new PDF The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market Full Online. The Five Rules for Successful Stock Investing By resisting both the popular tendency to use gimmicks that oversimplify securities analysis and the academic . The Five Rules for Successful Stock Investing provides the kind of savvy financial guidance only a company like Morningstar could offer. Based on the.
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PDF - The Five Rules for Successful Stock Investing. "By resisting both the popular tendency to use gimmicks that oversimplify securities analysis and the. Five Rules for Successful. Stock Investing. I me how few investors—and sometimes, fund man- agers—can articulate their investment. The Five Rules for Successful Stock Investing Morningstar’s Guide to Building Wealth and Winning in the Market Pat Dorsey Director of Stock Analysis John Wiley & Sons, Inc. Certain financial information included in the The Five Rules for Successful Stock Investing is proprietary.
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:
Share your thoughts with other customers. Write a customer review. Top Reviews Most recent Top Reviews. There was a problem filtering reviews right now. Please try again later. Kindle Edition Verified download. 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.
In many of the books I bought there Hardcover Verified download. I am a newcomer to investing, and I have bought a lot of books on the subject. This is one of the best. In many of the books I bought there is a lot of overlap in the content. This book though is on a class of its own.
If you did not take an accounting class in college, you'll surely appreciate what this book can teach you, which is how to analyze the profitability and financial health of a company in a systematic way. Dorsey teaches you how to interpret financial statements and, more importantly, what to look for. This is an extremely useful, technically-oriented book, and is easier to read than most textbooks. I highly recommend it. This book is great, as it brings structure to value investing.
However, following any book by suspending judgment will result in financial losses. I made the mistake by investing in oil stocksthinking OPEC will keep the prices up and oil will stay a special commodity. Rest is bitter history. Lesson learned not to touch a commodity stock ever again, and not to trust a moat coming from a "cartel" price fixing, because cartels don't last forever.
Other insights from book about pharma, biotech and analog electronic stocks were all amazing. Specially electronic comapnies like former Linear Tech now part of ADI , Texas Instruments, Avago all keep compounding shareholder value, yet they still don't get the love they deserve. There's still value in boring old analog semiconductors. One person found this helpful.
Paperback Verified download. 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.
The back half of the book is downright revolutionary in that it explores the different investment sectors e. 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?
Dorsey explains it to you and you say, "Yeah, that makes sense. 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. Plenty to study!!
Where do you start when you want to begin learning about securities and stock investing? This book. Look at the share count over a long period of time. If the number of shares outstanding has increased substantially because of aggressive operations programs or frequent equity issuance, the firm is essentially giving away part of your stake without asking you. Follow-through: does it implement the plan? Candor Self confidence: do something different from their peers or from conventional opinion.
Flexibility: has management made decisions that will give the firm flexibility in the future? Like not taking on too much debt and controlling fixed expenses even in good years , as well as issuing equity when the stock is high.
Attaching call options to debt, retiring high rate debt when the opportunity presents itself, and download back stock at low prices. AR increased to a large percentage of sales. Inventories increase 2 Serial chargers: frequent chargers are an open invitation to accounting hanky panky because forms can bury bad decisions in a single restructuring charge.
Poor decisions that might need to be paid for in future quarters all get rolled into a single one-time charge in the current quarter, which improves future result. If they dont get paid, it will come back to haunt them in the form of a nasty write-down or charge against earnings. On the credit front, watch the allowance for doubtful accounts. Look in the managements discussion and analysis section for the latter and in the accounting footnotes for the former. The problem arises when companies try to boost their operating results-performance of their core business-by shoehorning investment income into other parts of their financial statements.
Finally, companies can hide investment gains in their expense accounts by using them to reduce operating expenses, which makes the firm look more efficient than it really is. To fund pension payments to future retirees, companies shovel money into pension plans that then are invested in stocks, bonds, real estate, and so forth.
If a company winds up with fewer pension assets than pension liabilities, it has an underfunded plan, and if the company has more than enough pension assets to meet its projected obligations to retirees, it has an overfunded plan. To see whether the company has an over-or underfunded pension plan, go to the footnotes of a K filling and look for the note labeled pension and other postretirement benefits, employee retirement benefits, or some variation.
