar's guide is an excellent reference tool for any beginner investor. In detail, he explains financial statements and what to look for as a value investor. One section takes a step-by-step analysis of each sector of the market: typical breakdown of the businesses, trends & comparables, and what to look for in the sector. This book is dense with relevant...
Published on July 10, 2012 by Becky


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88 of 89 people found the following review helpful
5.0 out of 5 stars Accessible, solid, grown-up, July 24, 2004
By 
I retired at 51 on my investments and have spent much of my time trying to counterbalance the instant-gratification claims of so many of those selling seminars and "help" to the investor.

While few people would be so foolish as to pay $40,000 for a Honda Civic despite that car's solid engineering, many will buy a stock with no concept of what its fair-market value may be. Of this number, some are subscribers to the Greater Fool School of investing. They'll happily overpay for a popular stock in the arrogant belief that they'll be able to unload it for a profit to some Greater Fool. Sometimes, they will indeed make a profit. (At other times, they'll make an excuse.) This book is not for them.

The rest overpay not because they subscribe to the Greater Fool school but because they simply have no idea of how to value a stock. THAT is where this book shines. It will make the investor more conscious of what a stock is worth -- thereby avoiding the payment of $40,000 for a Honda or (in some cases) the payment of $100,000 for a Yugo!

Will the identification of value stocks and the discipline of not overpaying for a stock guarantee a profit? On any given purchase, of course not. However, it is a fool's task to argue that conscious investing based upon some sense of a company's true value will not reward more of its practitioners than Greater Fool speculations will over time.

If you're a serious investor with at least the discipline and patience than you demand of your own children, following this book's counsel should help you to make more money with greater safety. It's more accessible than The Intelligent Investor and a must read both for the novice and for the experienced investor who would like to pick up some distinctions that will improve his or her performance.
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97 of 102 people found the following review helpful
5.0 out of 5 stars For Value Investors. Fantastic Guide to Evaluating Companies & Stock Prices., February 28, 2006
"The Five Rules for Successful Stock Investing" is a guide to value investing by Morningstar's Director of Stock Analysis Pat Dorsey and the folks at Morningstar, Inc. The book's goal is to educate investors in how to "find wonderful businesses and purchase them at reasonable prices." Its title is a little misleading in that the "Five Rules" are a small part of this book. The five principles to which the title refers are: 1. Do your homework, 2. Find companies with strong competitive advantages (or economic moats), 3. Have a margin of safety, 4. Hold for the long term, 5. Know when to sell. Those are vague principles, but most of this book is dedicated to telling you just what homework you need to do and exactly how to do it. Pat Dorsey and Morningstar are advocates of long-term investing who are skeptical of trading and portfolio churning, so this book's intended audience is value investors. No technical analysis here. This is all fundamental analysis, but traders may find the advice on analyzing company finances useful as well.

"The Five Rules for Successful Stock Investing" has 2 parts: Chapters 1-12 are a "how-to" for analyzing companies, their finances, and determining what their stock should be worth. Key points include how to evaluate a company's competitive advantages, what to look for in financial statements, analyzing a company's management, spotting financial chicanery, and how to determine a company's intrinsic value. This is all fairly complex, and there is math involved, but the book takes you through the process, with examples, explaining why and how every step of the way. Chapters 13-26 provide overviews of 13 industries, from banks to software to industrial materials, including information on what the industries do, how they make money, hallmarks of successful companies, and risks to look out for. Each of these chapters concludes with an "Investor's Checklist" for that sector to help you identify key factors when choosing a stock. "The Five Rules for Successful Stock Investing" is among the best books I've seen for learning how to pick apart financial statements, and it packs a great deal of advice on evaluating companies within their sectors into one concise and readable volume. Highly recommended to value investors.
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47 of 49 people found the following review helpful
5.0 out of 5 stars silly title, great book, October 7, 2005
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This review is from: The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Paperback)
Have been meaning to put in a good word for this book for a long time. It's a gem. I've read an embarrassingly large number of introductions to investing in equities and this is probably the best. Other books purport to tell you how to identify hot stocks; Dorsey shows how to value companies. This isn't just a matter of understanding PE ratios and other traditional metrics, which most books explain more or less adequately. Instead, it means analyzing balance sheets and cash flow and income statements. _Five Rules_ provides as reader-friendly an introduction to assessing a company's financial statements as I've come across, with plenty of real-world examples. The object in the end is to determine the present value of a company's future cash flows, and Dorsey's explanation of a simplified version of Fisher's and William's discounted cash flow model is lucid and lively. Clorox is the company evaluated in this chapter, and en route there are instructive comparisons of HP and Dell, Best Buy and Circuit City, and, finally, AMD and Biomet. Chapter 8, Avoiding Financial Fakery, is particularly helpful. Obviously, having read this book and nothing else, you're not going to be able to spot something fishy in the footnotes to Microsoft's income statement that has escaped the attention of all the analysts. But for someone without a background in accounting, _Five Rules_ is a godsend.

