The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

by Pat Dorsey, Joe Mansueto (Foreword)

The Five Rules for Successful Stock Investing

"By resisting both the popular tendency to use gimmicks that oversimplify securities analysis and the academic tendency to use jargon that obfuscates common sense, Pat Dorsey has written a substantial and useful book. His methodology is sound, his examples clear, and his approach timeless."
--Christopher C. Davis Portfolio Manager and Chairman, Davis Advisors

Over the years, people from around the world have turned to Morningstar for strong, independent, and reliable advice. The Five Rules for Successful Stock Investing provides the kind of savvy financial guidance only a company like Morningstar could offer. Based on the philosophy that "investing should be fun, but not a game," this comprehensive guide will put even the most cautious investors back on the right track by helping them pick the right stocks, find great companies, and understand the driving forces behind different industries--without paying too much for their investments.

Written by Morningstar's Director of Stock Analysis, Pat Dorsey, The Five Rules for Successful Stock Investing includes unparalleled stock research and investment strategies covering a wide range of stock-related topics. Investors will profit from such tips as:
* How to dig into a financial statement and find hidden gold . . . and deception
* How to find great companies that will create shareholder wealth
* How to analyze every corner of the market, from banks to health care


Informative and highly accessible, The Five Rules for Successful Stock Investing should be required reading for anyone looking for the right investment opportunities in today's ever-changing market.

Genres: Finance, Business, Nonfiction, Money, Personal Finance, Economics, Collections

384 pages, Paperback

First published December 25, 2003

Reviews

[Đạt Tiêu · Rating 5 out of 5]

Excellent book, especially for novice investors.
Some notes from the book:

A. Core rules
- Do thorough research on business and make sure understand it well
- Find good business with economic moats
- Have a margin of safety
- Hold for a long time
- Know when to sell

B. Mistakes to avoid
- Do not try to figure out the next Microsoft, just stick to business with economic moats
- Learn lessons from the past and try to avoid them in future
- Be objective about business
- Keep calm and stay away from crowd madness and emotion
- Do not try to time the market
- Never ignore valuation part
- Do not just rely on earnings when value stocks

C. Investigate economic moats
1. Evaluate profitability
- Free cash flow to sales >= 5%
- Net margins >= 15%
- ROE >= 15%
- ROA >= 6-7%

2. Find economic moats
- Real product differentiation (by special features or superior technology)
- Perceived product differentiation (by brands or reputation)
- Low costs
- High customer switching cost: client training, tight integration with customer business, industry standard, long term contract, small benefit
- High barriers to entry for competitors

3. Find competitive advantage period
-> Moat width: how long it lasts?
-> Moat depth: how much money it can make?
-> Often technology-based product is narrow or no moats

4. Do some industry analysis
- Sales are shrinking or increasing in general? Look for trends
- Is the industry cyclical or consistently making profit?
- How is the market share? How intense is market competition?
-> Look at industry reports. Find out statistics on sales, earnings, margins, growth rates
-> Analyze some firms to compare with industry average
-> get the feel of the industry

D. Analyze business quality (fundamentals assessment)
1. Growth
- Possible sources of growth (sales growth - orgnanic growth): selling more goods/services, selling new goods/services
raising price, buying companies
-> Identify the sources of growth and how much growth comes from each source and the quality of the growth
-> Be careful with non-orgnanic growth: cost cutting, tax rate change, one-time gain,... -> low quality

2. Profitability
- ROA = net margin x asset turnover
- ROE = ROA x financial leverage ratio
= ROA x (total asset / equity)
- FCF/Sales >= 5%
-> Look for trends over a long period and compare with other business
-> ROE >= 20% is good, but >= 40% needs to investigate why (too good to be true)
-> Banks and financial firms have large debt (big leverage ratio)
-> Other ratios can be used:
+ ROIC (return on invested capital) = NOPAT (net operating income after tax) / Invested capital
= EBIT - tax
+ ROCE (return on capital employed) = EBIT (earning before tax and interest) / Capital employed
+ Invested capital = Capital employed = Total asset - current liabilities (non bearing interest) - excess cash
-> remove affect from debt -> assess business core profitability more precisely
-> Use profitability matrix to investigate both ROE and FCF

3. Financial health
- Financial leverage ratio <= 2
- ICR (interest coverage ratio or times interest earned) = EBIT / interest expense -> the higher the better
- Current ratio = current asset / current liabilities >= 1.5
- Quick ratio = (current asset - inventory) / current liabilities >= 1

4. Risks
-> Investigate bear cases when bad things happen -> see if business overcomes
-> Investigate the affect from external factors like technology innovation, economic business cycle, ...

