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

Have been meaning to put in a good word for this book for a long time. It's a gem. I've read an embarrassingly large number of introductions to investing in equities and this is probably the best. Other books purport to tell you how to identify hot stocks; Dorsey shows how to value companies. This isn't just a matter of understanding PE ratios and other traditional metrics, which most books explain more or less adequately. Instead, it means analyzing balance sheets and cash flow and income statements. _Five Rules_ provides as reader-friendly an introduction to assessing a company's financial statements as I've come across, with plenty of real-world examples. The object in the end is to determine the present value of a company's future cash flows, and Dorsey's explanation of a simplified version of Fisher's and William's discounted cash flow model is lucid and lively. Clorox is the company evaluated in this chapter, and en route there are instructive comparisons of HP and Dell, Best Buy and Circuit City, and, finally, AMD and Biomet. Chapter 8, Avoiding Financial Fakery, is particularly helpful. Obviously, having read this book and nothing else, you're not going to be able to spot something fishy in the footnotes to Microsoft's income statement that has escaped the attention of all the analysts. But for someone without a background in accounting, _Five Rules_ is a godsend. Dorsey then conducts a very informative tour d'horizon of 13 industries. It should go without saying that before you invest in a company, you'd want to find out something about the economics of its industry, so you can compare apples with apples. The chapter on health care is especially good, but I found them all excellent. In an Ameritrade ad that aired this week, a teenager asks her dad for $80 for a pair of jeans. The dad is nonplused, but the girl assures him that everyone is buying these jeans. He asks her who the manufacturer is, promptly logs onto Ameritrade, checks a chart, and buys the company's stock. The guy then gives his daughter the $80, a reward for the hot tip, presumably. He might do OK this time, but you have to figure he'd be a lot better off in the long run investing a fraction of that $80 in _Five Rules_. Bottom line: there are a ton of books on trading strategies, but if you're looking for a practical book on value investing, this is the best.

Before reading this book, I had spent most of my time reading about day trading, swing trading, technical analysis, etc. I dreaded having to do actual research on a company. Why spend hours poring over financial statements and researching management when you can look at a chart and get all the information you need? Who cares how the company makes its money? It just got out of a triple bottom formation! Alas, the continuous chart monitoring finally got the best of me, not to mention I lost most of the money I started with. During this dark time, I found Pat Dorsey's book and everything magically fell into place. I discovered that it wasn't such a chore to learn about the company you were investing in. It was actually quite practical. "The Five Rules for Successful Stock Investing" provides a great foundation of knowledge for analyzing companies. It's also perfect for beginners as each topic is broken down and easy to understand. Pat Dorsey does an especially great job of explaining financial statements. This gem of a book not only turned me on to fundamental analysis, but it put me on the path to value investing. And now I am actually making money!

Now, you can't breeze through this book like you would "One Up on Wall Street," but that's because this book covers a lot of accounting and financial concepts involved with companies. It's sort of a textbook on how to find good companies using various different financial metrics. Dorsey definitely knows his stuff, but in order to learn what he's teaching you, you've gotta pay rapt attention throughout the entire book and have pen in hand to highlight everything. I'm an engineer by profession, so I'm accustomed to working with math, etc., but getting into the accounting and financial terminology for most of 350 pages can be exhausting. The back half of the book is downright revolutionary in that it explores the different investment sectors (e.g. health care, retail, consumer products) and tells you how to analyze companies within those sectors. 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).

The book is one of the chosen that I've been waiting for! Being 60, and a late bloomer to investing-.. All chapters are outlined and step by step how to find the value in the best companies to make the RIGHT choices! I need Mr. Dorsey and Morningstar to write another book with more indepth on % of your portfolio in certain sectors due to age to catch up; but, I may be dreaming here. etc. Not everyone started saving at age 18.

A few years ago I purchased Pat Dorsey's The Little Book that Builds Wealth, at the time I was just learning the basics of the Stock Market, and the difference between Value Investing, and Market Driven "Investing", or what most people say is Fundamental Analysis - (looking at companies based on their sales, revenue,debt, product advantage, etc!) and technical analysis which mostly evaluates a stock based on what the Market is doing and how it feels about that particular stock or industry. They both have their advantages and disadvantages but I'm convinced (and most experts agree) that investing based on a company's underlying worth (its fundamentals) is the only way to make money and build wealth long term in the stock market, yes yes technical analysis can help you get "lucky" and make some short term big gains, and also understand the momentum of a stock or an industry, but technical analysis alone is like dating just based on looks, its fun for awhile but if there's nothing else there the relationship is headed for trouble. Anyway I read Dorsey's Little Book and Michael SIncere's great Understanding Stocks books about 5 years plus years ago (plus the Graham classic Intelligent Investor), and then financial crisis hit and the recession started and although I didn't lose much money (on stocks at least)I still shied away from the market for the next couple years, but the investments I did hold onto did see some modest but impressive gains over the last few years and has just proved to me the accuracy of Dorsey's book along with other Value based investors. Just look at the increase of Warren Buffet's company the last few years, not to mention the mega merger of Heinz and Kraft. Anyway long story short is that I do firmly believe that the only reason anybody should be risking their money in the Wall St. casino is if they know that they are "investing" not gambling on fundamentally good companies that they reasonably believe will be worth either more in value, or in a worse case equal value to what they are currently valued at today. Dorsey's book "The Five Rules" will show you how determine that value in spades, its not the only book out there of its kind and I have read others, but Dorsey's style is easy to follow but at the same time deep enough to show you that he (and the analysts at Morningstar) really do know their stuff. Nobody (that we know of) has reliably predicted the market's future, but Dorsey's book will give you a give you a good foundation to know whatever happens in the market there a some stocks that are "fundamentally" just better than others. Also Recommend: "Understanding Stocks" 2nd Edition - Michael Sincere "Understanding Options" 2nd Ed. - Michael Sincere "The Little Book of Commonsense Investing" John Bogle "Little Book of Bull Moves in Bear Markets" Peter Schiff

