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The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments Hardcover – March 3, 2008


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The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments + The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market
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Product Details

  • Hardcover: 126 pages
  • Publisher: Wiley; 1 edition (March 3, 2008)
  • Language: English
  • ISBN-10: 047022651X
  • ISBN-13: 978-0470226513
  • Product Dimensions: 5.3 x 0.8 x 7.3 inches
  • Shipping Weight: 8.8 ounces (View shipping rates and policies)
  • Average Customer Review: 4.5 out of 5 stars  See all reviews (27 customer reviews)
  • Amazon Best Sellers Rank: #239,349 in Books (See Top 100 in Books)

Editorial Reviews

Review

"A detailed exploration of Warren Buffet's "wide economic moat" concept - how to find companies with a true in-built competitive advantage." (Financial Times, Tues 26th February)

"Pat Dorsey...discusses in an easy to read style why economic moats are such great indicators of long term performance." (Pensions World, October 2008)

From the Inside Flap

To make money in today's dynamic market environment, you need to invest in companies that will perform in the face of sustained competitive pressure. But how can you accurately identify companies that are great today and likely to remain great for many years to come?

The answer to this question lies in competitive advantages, or economic moats. Just as moats were dug around medieval castles to keep the opposition at bay, economic moats protect the high returns on capital enjoyed by the world's best companies. If you can identify companies that have moats, and you can purchase their shares at reasonable prices, you'll begin to build a portfolio of solid businesses that will improve your odds of doing well in the stock market.

In The Little Book That Builds Wealth, author Pat Dorsey—the Director of Equity Research for leading independent investment research provider Morningstar, Inc.—outlines this proven approach and reveals how you can effectively apply it to your own investments. Step by step, Dorsey discusses why economic moats are such strong indicators of great long-term investments and examines four of their most common sources: intangible assets, cost advantages, customer-switching costs, and network economics. After establishing a firm understanding of moats, Dorsey shows you how to recognize moats that are eroding, the key role that industry structure plays in creating competitive advantage, and how management can create (as well as destroy) moats.

Along the way, Dorsey provides an informative overview of valuation—because even a wide-moat company will be a poor investment if you pay too much for its shares—and illustrates the issues addressed through case studies that apply competitive analysis to some well-known companies.

Although the moat concept is not a new one—it was made famous by Warren Buffett—the modern-day investor can benefit from what it has to offer. With The Little Book That Builds Wealth as your guide, you'll quickly discover why moats should be an integral part of your analytical investment toolkit and learn how to leverage this approach to build a portfolio of high-performance stocks.


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Customer Reviews

This books opens your eye to track and understand your current and future investment plans.
Paul Ganjian
Pat Dorsey did a great job explaining what a moat is and categorized it into four categories: Intangible Assets, Switching Costs, Network Effect, and Cost Advantages.
Mariusz Skonieczny
Would absolutely recommend this book to any one interested in value investing & basics of understanding the business.
Ganesh Raao

Most Helpful Customer Reviews

126 of 132 people found the following review helpful By Maverick on April 6, 2008
Format: Hardcover
Becoming an investor who can quite regularly beat a broad based index (e.g. S&P 500) is near impossible. Just ask two of the most famous investors ever: John Bogle of Vanguard (who wrote his own "Little Book" warning investors to stay away from anything but low cost index funds) and Warren Buffett (of Berkshire Hathaway who also recommends index funds for the average investor). They point out that numerous studies show professional money managers (mutual funds) fail to beat the index funds they set out to beat time and time again--and trying to find the few mutual funds that will beat the index is close to a fool's errand. And when regular folks try to pick individual stocks, the results are even worse. Unfortunately, there is one problem with index fund investing: it's boring. Very boring. Moreover, we, for better or worse (worse in the case of investing in capital markets), don't like to be "average" and index fund investing by definition will only yield "average" results.

So investors try very hard to be more than average. And they start by buying books like this one.

This is where Dorsey comes in. He borrows Warren Buffett's now famous concept of 'moats', which is just another term for a structural competitive advantage of a business, and shows his readers how to find them, evaluate them, and then use them to make a profit by investing in individual stocks. Dorsey's game plan is straightforward: find a great business with a moat and buy it only you can get it for less than it's intrinsically worth. The book is well-organized, uses plain-written language and is easily understandable; Dorsey's categories of different moats are well thought out and he provides multiple examples in each moat category.
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51 of 57 people found the following review helpful By Jijnasu Forever VINE VOICE on February 24, 2008
Format: Hardcover
This is a remarkably pithy discussion on what constitutes a "real" moat - competitive advantage that is sustainable. Regular readers/subscribers(like myself)of Morningstar products are already familiar with Morningstar's views on the importance of picking companies with moats for long term investing. This book essentially distills all such discussions into a very quick guide on "how to find good investments that can build wealth?". The use of excellent examples and a very down-to-earth (typical of the Little book series) discussion style makes this book an easy and useful read. Prospective readers need to be warned on two aspects - unlike the other books in the series (value investing, growth investing, etc.) this book doesn't have a specific "formula" but more a discipline on stock selection. (to borrow a cliche'd expression, the book aims to provide a method to fish than a fish itself). Secondly, regular Morningstar readers will be hard pressed to find anything new in these discussions in this book. For them, The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market may be more useful. For readers just being introduced to Morningstar and its approach, both books are solid additions to a patient investor's library. You can round out that collection with The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor.

Overall, an easy read that gives very worthwhile discussion on identifying companies with sustainable advantage (and how to identify traps in perceiving incorrectly the existence of such an advantage).
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3 of 3 people found the following review helpful By Jessica Dee Rohm on November 10, 2010
Format: Hardcover
I often describe myself as perfectly "ambibrainstrous," in that I switch back and forth between my right and left brain the way that ambidextrous people do between their right and left hands. I have an MBA in management and an MFA in creative writing, so instead of switching forks like my manual skilled kin, I vary my reading material. While I write fiction, SUGAR TOWER, MAKE ME AN OFFER and THE SECRET LIFE OF SANDRINA M., I read everything.

Back to Pat Dorsey's The Little Book That Builds Wealth. This "little" book is small in word count only because the ideas it espouses are large. Pat Dorsey is the Director of Equity Research for Morningstar, Inc. - the leading firm in independent research. Since they don't manage money, I trust them a lot more than analysts whose firms do. The book is wonderfully written and extremely clear. What I like best about it is that it doesn't tout formulas or sure-fire investment techniques but speaks to the heart of what all marketing experts know is the key to success: competitive advantage.

When I started reading about Morningstar's philosophy of "moats," which they credit Warren Buffet as having invented, I was a bit skeptical. It seemed simplistic to analogize the corporation to a castle and its success protection to a "moat." But what determines the existence and size of a company's moat - namely such stuff as a trusted brand, patents, regulatory licenses, high switching costs, pricing power, network economics, and cost advantages related to process, scale, and location - makes total sense to me. I always wondered while I was in business school what was the use of discounting future cash flows to determine current value unless you had a crystal ball.
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