- Paperback: 384 pages
- Publisher: Wiley; 1 edition (December 29, 2004)
- Language: English
- ISBN-10: 0471686174
- ISBN-13: 978-0471686170
- Product Dimensions: 5.9 x 1 x 8.8 inches
- Shipping Weight: 1 pounds (View shipping rates and policies)
- Average Customer Review: 4.6 out of 5 stars See all reviews (123 customer reviews)
- Amazon Best Sellers Rank: #236,110 in Books (See Top 100 in Books)
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The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market 1st Edition
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Not long ago, MagicDiligence reviewed Mary Buffett and David Clark's Warren Buffett and the Interpretation of Financial Statem...... and concluded that, while possibly useful for beginners, experienced stock investors would dismiss the book as simplistic and adding nothing new. The review also mentioned that a good alternative for more experienced investors looking to add to their knowledge is Pat Dorsey's The Five Rules for Successful Stock Investing.
Today we'll take a look at that book. The author, Pat Dorsey, is currently the Director of Equity Research for Morningstar. Morningstar has historically been known for their 5-star scale of mutual fund ratings, but several years ago began applying the same scale to individual stocks. Since Morningstar's focus is on durable competitive advantage, the firm's investing philosophy correlates very well with that of the Magic Formula and of MagicDiligence. That makes the book particularly relevant and much of my stock analysis is based on techniques outlined in it. The Five Rules... is more or less a two part book. The first half deals covers the title, laying out the five rules for successful investing and then proceeding to expand on each of them. Without spoiling too much of the book, Dorsey's five rules are:
1) Do your homework.
2) Find economic moats.
3) Have a margin of safety.
4) Hold for the long haul.
5) Know when to sell.
This first section then continues on to introduce the investor to the techniques of stock analysis. Topics covered include detailed explanations of each financial statement, the points of emphasis to look for in a good investment (such as growth potential and financial health), how to spot accounting blowups before they happen, how to value a stock, and so forth. For everyone interested in stock analysis, from 10 year pros to those just beginning to dip their toes in the market, these chapters contain invaluable and vital information. Nearly every investor will learn something new about evaluating companies and valuing stocks. One particularly valuable chapter is titled "The 10-Minute Test", which will help you quickly throw out stocks that are not worth your time, while highlighting investment opportunities that warrant additional research.
The second half of the book is equally useful. In this section, Dorsey calls upon Morningstar's sector analysts to lay out the intrinsic moat qualities and the factors that separate good and bad companies in a variety of sectors, including Health Care, Consumer Services, Media, Banks, and so on. It's no secret to MagicDiligence Members that some industries are inherently better investment hunting grounds than others, and this book explains why. For example, retail is generally a difficult place to invest - there are no customer switching costs, tons of competition, and constantly changing consumer trends. On the other hand, most medical device makers have very high switching costs, as surgeons are trained on one company's products and are loathe to learn the intricacies of a competing product, unless there is a very good reason to do so.
To close this review, a personal observation. Most investors routinely cite classic investing books like Ben Graham's The Intelligent Investor as the place to start for novice investors. I respectfully disagree. I've read many of those great classics, but no one book has explained the details of company and equity analysis as directly or relevantly as this book. This is one of the most overlooked investing books out there, and comes highly recommended to all investors. -The Motley Fool
From the Inside Flap
Stocks can be the perfect vehicle for your investment journeyif you know how to pick them. With Morningstars unparalleled guidance you can get the story behind the numbers and learn how to invest in stocks with care and confidence.
In The Five Rules for Successful Stock Investing, Pat Dorsey, Director of Stock Analysis for Morningstar, Inc., helps todays investors learn from the mistakes of the past in order to lay a solid foundation for future success. According to Mr. Dorsey, "Investment success depends on personal discipline, not on whether the crowd agrees or disagrees with you." In a highly accessible and down-to-earth style, Dorsey helps even novice investors understand how to evaluate companies and achieve success by buying stocks at a discount of their true worth.
Reading The Five Rules for Successful Stock Investing is like joining a community of fellow investors who want to better understand how stocks operate, avoid the common pitfalls of investing, and build strong stock portfolios they can be confident in. Dorsey and his team of stock analysts will open investors eyes to a wealth of investment opportunities that exist regardless of market conditions, as they learn:
- How to develop a feel for what makes a company profitable
- How to find great companies with a competitive advantage
- How to make sure a companys management team is on their side
- How to recognize red flags that can cause blow-ups in a portfolio
- How to apply proven valuation principles to improve results
- And how to apply a 10-Minute Test to any stock in order to determine if its worth investigating in more detail
A complete investment guide for people who are serious about mastering stock strategies, The Five Rules for Successful Stock Investing outlines the rigorous process through which Morningstar evaluates stocks, providing readers with tried-and-true tools for selecting stocks that will make promising long-term investmentsand perhaps more importantavoiding those that wont.
In todays economic climate, The Five Rules for Successful Stock Investing has something to offer every investor. Seasoned investors will welcome the kind of sound, reliable advice that can help them avoid the mistakes of the past, while novice investors will find the kind of "on-ramp" introduction they need to get moving along the road to better investment results.--This text refers to an out of print or unavailable edition of this title.
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Top Customer Reviews
I've read and studied this book for about 2 or 3-months now and I gotta say that I've learned so much from it. I'm fairly new to securities investing and this book gives a great start for beginners and I'm sure helps sharpen the whits of seasoned professionals.
It touches base on how to analyze different companies based on different industries; different KPIs based on the financial statements; how to analyze companies in general; and more! Not every company is the same and there are many indicators of strong companies and weak companies. These indicators also vary by industry and time has proven that there is not any one indicator that proves a company is better than another - you must fully research each company before making a purchasing decision.
I've recommended this book to some friends of mine and would highly suggest anyone to give this book a shot. Plenty of information in this that will keep me busy for the next year or so.
It might seem obvious that one should generally be wary of restaurant stocks because, hey, you eat at the Outback all the time and you see it's crowded all the time, so you should by the stock, right? Maybe. Dorsey explains it to you and you say, "Yeah, that makes sense." Any schlub can whistle on down, rent some space and start cooking meals for people. That's why the restaurant business is highly competitive, 'cause it's easy for competition to sprout up.
You should definitely have a copy of this book if you're a serious investor, but don't think you're just gonna kick back on the beach and read it (unless, of course, you're not really serious about an education in investing).
Old Kindle Format: 2 stars
Amazon Customer Rep: 5 stars!
New Kindle Format: 5 stars
I enjoyed reading the methodology and the thought process in analyzing and valuing companies. Pat does a great job in explaining the concepts in a structured manned. I learned a lot from reading this book. I don't have any issues with the content.
My issue is with the book's format... The kindle format of this book is terrible. It's very difficult to read the tables and financial statements.
The tables look like it was scanned from paper. The background and fonts has the same shade of gray which makes it difficult to read in my Kindle. I had to read this book via the web http://read.amazon.com to see the tables. Even then, it's still not that easy to see the numbers. I have to zoom in to read it clearly..
After I submitted a complain with Amazon, they deployed an updated version of the book and now I can read the tables clearly! Thank you Amazon!!!!
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