Dorsey then conducts a very informative tour d'horizon of 13 industries. It should go without saying that before you invest in a company, you'd want to find out something about the economics of its industry, so you can compare apples with apples. The chapter on health care is especially good, but I found them all excellent.

In an Ameritrade ad that aired this week, a teenager asks her dad for $80 for a pair of jeans. The dad is nonplused, but the girl assures him that everyone is buying these jeans. He asks her who the manufacturer is, promptly logs onto Ameritrade, checks a chart, and buys the company's stock. The guy then gives his daughter the $80, a reward for the hot tip, presumably. He might do OK this time, but you have to figure he'd be a lot better off in the long run investing a fraction of that $80 in _Five Rules_.

Bottom line: there are a ton of books on trading strategies, but if you're looking for a practical book on value investing, this is the best.
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24 of 25 people found the following review helpful
4.0 out of 5 stars Handles an intimidating subject artfully, June 16, 2004
By 
There are many books on financial statement analysis, and I've bought most of them...being a liberal arts major who is working toward an MBA in Finance, I've found mastering ratios and concepts related to reading company annual reports frustrating and challeging: my brain seemed not to be wired to be competent in this subject matter. However, I find Pat Dorsey's treatment effective in that he uses the concepts in a less intimidating context than other books might, without watering down the content. Can someone read this book and decipher GE's annual statement to the last footnote? Not hardly. It is often said that it's knowing the essential 20% of a subject that is responsible for 80% of one's success, and this book fills this role in understanding that 20%. Further, the chapters breaking out how to modify analyis of different sectors and industries in the market is also helpful to avoid comparing apples to oranges when evaluating stocks and companies. Beyond this book, the next step up from this would be "Analysis for Financial Management" by Higgins.
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17 of 18 people found the following review helpful
3.0 out of 5 stars Great overall understanding of the market, but a little out of date, July 10, 2012
This review is from: The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Paperback)
Morningstar's guide is an excellent reference tool for any beginner investor. In detail, he explains financial statements and what to look for as a value investor. One section takes a step-by-step analysis of each sector of the market: typical breakdown of the businesses, trends & comparables, and what to look for in the sector. This book is dense with relevant information!

My only critism is that the book is out of date I.e. written in 2004. The reason it is an issue is because the analysis of financials, technology, and housing have a pre-resession vibe that is disconnected with current views on the sectors. However, the vast majority of the book is timeless, and an excellent guide for understanding corporations in the context of their sectors.
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20 of 22 people found the following review helpful
4.0 out of 5 stars Insightful!, June 29, 2004
The best investing principles, as clearly reiterated here, are stable and evergreen. As an investor, you'll welcome author Pat Dorsey's unambiguous, straightforward presentation of the always valid wisdom of the markets. This conveniently organized book offers several chapters of general relevance to investors in all markets and industries, including an industry-by-industry examination of the determinants of value. The title is cute, but the content isn't about the title's rules - it is about learning and obeying the basics of stock investing. We recommend the author's long term perspective. Many of the directions he sets for potential investments could still be valid years hence.
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15 of 16 people found the following review helpful
5.0 out of 5 stars THE FIVE RULES FOR SUCCESSFUL STOCK INVESTING, November 30, 2004
By 
This book is the best book on fundamental investing that I have ever read. It is clear, concise and filled with simply stated useful information. For anyone interested in value investing this is a perfect place to start. Financial information is demystified, and the worth and usefulness of each financial statement is explained methodically and completely enabling any investor to analyse a company in a logical and competent manner. Financial ratios and the importance of each is covered.

Additionally, and unusually, a number of industries are discussed, giving the salient factors to consider in each.

There is also an excellent bibliography for additional reading.