5. Management
- Compensation: -> proxy statement
- Character
- Operations

E. Analyze business stock (stock valuation)
- Stock total return <- speculative return + investment return
1. Price mutliples
-> Do peer comparison
- P/S :
+ not much noise like earning, hard to doctored, different based on industry (very low in retail, but high in health care,...)
+ unable to evaluate profit
+ only compare P/S between business in the same industry or with the same level of profitability
- P/B :
+ careful to use when it comes to intagible assets
+ not much meaningful to non capital-intensive (like service firms or high tech firms)
+ very good to evaluate financial business (because of marked-2-market book value)
+ go hand in hand with ROE when evaluate business
- P/E :
+ do P/E inter-company, intra-company, market average and horizontal analysis for the full picture
+ affect by risks, capital structure and growth rate -> higher P/E for low debt, less capital and high growth business
+ More useful with mature companies than with growth companies
- PEG :
+ no growth is the same, each growth goes with different risk
+ take into account also risks and capital structure
+ useful for growth companies
- Cash return :
+ FCF / EV (Free cash flow / Enterprise value) > current bond rate
+ not meaningful to banks and financial firms

2. Discounted cash flow (DCF)
-> Estimate the business intrinsic value
* Basic concepts:
- A business worths all expected future cash flow, reflected at present
-> 3 factors affect business future cash flow: amount, timing and riskiness

- Present value: value of future cash flow reflected at present -> time value of money, oppoturnity cost, inflation
- Risk-free rate: interest rate from government bonds (government default risk is considered 0)
- Risk premium rate: additional risk to take to get more return
-> Required rate of return(hurdle rate) = Total risk = Cost of capital = Discount rate = risk-free rate + risk premium rate

- Present value of discounted future cash flow in year N = CF in year N / (1 + discount rate) ^ N
- Perpetuity value in year N = CF in year N x (1 + CF perpetual growth rate) / (discount rate - CF perpetual growth rate)
- Discounted perpetuity value = Perpetuity value in year N / (1 + discount rate) ^ N
-> Total equity value in N year = Discounted perpetuity value (in the last year N) + All discounted cash flow from year 1 to N

- Estimate discount rate based on
+ Size: smaller size -> more risk
+ Financial leverage: more debt -> more risk
+ Cyclicality: more cyclical -> more risk
+ Management: bad management -> more risk
+ Complexity: business hard to understand -> more risk
+ Economic moats: less moats -> more risk
-> There is no exact discount rate. In general, the higher the risk the higher the discount rate
-> Estimate discount rate for an average business, for example: 10.5% (Morningstar)

- Estimate annual CF growth rate to calculate CF for each year in the future
-> Estimate the future growth rate based on
+ Compound annual growth rate CAGR in the last N year = [(Beginning CF / Ending CF) ^ (1/N)] - 1
+ Use discount rate checklist estimation to adjust
- Estimate perpetual growth rate
+ Usually range in [inflation rate, GDP growth rate]
+ Use discount rate checklist estimation to adjust

3. Margin of safety
-> Buy stock at lower price than the estimated intrinsic value

F. Quick stock screening
- Firms follow SEC regulation?
- Firms ever generate operating profit?
- Firms generate consitently cash flow from operating activity?
- ROE > 10% consistently with reasonable leverage?
- Earnings growth is consistent?
- How clean the blance sheet is? too much debt? where debts come from? business is stable?
- Firms generate free cash flow? How consistent?
- Number of share oustanding remain consistent over the year?
- Management is transparent and clear?

G. Important industries to find value stocks
- Banks and financial services
- Business services: technology-based, hard-asset-based, people-based
- Health care: pharmaceuticals, biotech, medical device, health care service
- Media

[Daniel Olshansky · Rating 5 out of 5]

Amazing book for beginners!

This book was recommended to me by a colleague after I showed some interest in stock investing. Prior to reading this book, I knew practically nothing about businesses or the market at all. I had no clue what an index was, or what equity, assets or liabilities are. On my own time I would follow the stock price of some companies that were always under the highlight (apple, google, facebook, tesla) and imagine what would happen if I were to speculate and try to beat the market. Oh, how naive I was....

