The five rules for successful stock investing : morningstar's guide to building wealth and winning in the market

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Title:

Personal Author:

Dorsey, Pat

Publication Information:

Hoboken, N.J. : John Wiley & Sons, 2004

ISBN:

9780471269656

Subject Term:

Investments

Stocks

Available:*

Library	Item Barcode	Call Number	Material Type	Item Category 1	Status
Searching... PSZ JB	30000010070093	HG4521 D67 2004	Open Access Book	Book	Searching... Unknown

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.

Author Notes

Pat Dorsey, Cfa, is the Director of Stock Analysis for Morningstar, Inc.

Foreword	p. IX
Introduction: Picking Great Stocks Is Tough	p. XV
It's the Business that Matters	p. XVI
The Long-Term Approach	p. XVII
Having the Courage of Your Convictions	p. XVIII
Let's Get Started	p. XVIII
Chapter 1 The Five Rules for Successful Stock Investing	p. 1
Do Your Homework	p. 2
Find Economic Moats	p. 3
Have a Margin of Safety	p. 3
Hold for the Long Haul	p. 5
Know When to Sell	p. 7
Investor's Checklist: The Five Rules for Successful Stock Investing	p. 11
Chapter 2 Seven Mistakes to Avoid	p. 13
Swinging for the Fences	p. 14
Believing that It's Different This Time	p. 14
Falling in Love with Products	p. 15
Panicking When the Market Is Down	p. 15
Trying to Time the Market	p. 17
Ignoring Valuation	p. 18
Relying on Earnings for the Whole Story	p. 18
Investor's Checklist: Seven Mistakes to Avoid	p. 19
Chapter 3 Economic Moats	p. 21
Evaluating Profitability	p. 22
Building an Economic Moat	p. 24
How Long Will It Last?	p. 33
Industry Analysis	p. 36
Investor's Checklist: Economic Moats	p. 37
Chapter 4 The Language of Investing	p. 39
The Basics	p. 39
Where the Money Goes	p. 41
Practical Financials--The Statements in Use	p. 42
Investor's Checklist: The Language of Investing	p. 48
Chapter 5 Financial Statements Explained	p. 49
The Balance Sheet	p. 50
The Income Statement	p. 59
The Statement of Cash Flows	p. 66
Conclusion	p. 76
Investor's Checklist: Financial Statements Explained	p. 78
Chapter 6 Analyzing a Company--The Basics	p. 79
Growth	p. 80
Profitability	p. 85
Financial Health	p. 96
The Bear Case	p. 99
Conclusion	p. 100
Investor's Checklist: Analyzing a Company--The Basics	p. 100
Chapter 7 Analyzing a Company--Management	p. 103
Compensation	p. 104
Character	p. 108
Running the Business	p. 110
Investor's Checklist: Analyzing a Company--Management	p. 112
Chapter 8 Avoiding Financial Fakery	p. 113
Six Red Flags	p. 114
Seven Other Pitfalls to Watch Out For	p. 117
Investor's Checklist: Avoiding Financial Fakery	p. 123
Chapter 9 Valuation--The Basics	p. 125
Paying Up Rarely Pays Off	p. 126
Using Price Multiples Wisely	p. 128
Say Yes to Yield	p. 135
Investor's Checklist: Valuation--The Basics	p. 137
Chapter 10 Valuation--Intrinsic Value	p. 139
Cash Flow, Present Value, and Discount Rates	p. 140
Calculating Present Value	p. 143
Fun With Discount Rates	p. 144
Calculating Perpetuity Values	p. 147
Margin of Safety	p. 152
Conclusion	p. 153
Investor's Checklist: Valuation--Intrinsic Value	p. 154
Chapter 11 Putting It All Together	p. 155
Advanced Micro Devices	p. 155
Biomet	p. 164
Conclusion	p. 175
Chapter 12 The 10-Minute Test	p. 177
Does the Firm Pass a Minimum Quality Hurdle?	p. 178
Has the Company Ever Made an Operating Profit?	p. 178
Does the Company Generate Consistent Cash Flow from Operations?	p. 178
Are Returns on Equity Consistently above 10 Percent, with Reasonable Leverage?	p. 179
Is Earnings Growth Consistent or Erratic?	p. 179
How Clean Is the Balance Sheet?	p. 179
Does the Firm Generate Free Cash Flow?	p. 180
How Much "Other" Is There?	p. 180
Has the Number of Shares Outstanding Increased Markedly over the Past Several Years?	p. 180
