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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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"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 Dorseythe 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 valuationbecause even a wide-moat company will be a poor investment if you pay too much for its sharesand illustrates the issues addressed through case studies that apply competitive analysis to some well-known companies.
Although the moat concept is not a new oneit was made famous by Warren Buffettthe 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.
More About the Author
From 2000 to 2011, Pat was Director of Equity Research for Morningstar, where he led the growth of Morningstar's equity research group from 10 to over 100 analysts. Pat developed Morningstar's economic moat ratings, as well as the methodology behind Morningstar's framework for analyzing competitive advantage.
Pat holds a Master's degree in Political Science from Northwestern University and a bachelor's degree in government from Wesleyan University. He is a CFA charterholder.
Top Customer Reviews
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.Read more ›
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).
The four (4) items above are what the book's main theme is about and one of the better books presently out there outlining what a moat is and which puts it all in perspective with real concrete examples, or maybe the only book that does! In addition, in Chapter 2 we learn up front what is often confused as a moat but which is not, like great products, or a strong market share, plus others. Just because a company has a great product, one should not conclude that it is a great company with a competitive advantage as that would be a mistake.
Other good chapters like Chapter 8 help determine if your moat is eroding, or Chapter 12 on what a moat is worth. Also included are valuation discussions which are good, but have been covered by Benjamin Graham or the 2nd series installment in The Little Book of Value Investing by Christopher Browne. Irrespective, good reading throughout.
As Adam Smith pointed out the importance of the division of labor and that the widening of the markets encourage technological innovation, in the ever progressing investment and business world of creative destruction, one must have a comparative advantage to survive and prosper for long periods of time. Also like Warren Buffett and Charlie Munger transitioned from investing in "cigar butts" to paying up for value to take advantage of the longer lasting power of this comparative advantage, this book goes into more details of what makes up and constitutes that advantage in what most now commonly call "moat", as in, "to protect the castle."
All in, a worthy addition to any serious investor's book shelf and a big thanks to Pat and to the supporting Morningstar team. Well done!
Most Recent Customer Reviews
best book on MOATS. lots of nice examples. must for anyone who believes in moats.Published 4 months ago by pb
It is a good book to start. I recommend the readers of this book read my book Finding Profitable Stocks: Screens & Strategies. It has 235 pages of solid information. Read morePublished 4 months ago by Tony W. Pow
Warren Buffett's Berkshire Hathaway announced today (10-Aug-2015) that it is buying Precision Castparts, a company discussed in this book as having a wide economic moat. Read morePublished 6 months ago by V Adiga
good book, but with limitations, the four key points: network efect, switching costs, intangibles, operational eficiency are there but this is more a main stream book. Read morePublished 7 months ago by Guilherme Neves
Economic moat: a sustainable competitive advantage, with double emphasis on "sustainable" - e.g. Read morePublished 10 months ago by Ilya Grigorik
THE WORLD HAS CHANGED A LOT IN THE PAST TWENTY YEARS OR SO AND ALONG WITH IT THE CRAFT OF INVESTING. Read morePublished 14 months ago by VIVEK SHIVDASANI