Pat Dorsey introduced me to a whole other world that I didn't even know existed. I learnt what the purpose of stocks and the market really is. Why people invest, and why they don't. I learnt that this isn't just a game where one gets lucky by stealing or outsmarting the other person by properly timing his buy/sell, but that stock investing is actually a science. Though there are assumptions and speculations one needs to consider, there are objectively bad right and wrong decisions that one could make. It is difficult to express how excited I was about applying the lessons I learnt from this book to the real world, but I need to remember that patience is virtue.

In this book, I learnt about the inner workings of a company and it's management. I learnt about how finances are tracked. Most importantly, I learnt how to identify and evaluate good businesses. Seeing how stocks are always in the news, and that we all work for companies which are valued at something, regardless of whether they are public or private, I have gained a lot of insight into the world around me. In addition to learn a useful skill of what I should do with money, I also learnt how the company I work at operates, and believe that the skills I gained may also be very beneficial in the future if I choose to pursue entrepreneurship.

I've always had a keen interest as to how companies function, but never knew how to act on this impulse. While reading this book, I started watching videos on youtube, reading various articles, and just browsing investopedia to educate myself furthermore. I realize that this is just the beginning, but it ignited a spark that has turned into a roaring flame.

Some parts of the book I very dense, and even though I took my time reading through it, I still couldn't retain everything I learnt. That being said, it was written in such a way that I could use it as a reference until I familiarize myself very well with all the concepts it discusses. And if not, then the foundation that it has set up is priceless.

Even though this book is a little outdated given how much our economy has changed over the past 12 years, I still think that it's a must for anyone who is interested in learning about stock investing but knows nothing about it.

[Yechan · Rating 2 out of 5]

Dorsey's five rules are reasonable and mostly obvious. There is very little that's new to those who have read other better books (The Intelligent Investors (Graham), Margin of Safety (Klarman), Value Investing (Greenwald), etc.).

[InvestingByTheBooks.com · Rating 3 out of 5]

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.

[Amelia · Rating 5 out of 5]

This book explains fundamental analysis very comprehensively and should be in every investors' toolkit. The book is geared more towards those who are starting out. But more advanced readers will find the chapters on industry analysis highly insightful. For those who are interested, I recommend supplementing this reading with McKinsey's Valuation for a deeper understanding of ROIC.

[Ahmed Alohali · Rating 3 out of 5]

قرأت أغلبه مترجم للغة العربية. تركيز كامل على الأسهم الأمريكية والبعيدة كل البعد عن الأسهم السعودية الكتاب ممل بالنسبة لي لا أدري أهي مشكلة الكاتب ام الترجمة وهو كتاب مهني عملي ولكن للأسف لاينطبق على سوقنا السعودي.

[Jay Waghray · Rating 4 out of 5]

Outdated (on tech, trends) but good to brush up on basics

[Gergely Kovács · Rating 5 out of 5]

Awesome intro handbook for fundamental analysis. Not recommended for short term investors (i.e. few years)

[Serhii Kushchenko · Rating 5 out of 5]

This book is a must-read for all interested in stocks, business managers, and business owners.

Nowadays, you won't be able to use its information outright to choose investments for your portfolio. The market is very good at distinguishing good companies from bad companies. The stocks of good companies are expensive. You can rarely buy them cheaply. Regardless, you will make good use of your time reading this book.

All business people should know and understand what discounted cash flows are. They should also be familiar with the basics of financial statement analysis. The author of the book The Five Rules for Successful Stock Investing clearly explains these topics. Once you figure them out, you will immediately become more advanced than 90% of retail investors.

Even more important is information about competitive strategies. The book lists every possible way to build a moat that protects business profits from being destroyed by competition. In many businesses, none of these methods can be used. The book teaches us to recognize these situations and avoid pitfalls for our savings and career.

IMHO reading The Five Rules for Successful Stock Investing book is more beneficial than two years of MBA study.

[Mitul Patel · Rating 5 out of 5]

If I am going to write a book on any topic this is how I will write and illustrate whatever information I want to convey. Perhaps the best book on stock investing. The only caution is that it will be a slow read for the readers who don't have accounting knowledge but that doesn't mean they should not read it.
Also the industry analysis is based on the USA and may not be completely applicable to other geographies but one can learn from the base and develop the knowledge thereafter.