All in all, this is a superb book.
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10 of 11 people found the following review helpful
5.0 out of 5 stars The best stock investing book I've ever read, July 22, 2005
This review is from: The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Paperback)
The Five Rules for Successful Stock Investing has recently replaced Buffettology as the best stock investing book I have ever read. Morningstar.com is always a great source of investing advice, and they have produced a very informative book.

Other titles I highly recommend:

The New Buffettology by Mary Buffett (Stocks)

A Random Walk Down Wall Street by Burton G. Malkiel (Mutual Funds)

The Theory of Investment Value by John Burr Williams (Stocks & Bonds)
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6 of 6 people found the following review helpful
5.0 out of 5 stars can not lurk anymore, October 19, 2009
By 
Yanfeng Zheng (Clemson, SC USA) - See all my reviews
(REAL NAME)   
This review is from: The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Paperback)
i am a passive reader of other people's comments. After reading tens of books on investing and hundreds of comments on those books, i can't lurk anymore and say some good things about this book. Overall, i am a believer of fundamental analysis (FA) and the author should be in the same camp too. There are quite a few books on value investing. yet, this book offers the most transparent explanation on value investing, especially the chapter on valuation of stocks. In my belief, the DCF, though quite old-fashioned, is still the starting point for any valuation analysis. the author was able to demonstrate the concept in a concise and convincing way. He offered not only the rationale, methodology but also two examples to demonstrate how to calculate the intrinsic value. In my opinion, his method is superior to other perhaps handy or quick methods promoted by other value investing books. After all, cash is the king!
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7 of 8 people found the following review helpful
3.0 out of 5 stars Gives you a sound investment strategy, January 12, 2013
This review is from: The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Paperback)
When I think of Morningstar I picture something similar to Moody's or Standard & Poor's, a correct, slow and slightly bureaucratic organization. This book gives a totally different insight. It takes a clear stance for the Warren Buffett "buy wonderful businesses at reasonable prices"-type of value investing (as opposed to the "Graham low multiple, cigar butt"-type). It's clear that the author Pat Dorsey, Director of Stock Analysis for Morningstar, but also Joe Mansueto the founder of the same firm, are great admirers of Mr Buffett.

If you choose this type of franchise investment you also per necessity have to focus your research effort on finding that wonderful business and securing that it stays that way. This is what Dorsey tries to do through this book's five rules. In short they are:
1. Do your homework - engage in the fundamental bottom-up analysis that has been the hallmark of most successful investors, but that has been less profitable the last few risk-on-risk-off-years.
2. Find economic moats - unravel the sustainable competitive advantages that hinder competitors to catch up and force a reversal to the mean of the wonderful business.
3. Have a margin of safety - to have the discipline to only buy the great company if its stock sells for less than its estimated worth.
4. Hold for the long haul - minimize trading costs and taxes and instead have the money to compound over time. And yet...
5. Know when to sell - if you have made a mistake in the estimation of value (and there is no margin of safety), if fundamentals deteriorates so that value is less than you estimated (no margins of safety), the stock rises above its intrinsic value (no margin of safety) or you have found a stock with a larger margin of safety.

After stating the rules Dorsey goes on to present a number of chapters to complement them. Topics like commonly made mistakes, descriptions of various types of economic moats, financial expressions, accounting, analysing companies and their management, how to avoid financial tricksters and valuation. I like the chapter on moats and there are a number of nuggets like "the bottom line about financial health is that when a company increases its debt, it increases its fixed cost as a percentage of total costs." That's why high financial and operational gearing combined with volatile sales is such a potential corporate killer.

Yet this is only half of the book. The second half is a one after another review of the economic characteristics of various corporate sectors. As this book is written about 10 years ago it's interesting to see which sectors that have changed the most during these years. Care to guess? Financials - naturally - but also media. Ten years ago we hadn't started to understand the effect that digitalization and Internet would come to have.

It's really hard to grade this book. It gives a sound, comprehensive and logically consistent investment strategy. But, this is a book for the retail investor. It will take the novel investor a long way, but as the book is so comprehensive the coverage of each topic is quite shallow. If you have some investment experience you will learn very little.

A practice where you buy undervalued stocks that you can own long term will serve the right person well if you got the stomach to stand the short term movement of markets. Above all this book reinforces the importance of being able to articulate ones investment strategy. If not, it's very easy to get frustrated when the markets move against you, this will make you move outside your core competence and will unavoidably lead to trouble. This book gets you started.

This is a review by investingbythebooks.com
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