The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments (Little...

The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments (Little Books. Big ... | Pat Dorsey | All about moats

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The Little Book Th...

	The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments (Little Books. Big ... Pat Dorsey Wiley, 2008 - 126 pages average customer review:based on 9 reviews view larger image
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highly recommended

Buffettian and Morning Star Methodology combined into one

I got this book on Friday from the local bookstore as I am big fan of Pat Dorsey's writing. It was an interesting read ( i still have 50 more pages to go), Chapter 3 to Chapter 7 are the core of identifying companies with Moat. Myself being a momentum investor, i had a few themes that I could use from this book. The examples selected to cover the concepts supported in this book was glaringly beautiful. This is definitely a gem to hold in the investors library. Of all the Littlebooks that have been published so far the growth investing and this one has been the good reads. Definitely a five star for this one.

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All about moats

This is a remarkably pithy discussion on what constitutes a "real" moat - competitive advantage that is sustainable. Regular readers/subscribers(like myself)of Morningstar products are already familiar with Morningstar's views on the importance of picking companies with moats for long term investing. This book essentially distills all such discussions into a very quick guide on "how to find good investments that can build wealth?". The use of excellent examples and a very down-to-earth (typical of the Little book series) discussion style makes this book an easy and useful read. Prospective readers need to be warned on two aspects - unlike the other books in the series (value investing, growth investing, etc.) this book doesn't have a specific "formula" but more a discipline on stock selection. (to borrow a cliche'd expression, the book aims to provide a method to fish than a fish itself). Secondly, regular Morningstar readers will be hard pressed to find anything new in these discussions in this book. For them, The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market may be more useful. For readers just being introduced to Morningstar and its approach, both books are solid additions to a patient investor's library. You can round out that collection with The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor.

Overall, an easy read that gives very worthwhile discussion on identifying companies with sustainable advantage (and how to identify traps in perceiving incorrectly the existence of such an advantage).

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Intangible Assets, Switching Costs, Networks, and Cost Advantages

The "Little Book" series is turning out to be both educational and must have for the investor's book shelf. Though the others are noteworthy on their own, one could argue that this 5th installment in the series is the best to date.

The four (4) items above are what the book's main theme is about and one of the better books presently out there outlining what a moat is and which puts it all in perspective with real concrete examples, or maybe the only book that does! In addition, in Chapter 2 we learn up front what is often confused as a moat but which is not, like great products, or a strong market share, plus others. Just because a company has a great product, one should not conclude that it is a great company with a competitive advantage as that would be a mistake.

Other good chapters like Chapter 8 help determine if your moat is eroding, or Chapter 12 on what a moat is worth. Also included are valuation discussions which are good, but have been covered by Benjamin Graham or the 2nd series installment in The Little Book of Value Investing by Christopher Browne. Irrespective, good reading throughout.

As Adam Smith pointed out the importance of the division of labor and that the widening of the markets encourage technological innovation, in the ever progressing investment and business world of creative destruction, one must have a comparative advantage to survive and prosper for long periods of time. Also like Warren Buffett and Charlie Munger transitioned from investing in "cigar butts" to paying up for value to take advantage of the longer lasting power of this comparative advantage, this book goes into more details of what makes up and constitutes that advantage in what most now commonly call "moat", as in, "to protect the castle."

All in, a worthy addition to any serious investor's book shelf and a big thanks to Pat and to the supporting Morningstar team. Well done!

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reviews: 1, page 2

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