[Ed Ball · Rating 4 out of 5]

If you ever wanted to learn how to read balance sheets, income statements, and grasp the true meaning of cash flow. Don't buy another book, this is the one you're looking for.

Gives a great insight to value investing, buying companies on the cheap side after you've done all your homework.

[Amithanand D'silva · Rating 5 out of 5]

Very well written giving an excellent insight on the how to invest effectively. If you haven't been able to read the classic works of Security Analysis and Intelligent Investor you would find this a welcome change.

[Recle · Rating 5 out of 5]

The Five Rules. Easy to read but hard to execute and follow.

[Pradeep]

One of the best books investing

[Krishna Agarwal · Rating 3 out of 5]

A good book with theory of how to value companies and how to read reports.

You will like the book based on how much knowledge you already have in the area.

[Bett Correa-Bollhoefer · Rating 4 out of 5]

I learned all about each major industry and how to evaluate a company. Excellent education for anyone who wants to understand how companies can be effectively operated.

[Steve · Rating 5 out of 5]

Probably the best book on investing I have read.
Clear, factual overview of valuing companies and how to approach investing.
I went out and bought my own copy for reference

[Mr13 · Rating 5 out of 5]

The book opens my mind and guide me to fundamental analysis

[Zdenek Sykora · Rating 4 out of 5]

Pat Dorsey's "The Five Rules for Successful Stock Investing" is an essential read for anyone looking to navigate the complexities of the stock market and build a solid foundation in investing. Dorsey, who is the Director of Equity Research at Morningstar, brings a wealth of knowledge and practical advice that can benefit both novice and experienced investors. The book is well-organized, clear, and full of actionable insights that can help you make informed investment decisions.

Main Points of the Book

1. Understanding What Makes a Great Business:
• Dorsey emphasizes the importance of investing in high-quality companies with sustainable competitive advantages. He calls these advantages "economic moats," which include cost advantages, network effects, intangible assets, and efficient scale.

2. The Importance of Valuation:

• The book stresses that paying the right price for a stock is crucial. Dorsey explains various valuation methods, including discounted cash flow (DCF) analysis, price-to-earnings (P/E) ratios, and dividend yields, to help investors determine the fair value of a stock.

3. Investing with a Margin of Safety:

• Dorsey advocates for a conservative approach to investing, emphasizing the need to buy stocks at a significant discount to their intrinsic value to protect against errors in judgment and market volatility.

4. Understanding Financial Statements:

• The book provides a comprehensive guide to reading and interpreting financial statements. Dorsey explains key financial metrics and ratios that can help investors assess a company's financial health and performance.

5. Avoiding Common Investment Pitfalls:

• Dorsey identifies common mistakes that investors make, such as chasing performance, ignoring valuation, and succumbing to emotional biases. He offers strategies to avoid these pitfalls and maintain a disciplined investment approach.

Takeaways from Each Chapter

Chapter 1: The Five Rules

• Introduces the five key principles for successful investing: understanding businesses, focusing on valuation, ensuring a margin of safety, knowing financial statements, and avoiding pitfalls. These rules provide a foundation for the rest of the book.

Chapter 2: Economic Moats

• Explains the concept of economic moats and how they protect companies from competition. Examples include brand strength, patents, regulatory licenses, and cost advantages. Identifying moats helps investors choose companies with sustainable competitive edges.

Chapter 3: Valuation Basics

• Covers the basics of stock valuation, including the intrinsic value of a company. Introduces methods such as discounted cash flow (DCF) analysis, price-to-earnings (P/E) ratios, and other valuation metrics to determine if a stock is undervalued or overvalued.

Chapter 4: Financial Statements 101

• Provides a thorough guide to reading and understanding financial statements, including the balance sheet, income statement, and cash flow statement. Explains key financial ratios and metrics, such as return on equity (ROE), debt-to-equity ratio, and free cash flow.

Chapter 5: Putting It All Together

• Shows how to combine an understanding of economic moats, valuation, and financial statements to make informed investment decisions. Offers practical examples and case studies of successful investments.

Chapter 6: Common Pitfalls and How to Avoid Them

• Discusses common mistakes investors make, such as following market trends, overreacting to market news, and neglecting fundamental analysis. Emphasizes the importance of a disciplined investment approach and emotional control.