Where do you start when you want to begin learning about securities and stock investing? This book. 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.

Pat Dorsey's book, "The Five Rules for Successful Stock Investing" gives a compehensive description of the Morningstar evaluation of a company. Explanations of "protective moat" and the term "safety margin" of a company are clearly presented as well as many other criteria of value determination used in the Morningstar evaluation process. The author clearly outlines the importance of distinguishing intrinsic value from market value of a company before puchasing . Examples are given demonstrating use of the processes and philosophy used. It is well written and is recommended reading for amateur and profession investors alike. I found it gave a lot of good tips to avoid overpaying for an investment. It also gave me a better understanding of the process and more confidence it its use to determine value. The book describes potential common mistakes made by amateur investors. I strongly recommend this book as a informative and enjoyable read.

I wish I could buy every copy of this book & burn them all. On second thought; most of the market won't pay attention to the string of pearls contained in this classic investors bible (I sure will though...) In a nutshell; it's not about a pig in a poke. It's all about identifying sustainable competitive advantages. What keeps an intelligent, well financed, capable competitor from scaling a company's walls & taking away customers? Mr. Dorsey shows how to identify the various competitive advantages a firm can possess & how to use discounted free cash flow to arrive at a valuation (all in clear & concise language.) He talks about how to use the various performance & pricing measures (PE, ROE, ROA, ROIC, etc) & how to consider them in context based upon the industry & the stage of life a business is in. This book is a true gem from the guy who developed the Morningstar moat ID methodology & there is not one single attempt to promote either Morninstar or his current asset management firm. I did; however, join Morningstar immediately after finishing this book & will study their analysts for the next year while attempting to develope my own analyses of the huge uncovered universe of small & mid caps which go largely ignored by institutionals...

It really is an amazing book that is clear, easy to read and gives a very sophisticated understanding of investment analysis. I’m devouring it, and learning a lot…highly recommended

If you’re going to invest your own money directly in companies, rather than through a fund or ETF, then this book could be an enormous help. It’s a very practical guide. It will teach you how to spot good companies and better understand their prospects in a competitive world. It will walk you through accounting principles explaining how to interpret accounts and what to look for to find strong companies with genuinely good earnings. You will learn how to do that quickly and, if you find an appealing business, in more depth. It’s probably not the most exciting subject for most people, but this book explains the concepts simply and well. I have read a lot of investment books, most more complicated or esoteric, I mention that just to say that of the many books you might read, this one is likely to be genuinely helpful for anyone not trained in finance or accounting. Another earlier book by the same author, The Little Book That Builds Wealth, explores the benefits of finding companies with economic moats that will help hold off competitors so as to keep making profits. These two books teach you to focus on company financial strength and their competitive business advantages rather than follow less successful, sometimes wildly hyped investing approaches. They are pitched at beginners but cover lots of material with enough depth to really make you a capable investor. I have no association with these books or the author.

A very useful book for anyone who wants to learn how to evaluate stocks and make better investment decisions. The five-rule approach makes the concepts structured and easy to follow. It offers practical guidance on analyzing companies, understanding valuation, and building a long-term investment mindset. A great read for both beginners and experienced investors.

Praticamente, uno dei pochi libri su gli investimenti che insegna, in maniera accurata, le fondamenta per la ricerca di ottime aziende che hanno un vantaggio competitivo rispetto alle altre. Grande libro, peccato che è aggiornato al 2001/2002!

This book is basically split into two parts. The first part teaches us how to read financial statements. I must admit that it can get quite dry but I'll have to say these knowledge are compulsory if you are determined to be an investor. And although reading numbers is never fun, I must say that he does a good job in his explanation. I don't see everyday people can read through this book once and digest everything well. It's a book that will require to read again and take down notes after that. The second part will go through all the different industries in the stock market that we can invest in. Great book!