Robin's Reviews > The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments

After finally finishing The Little Book that Builds Wealth, I have concluded that I will never be a stock market investor. I simply don’t have enough interest to devote the time outside of mutual funds. However, if you have any interest in economics and investing in stocks, this book will help you, whether or not you decide to follow through. Dorsey gives a few guidelines for finding companies that have strong “moats,” or economic reserves that help the company thrive regardless of the economic climate. It’s about choosing strong companies that are likely to remain strong, and not choosing companies based upon hype, advertising claims, or popular opinion. Many of the most solid companies are not glamorous—Dorsey makes this point with aggregate and trash-collecting companies. Conversely, there is a wide variation among the sexier choices like high tech companies.

The best companies have these competitive advantages: intangible assets (for which a consumer will pay more, for example a name like BMW), customer-switching costs (for example banks, which consumers rarely switch), network effect (for example exclusive collaboration with a reliable shipping company), and cost advantages (for example an aggregate company located close to a quarry). The following are often thought to be competitive advantages, but are only marginally helpful: great products, great size, great execution, and great management.

There is a lot of information packed into this small book, delivered in short chapters, each with a helpful summary at the end. A chapter on tools of valuation gives specific numbers to consider. It’s not just P/E, but multiple tools that the smart investor needs to know. Also, the investor is advised to consistently read the financial journals. There is also a very interesting chapter on knowing when to sell. Like most of this book, this chapter runs counter to popular opinion.

All readers who are considering investing in the stock market will benefit from reading The Little Book that Builds Wealth. Although I wish you good luck in your investments, this book will make luck irrelevant and unnecessary, giving a solid foundation to your investment strategy and choices.