Chapter 7: Building and Managing Your Portfolio

• Offers advice on constructing a diversified portfolio that balances risk and return. Covers asset allocation, diversification strategies, and portfolio rebalancing. Provides tips on how to monitor and manage a portfolio over time.

Chapter 8: Tools and Resources

• Recommends various tools and resources that investors can use to conduct research and analysis, including financial websites, investment software, and professional advice. Encourages continuous learning and staying informed about market developments.

Conclusion

"The Five Rules for Successful Stock Investing" by Pat Dorsey is a comprehensive and practical guide that demystifies the world of stock investing. Dorsey’s clear explanations and actionable advice make it an invaluable resource for anyone looking to build wealth and achieve long-term success in the stock market. While the book is packed with detailed information, its structured approach and real-world examples make it accessible and engaging. This book is a must-read for investors who want to make informed decisions and avoid common pitfalls, ensuring a more confident and successful investing journey.

[Vincent Ho · Rating 5 out of 5]

Easy 5 stars. It complements well with "The Intelligent Investor" as it provides a window to learn about qualitative analysis in detail, such as how to interpret financial statements and understand business models in different sectors, thus leading to sound stock investment that will lead to decent long term performance. I think it especially adds value to someone who has just started and has no prior knowledge in such field, accounting and finance terms and concepts are well-explained and backed by examples from the past. Although this book is published in the early 2000s, it is interesting to see that most of the company mentioned in examples are still around these days which proves the effectiveness of Pat's strategy in identifying companies with wide economic moats. The last few chapters are gold in my opinion as they explain each sector in detail and why they should/shouldn't deserve an investor's attention, it is easy to overlook the underlying market that determines the profitability of a company. By avoiding certain sectors that fail to breed companies with a wide economic moat, one can expect better returns overall and reduce their exposure to cyclical businesses. Another than that, making some notes on this book will be beneficial too.

[Mariana W. Colan · Rating 5 out of 5]