Beyond the 10 Minutes	p. 181
Chapter 13 A Guided Tour of the Market	p. 183
Where to Look	p. 184
Conclusion	p. 185
Chapter 14 Health Care	p. 187
Economic Moats in Health Care	p. 188
Pharmaceuticals	p. 189
Generic Drug Companies	p. 195
Biotechnology	p. 197
Medical Device Companies	p. 200
Health Insurance/Managed Care	p. 202
Investor's Checklist: Health Care	p. 204
Chapter 15 Consumer Services	p. 207
Companies We See Every Day	p. 208
Restaurants	p. 209
Retail	p. 211
Conclusion	p. 217
Investor's Checklist: Consumer Services	p. 218
Chapter 16 Business Services	p. 219
Outsourcing Trend	p. 220
Economic Moats in Business Services	p. 220
Technology-Based Businesses	p. 221
People-Based Businesses	p. 224
Hard-Asset-Based Businesses	p. 226
Investor's Checklist: Business Services	p. 229
Chapter 17 Banks	p. 231
It's All about Risk	p. 233
Managing Credit Risk	p. 233
Selling Liquidity	p. 235
Managing Interest Rate Risk	p. 236
Economic Moats in Banks	p. 239
Hallmarks of Success for Banks	p. 241
Investor's Checklist: Banks	p. 245
Chapter 18 Asset Management and Insurance	p. 247
Asset Management	p. 247
Life Insurance	p. 253
Property/Casualty Insurance	p. 257
Investor's Checklist: Asset Management and Insurance	p. 263
Chapter 19 Software	p. 265
Segments of the Software Industry	p. 266
Economic Moats in the Software Industry	p. 268
Software Accounting 101	p. 269
Red Flags	p. 270
Hallmarks of Success for Software Companies	p. 271
What's Not to Like about Software?	p. 273
Conclusion	p. 273
Investor's Checklist: Software	p. 274
Chapter 20 Hardware	p. 275
What Drives the Hardware Industry	p. 276
Hardware Industry Dynamics	p. 277
Economic Moats in Hardware	p. 279
Hallmarks of Success for Hardware Companies	p. 282
Investor's Checklist: Hardware	p. 283
Chapter 21 Media	p. 285
How Media Companies Make Money	p. 286
Economic Moats in Media	p. 288
Publishing Profits	p. 289
Broadcasting and Cable	p. 290
Investing in the Entertainment Industry	p. 291
Hallmarks of Success in the Media Sector	p. 292
Risks in the Media Sector	p. 293
Investor's Checklist: Media	p. 294
Chapter 22 Telecom	p. 295
Telecom Economics	p. 298
Economic Moats in Telecom	p. 300
Hallmarks of Success in Telecom	p. 302
Conclusion	p. 303
Investor's Checklist: Telecom	p. 303
Chapter 23 Consumer Goods	p. 305
How Companies Make Money in Consumer Goods	p. 306
Key Strategies for Growth	p. 306
What's Not to Like in Consumer Products	p. 309
Economic Moats in Consumer Goods	p. 310
Hallmarks of Success in Consumer Goods	p. 313
Conclusion	p. 315
Investor's Checklist: Consumer Goods	p. 315
Chapter 24 Industrial Materials	p. 317
The Problem with Cyclicality	p. 318
Economic Moats in Basic Materials	p. 320
Economic Moats in Industrial Materials	p. 321
Hallmarks of Success in Industrial Materials	p. 324
Red Flags	p. 326
Finding Opportunities in Industrial Materials	p. 329
Investor's Checklist: Industrial Materials	p. 329
Chapter 25 Energy	p. 331
From the Ground	p. 331
To the Pipelines	p. 332
To the Refineries	p. 333
To the Consumers	p. 333
Providing the Services	p. 333
The Impact of Commodity Prices	p. 335
Economic Moats in Energy	p. 337
Hallmarks of Success for Energy Companies	p. 338
Risks in the Energy Sector	p. 339
Conclusion	p. 340
Investor's Checklist: Energy	p. 340
Chapter 26 Utilities	p. 341
Electricity Primer	p. 341
Regulation, Regulation, Regulation	p. 343
Financial Characteristics of Utilities	p. 344
Hallmarks of Success for Utility Companies	p. 345
Risks in the Utilities Sector	p. 346
The Big Picture	p. 347
Investor's Checklist: Utilities	p. 347
Appendix	p. 349
Recommended Readings	p. 353
Morningstar Resources	p. 355
Index	p. 357

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Summary

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Author Notes

Table of Contents