Economics

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

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

  • Downloads：1335
  • Type：Epub+TxT+PDF+Mobi
  • Create Date：2021-04-12 13:56:55
  • Update Date：2025-09-06
  • Status：finish
  • Author：Pat Dorsey
  • ISBN：0471686174
  • Environment：PC/Android/iPhone/iPad/Kindle
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Summary

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。

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Reviews

Rahul Chaurasia ，

Chapter - 4，5 & 6 must read for the beginners who wants to understand the Financial Statements and how to analyse a company and also there is sector wise chapters in the later section if you are into any sector very much then do checkout。

Serene ，

Excellent guide for the amateur investor。

Leafy ，

If I’d recommend one book for people who wants to start doing stock analysis but had no experience， yet fair understanding of financial knowledge whatsoever， this is the one。 Love the detailed analysis on individual industries。

Marcelo ，

The first book that everyone should read if wants to invest on the stock market！

Egor Del Valle ，

Simply and ideal for new investors。

Fiona Cheng ，

Its a very informative book。

Gergely Kovács ，

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

JUDITH MARSAL ，

De los mejores libros que hay para adentrarse en el mundo de la inversión。 El nivel de inglés necesario para leerlo es bajo。

Mohamed Hema ，

Great book， contains a lot of information that need time to learn。

Hitesh Bansal ，

Superb。。。no words。。hats of Mr。 Dorsey。

Sushil ，

Must read book。 Fantastic book。

Steven ，

Probably the best book i've read on investing。 Probably the best book i've read on investing。 。。。more

Shivam Bansal ，

The book is a good starting point for an investing enthusiast， though I'd highly recommend to pick a few stocks and keep following this book as a guide。 The book also has a segregation based on various economical sectors， one could always refer this book back and forth while analysing a stock。 Overall， a good book to build up strong basics！！ The book is a good starting point for an investing enthusiast， though I'd highly recommend to pick a few stocks and keep following this book as a guide。 The book also has a segregation based on various economical sectors， one could always refer this book back and forth while analysing a stock。 Overall， a good book to build up strong basics！！ 。。。more

Ahmed Shadi ，

If you have decided that you will become a value investor。 This is your first book to go。 It explains how to pick companies' stocks that have a competitive advantage。 It clarifies how to read financial statements easily。 How to value a company and when to buy the stock。 It's written in easy and readable style。 If you have decided that you will become a value investor。 This is your first book to go。 It explains how to pick companies' stocks that have a competitive advantage。 It clarifies how to read financial statements easily。 How to value a company and when to buy the stock。 It's written in easy and readable style。 。。。more

Vincent Ho ，

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 backe 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。 。。。more

Alvin Soh ，

A good read for investment。 Talks about investment from a fundamental yet practical way。

James Chung ，

One of the best investing books that I've read in my life One of the best investing books that I've read in my life 。。。more

Jun Kai Chan ，

Given me （a novice investor） some really good insight on how fundamental analysis works， it is easier to digest than Intelligent Investor， content is more up to date， clear and concise。It didn't turn me into a good stock picker （I am very much a Boglehead）， the author nevertheless done a good job。 Given me （a novice investor） some really good insight on how fundamental analysis works， it is easier to digest than Intelligent Investor， content is more up to date， clear and concise。It didn't turn me into a good stock picker （I am very much a Boglehead）， the author nevertheless done a good job。 。。。more

Nantama Mulyana ，

Great books for amateur investors

Gaurav ，

nkmn kl，

Jay Waghray ，

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

James ，

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 chan 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。 。。。more

Manoj Sharma ，

Its a super book to be read multiple times to understand the substance。 Loads of learning。。

Kengsan Wong ，

Practical and usefulThis is an amazing book。 Easy to read， understand and digest。 Highly recommended for all stock investors。 It does provide a lots of hindsight for different industries which might take a long trial and error to understand。 Thumbs up。

souradeep saha ，

Great and Must read book The best part of this book is that， author will give you insight of different sectors， though not a deep analysis， but good enough for retail investors。 Also it talks about fundamental analysis of company and finding intrinsic value of companies。 Though a bit boring but a must read。

Liz ，

Very informative。 Definitely a book I have to keep for future reference when doing my own investments。

Debjyoti Nag ，

Best book for value investing。

Jonathan ，

This book give me insight for stock fundamental analysis and has since been my handbooks。

Đạt Tiêu ，

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 sellB。 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 madne 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 sellB。 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 stocksC。 Investigate economic moats1。 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 competitors3。 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 moats4。 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 industryD。 Analyze business quality （fundamentals assessment）1。 Growth- Possible sources of growth （sales growth - orgnanic growth）: selling more goods/services， selling new goods/servicesttttttttttttttraising 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 quality2。 Profitability- ROA = net margin x asset turnover- ROE = ROA x financial leverage ratiot = 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: t+ ROIC （return on invested capital） = NOPAT （net operating income after tax） / Invested capitaltttttttttt= EBIT - taxt+ ROCE （return on capital employed） = EBIT （earning before tax and interest） / Capital employedt+ Invested capital = Capital employed = Total asset - current liabilities （non bearing interest） - excess casht-> remove affect from debt -> assess business core profitability more precisely-> Use profitability matrix to investigate both ROE and FCF3。 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 >= 14。 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- OperationsE。 Analyze business stock （stock valuation）- Stock total return <- speculative return + investment return1。 Price mutliples-> Do peer comparison- P/S :tt+ not much noise like earning， hard to doctored， different based on industry （very low in retail， but high in health care，。。。）tt+ unable to evaluate profittt+ only compare P/S between business in the same industry or with the same level of profitability- P/B :tt+ careful to use when it comes to intagible assetstt+ not much meaningful to non capital-intensive （like service firms or high tech firms）tt+ very good to evaluate financial business （because of marked-2-market book value）tt+ go hand in hand with ROE when evaluate business- P/E :tt+ do P/E inter-company， intra-company， market average and horizontal analysis for the full picturett+ affect by risks， capital structure and growth rate -> higher P/E for low debt， less capital and high growth businesstt+ More useful with mature companies than with growth companies- PEG : tt+ no growth is the same， each growth goes with different risktt+ take into account also risks and capital structurett+ useful for growth companies- Cash return : tt+ FCF / EV （Free cash flow / Enterprise value） > current bond ratett+ not meaningful to banks and financial firms2。 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 ont+ Size: smaller size -> more riskt+ Financial leverage: more debt -> more riskt+ Cyclicality: more cyclical -> more riskt+ Management: bad management -> more riskt+ Complexity: business hard to understand -> more riskt+ 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 t+ Compound annual growth rate CAGR in the last N year = [（Beginning CF / Ending CF） ^ （1/N）] - 1t+ Use discount rate checklist estimation to adjust- Estimate perpetual growth ratet+ Usually range in [inflation rate， GDP growth rate] t+ Use discount rate checklist estimation to adjust3。 Margin of safety-> Buy stock at lower price than the estimated intrinsic valueF。 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 。。。more

Reference

google book https://www.google.com/search?tbm=bks&q=The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

hathitrust digital library https://babel.hathitrust.org/cgi/ls?q1=The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market&field1=ocr&a=srchls&ft=ft&lmt=ft

The British Library https://bll01.primo.exlibrisgroup.com/discovery/search?query=any,contains,The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market&tab=LibraryCatalog&search_scope=Not_BL_Suppress&vid=44BL_INST:BLL01&lang=en&offset=0