𝙄 𝙤𝙣𝙘𝙚 𝙛𝙤𝙪𝙣𝙙 𝙢𝙮𝙨𝙚𝙡𝙛 𝙙𝙚𝙚𝙥𝙡𝙮 𝙞𝙣𝙫𝙚𝙨𝙩𝙚𝙙 𝙞𝙣 𝙬𝙝𝙖𝙩 𝙄 𝙗𝙚𝙡𝙞𝙚𝙫𝙚𝙙 𝙬𝙖𝙨 𝙖 𝙜𝙚𝙣𝙪𝙞𝙣𝙚 𝙤𝙣𝙡𝙞𝙣𝙚 𝙧𝙚𝙡𝙖𝙩𝙞𝙤𝙣𝙨𝙝𝙞𝙥 — 𝙖𝙣𝙙 𝙄 𝙚𝙣𝙙𝙚𝙙 𝙪𝙥 𝙜𝙚𝙩𝙩𝙞𝙣𝙜 𝙨𝙘𝙖𝙢𝙢𝙚𝙙 [$1𝙢] | 𝙛𝙚𝙡𝙩 𝙗𝙚𝙩𝙧𝙖𝙮𝙚𝙙, 𝙛𝙤𝙤𝙡𝙞𝙨𝙝 𝙚𝙫𝙚𝙣, 𝙖𝙣𝙙 𝙖𝙩 𝙛𝙞𝙧𝙨𝙩 𝙄 𝙙𝙞𝙙𝙣'𝙩 𝙠𝙣𝙤𝙬 𝙬𝙝𝙚𝙧𝙚 𝙩𝙤 𝙩𝙪𝙧𝙣. 𝘽𝙪𝙩 𝙄 𝙢𝙖𝙙𝙚 𝙖 𝙙𝙚𝙘𝙞𝙨𝙞𝙤𝙣: 𝙄 𝙬𝙤𝙪𝙡𝙙 𝙙𝙤𝙘𝙪𝙢𝙚𝙣𝙩 𝙚𝙫𝙚𝙧𝙮𝙩𝙝𝙞𝙣𝙜. 𝙄 𝙨𝙖𝙫𝙚𝙙 𝙖𝙡𝙡 𝙩𝙝𝙚 𝙢𝙚𝙨𝙨𝙖𝙜𝙚𝙨, 𝙥𝙖𝙮𝙢𝙚𝙣𝙩 𝙧𝙚𝙘𝙚𝙞𝙥𝙩𝙨, 𝙖𝙣𝙙 𝙖𝙣𝙮 𝙤𝙩𝙝𝙚𝙧 𝙥𝙧𝙤𝙤𝙛 𝙩𝙝𝙖𝙩 𝙢𝙞𝙜𝙝𝙩 𝙝𝙡𝙥 𝙡𝙖𝙩𝙚𝙧. 𝙒𝙝𝙚𝙣 𝙄 𝙜𝙖𝙩𝙝𝙚𝙧𝙚𝙙 𝙚𝙣𝙤𝙪𝙜𝙝 𝙙𝙤𝙘𝙪𝙢𝙚𝙣𝙩𝙖𝙩𝙞𝙤𝙣, 𝙄 𝙧𝙚𝙖𝙘𝙝𝙚𝙙 𝙤𝙪𝙩 𝙩𝙝𝙧𝙤𝙪𝙜𝙝 𝙤𝙛𝙛𝙞𝙘𝙞𝙖𝙡 𝙘𝙮𝙗𝙚𝙧 𝙘𝙧𝙞𝙢𝙚 𝙘𝙝𝙖𝙣𝙣𝙚𝙡𝙨: 𝙈𝙖𝙘𝙞𝙤𝙛𝙤𝙣𝙚𝙨𝙥𝙮𝙧𝙞𝙭@𝙜𝙢𝙖𝙞𝙡.𝙘𝙤𝙢 𝙖𝙣𝙙 𝙚𝙭𝙥𝙡𝙖𝙞𝙣𝙚𝙙 𝙩𝙝𝙚 𝙛𝙪𝙡𝙡 𝙩𝙞𝙢𝙚𝙡𝙞𝙣𝙚 𝘽𝙚𝙘𝙖𝙪𝙨𝙚 𝙢𝙮 𝙚𝙫𝙞𝙙𝙚𝙣𝙘𝙚 𝙬𝙖𝙨 𝙘𝙡𝙚𝙖𝙧 𝙖𝙣𝙙 𝙩𝙝𝙤𝙧𝙤𝙪𝙜𝙝, 𝙩𝙝𝙚 𝙘𝙖𝙨𝙚 𝙬𝙖𝙨 𝙞𝙣𝙫𝙚𝙨𝙩𝙞𝙜𝙖𝙩𝙚𝙙 𝙨𝙚𝙧𝙞𝙤𝙪𝙨𝙡𝙮 𝙖𝙣𝙙 𝙢𝙖𝙠𝙚 𝙥𝙤𝙨𝙞𝙩𝙞𝙫𝙚 𝙥𝙧𝙤𝙜𝙧𝙚𝙨𝙨 𝙂𝙤𝙞𝙣𝙜 𝙩𝙝𝙧𝙤𝙪𝙜𝙝 𝙩𝙝𝙞𝙨 𝙤𝙧𝙙𝙚𝙖𝙡 𝙞𝙩 𝙬𝙖𝙨 𝙩𝙝𝙚 𝙝𝙖𝙥𝙥𝙞𝙚𝙨𝙩 𝙢𝙤𝙢𝙚𝙣𝙩 𝙤𝙛 𝙢𝙮 𝙡𝙞𝙛𝙚 𝙝𝙤𝙬 𝙨𝙢𝙖𝙧𝙩 𝙩𝙝𝙚𝙮 𝙬𝙤𝙧𝙠 𝙩𝙤 𝙜𝙚𝙩 𝙢𝙮 𝙢𝙤𝙣𝙚𝙮 𝙧𝙚𝙘𝙤𝙫𝙚𝙧𝙚𝙙 𝙗𝙖𝙘𝙠’ 𝙄 𝙡𝙚𝙖𝙧𝙣𝙚𝙙 𝙢𝙮 𝙡𝙚𝙨𝙨𝙤𝙣 𝙞𝙣 𝙖 𝙝𝙖𝙧𝙙 𝙬𝙖𝙮 𝙤𝙛 𝙗𝙚𝙬𝙖𝙧𝙞𝙣𝙜 𝙛𝙧𝙤𝙢 𝙘𝙧𝙮𝙥𝙩𝙤 𝙩𝙧𝙖𝙙𝙚’ 𝙖𝙣𝙙 𝙩𝙖𝙪𝙜𝙝𝙩 𝙢𝙚 𝙩𝙬𝙤 𝙞𝙢𝙥𝙤𝙧𝙩𝙖𝙣𝙩 𝙩𝙝𝙞𝙣𝙜𝙨: 𝙛𝙞𝙧𝙨𝙩 - 𝙙𝙤 𝙣𝙤𝙩 𝙡𝙚𝙩 𝙛𝙚𝙚𝙡𝙞𝙣𝙜𝙨 𝙘𝙡𝙤𝙪𝙙 𝙮𝙤𝙪𝙧 𝙟𝙪𝙙𝙜𝙢𝙚𝙣𝙩 𝙬𝙝𝙚𝙣 𝙢𝙤𝙣𝙚𝙮 𝙞𝙨 𝙞𝙣𝙫𝙤𝙡𝙫𝙚𝙙; 𝙨𝙚𝙘𝙤𝙣𝙙 — 𝙞𝙛 𝙮𝙤𝙪'𝙧𝙚 𝙚𝙫𝙚𝙧 𝙨𝙘𝙖𝙢𝙢𝙚𝙙 𝙤𝙣𝙡𝙞𝙣𝙚, 𝙙𝙤𝙘𝙪𝙢𝙚𝙣𝙩𝙖𝙩𝙞𝙤𝙣 𝙖𝙣𝙙 𝙥𝙚𝙧𝙨𝙞𝙨𝙩𝙚𝙣𝙩, 𝙘𝙤𝙧𝙧𝙚𝙘𝙩 𝙧𝙚𝙥𝙤𝙧𝙩𝙞𝙣𝙜 𝙘𝙖𝙣 𝙢𝙖𝙠𝙚 𝙖 𝙙𝙞𝙛𝙛𝙚𝙧𝙚𝙣𝙘𝙚. 𝙄'𝙢 𝙨𝙝𝙖𝙧𝙞𝙣𝙜 𝙩𝙝𝙞𝙨 𝙗𝙚𝙘𝙖𝙪𝙨𝙚 𝙄 𝙬𝙖𝙣𝙩 𝙤𝙩𝙝𝙚𝙧𝙨 𝙩𝙤 𝙠𝙣𝙤𝙬 — 𝙮𝙤𝙪 𝙖𝙧𝙚 𝙣𝙤𝙩 𝙖𝙡𝙤𝙣𝙚, 𝙧𝙚𝙥𝙤𝙧𝙩 𝙖𝙣𝙮 𝙨𝙘𝙖𝙢 𝙩𝙤 𝙩𝙝𝙚 𝙘𝙮𝙗𝙚𝙧 𝙘𝙧𝙞𝙢𝙚 𝙖𝙪𝙩𝙝𝙤𝙧𝙞𝙩𝙞𝙚𝙨 𝙩𝙝𝙚𝙮 𝙢𝙖𝙠𝙚 𝙙𝙞𝙛𝙛𝙚𝙧𝙚𝙣𝙘𝙚. 𝘽𝙪𝙩 𝙤𝙣𝙡𝙮 𝙞𝙛 𝙮𝙤𝙪 𝙨𝙩𝙖𝙮 𝙘𝙖𝙡𝙢, 𝙘𝙤𝙡𝙡𝙚𝙘𝙩 𝙚𝙫𝙞𝙙𝙚𝙣𝙘𝙚, 𝙖𝙣𝙙 𝙝𝙖𝙣𝙙𝙡𝙚 𝙞𝙩 𝙩𝙝𝙧𝙤𝙪𝙜𝙝 𝙩𝙝𝙚𝙢.

[Firsh · Rating 4 out of 5]

It was all right but somewhat basic. I don't mean this in an arrogant way but now that I'm reading Best-Practice EVA alongside, that system is clearly better. Nevertheless, when a long-standing Morningstar research guy talks to you, you ought to listen as this is an excellent foundation and is much better than many investing books. But it's not perfect. Most of the book was about going through various sectors, and if for nothing else, it made me realize that I blanket dislike several and will probably adjust my portfolio accordingly. After all, if you hate a sector, no matter the returns, you might not sleep well with it. Not in an ESG way, but if the values of a business and its sector are not aligned with yours, then maybe it's not for you. The sector overview was really the vast majority of the book. The core that is left, is all at the beginning. If I were to reread (probably won't), I'd skip the sector details and only read the "checklist" and "hallmarks" parts, as found by a Ctrl+F in the epub.

[Big Game James · Rating 4 out of 5]

Took several months to get through this comprehensive. Pat Dorsey covers a lot of ground--you might say, into the weeds--and it can get a bit tedious. But overall, this is a fairly good stock investing resource that is still mostly relevant, even though it was written quite a few years back. It generally covers the Morningstar approach to investing and is a bit dated in spots, especially when referencing specific companies. On the other hand, most of the principles of investing don't really change that much, so you can still benefit from the five rules Pat provides. I also like that Pat provides a handy list of wide-moat stocks, many of which are still big-name stocks today.

[Lee Zi Xuan · Rating 5 out of 5]

absolutely essential. maybe the first book in the long time that i've read and told myself, damn, i really need to get my hands on this book. the title may be clickbait-y and all cause it just sounds like some shitty listicle of what to do but it's a very technical book on what to look out for + how to valuate + dissecting the financial statements of companies. spent a whopping 9 hours slowly digesting the contents of the book (and i skipped the whole last part where they dived into the diff industries cause i plan to read that only aft purchasing the book) but really absolutely recommend. morningstar is alr a very solid company and this book is also damn good. 10/10 recommend to all.

[Kush · Rating 5 out of 5]

This is one of the great books I have read in my investing journey. If you are a newbie in the investing word or even some one who has a few years of experience, this book will enrich your knowledge and understanding of investing.

First section of the book lays out the investing framework and how to fundamentally analyze the companies and second part focuses on different industries and their business structure. I am certain you can’t find another book, which is packed with so much information and everything you need to understand about the stock investing in just 400 pages. Pat Dorsey, thank you so much for writing this book. Can’t thank you enough!

[Othman · Rating 5 out of 5]

This is by far the best book I've read on investing, and I have read several books. This book kind of teaches the reader investing from an accountant's perspective, and I really like that. It starts by explaining the financial terms one finds when reading companies' financial statements, and then it teaches the reader how to calculate and interpret financial ratios used to value businesses, an example of which is DCF valuation. One of the things I really appreciated about this book was the fact that different industries should not be valued alike. The author devoted a chapter for each industry, and he offers some insight into industry-valuation. I can't recommend this book enough.

[Alan Calvillo · Rating 4 out of 5]

Este es un buen texto para toda aquella persona que desea entender cómo invertir en empresas de manera prudente y sacando el jugo de todos los recursos de información que se encuentran disponible por regulación.

Desde entender equipos directivos, pasando por la estimación de flujos de caja hasta el análisis de sectores en lo general.

A pesar de que algunos ejemplos resultan desactualizados, dado que fue escrito hace ya 20 años, podemos rescatar las premisas que subyacen en los consejos que el autor está intentando transmitir.

En general, una buena lectura para tomar decisiones de inversión mejor informados.

[Rameswar · Rating 5 out of 5]

A terrific book which teaches how to value a business or a company. The first part is very detailed with quantitative and qualitative analysis including formulas which to use to roughly estimate the valuation of a business.

The second part of the book dedicates a chapter to each sector, their strengths and weaknesses and what are the things to look for in a company in respective sector. I listened to the audiobook on Audible, however the first part of the book is best consumed through physical format.

[Miguel Yances Rojas · Rating 5 out of 5]

Guía para inversionista

Para aquellos que se quieren adentrar en el mundo de las inversiones, este considero que es un gran ejemplar. La diferencia entre el precio intrínseco y el valor de una acción determina el potencial de crecimiento. Encontrar acciones con fosos económicos o ventajas competitivas; sin embargo, si el precio que pagas es demasiado alto tal vez los resultados no sean tan buenos. Temas tratados: estados financieros, ratios financieros, características de los sectores de la economía, errores habituales, entre otros.

[Agung Maha · Rating 5 out of 5]

During the COVID-19 pandemic, I had the opportunity to read this book and regret not having read it earlier. Most investing books either rely heavily on philosophical concepts or are overly practical for beginners. This book, however, offers a unique balance between philosophical insights and practical skills, making it an ideal resource for those seeking a comprehensive understanding of investing. For beginner investors, after reading this book, you can focus on more technical books such as Schilit or Penman Stephen.