Then look at the line labeled projected benefit obligation. This is the estimated amount the company will owe to employees after they retire. Second key number is fair value of plan assets at the end of year. If the benefit obligation exceeds the plan assets, the company has an underfunded pension plan and is likely to have shovel in more money in future, reducing profits. Pension padding: When stocks and bonds do really well, pension plans go gangbusters.
And if those annual returns exceed the annual pension costs, the excess can be profits. Flowing gains from an overfunded pension plan through the income statement is a perfectly legal practice that pumped up earnings at GE. You should subtract it from net income when trying to figure out just how profitable a company really is. Companies usually break out the contribution of pension costs to profits for the trailing three years; therefore, you can see not only the absolute level of pension profit or loss, but also the trend.
Wont see these numbers in the income statement. The amount is labeled tax benefits from employee stock plan or tax benefits of stock options exercised on the statement of cash flows. When employees exercise their stock options, the amount of cash taxes their employer has to pay declines.
If the stock price takes a tumble, many peoples options will be worthless and, consequently, fewer options will be exercised. Fewer options are now exercised, the companys tax deduction gets smaller, and it has to pay more taxes than before, which means lower cash flow. If you are analyzing a company with great cash flow that also has a high flying stock, check to see how much of that cash flow growth is coming from optionsrelated tax benefits.
Sometimes buildup is just temporary as a company prepares for a new product launch, usually exception. Look skeptically on any optional change that improve results. One item that can be altered is depreciation expense see if extend depreciation period. Firms can also change their allowance for doubtful accounts. If it doesnt increase at the same rate as accounts receivable, a firm is essentially saying that its new customers are much more creditworthy than the previous ones-which is pretty much unlikely.
If the allowance declines as AR rises, the company is stretching the truth even further. Current results are overstated. Firms can also change things as basic as how expenses are recorded and when revenue is recognized. Any time you see expenses being capitalized, ask some hard questions about just how long that asset will generate an economic benefit. Valuation- The basic Stock market returns come from two key components: investment returns and speculative returns.
Investment returns is the appreciation of a stock because of its dividend yield and subsequent earnings growth, whereas speculative return comes from the impact of changes in the PE ratio. Using Price Multiples wisely Price to sales: current price of the stock divided by sales per share.
Price-to-sales is used for spotting recovery situations or for double checking that a company's growth has not become overvalued. It comes in handy when a company begins to suffer losses and, as a result, has no earnings and no PE with which investors can assess the shares.
Price to book: stock market value vs equity value. Also can lead you astray for a manufacturing firm such as 3M, which derives value from its brand name and innovative products.
Another item to be wary of is goodwill, which can inflate book value to the point that even the most expensive firm looks like a value. PE ratio: A firm that is expected to grow quickly will likely have a larger stream of future cash flows than one that is growing slowly, so its rational to pay more for the shares thus, higher PE ratio. On the flip side, a firm that is riskier has a good chance of having lower future cash flows than we originally expected, so its rational to pay less for the stock.
Has the firm sold a business or an asset recently? Has the firm taken a big charge recently?
Is the firm cyclical? Calculate a PE based on the current price relative to what you think earnings per share will be at the next peak.
Does the firm capitalize or expense its cash flow generating assets? These examples look at just the tax impact of frequent trading—things look even worse for the traders once we factor in commissions.
The real-world costs of taxes and commissions can take a big bite out of your portfolio. So, if you really think that churning your portfolio will get you five extra percentage points of performance each year, then trade away. The key is to constantly monitor the companies you own, rather than the stocks you own. The Stock Has Dropped By themselves, share-price movements convey no useful information, espe- cially because prices can move in all sorts of directions in the short term for completely unfathomable reasons.
The long-run performance of stocks is largely based on the expected future cash flows of the companies attached to them—it has very little to do with what the stock did over the past week or month. Other c So when should you sell?
Did You Make a Mistake? Did you miss something when you first evaluated the company? Perhaps you thought management would be able to pull off a turnaround, but the task turned out to be bigger than you and they thought. If your initial analysis was wrong, cut your losses, take the tax break, and move on.
Have the Fundamentals Deteriorated?
After several years of success, that raging growth company you bought has started to slow down. Ask yourself how much more the market is willing to pay you than your estimate of the value of the stock and how likely it is that your estimate of its value could go up over time. But even the greatest companies should be sold when their shares sell at egregious values.
As an investor, you should always be seeking to allocate your money to the assets that are likely to generate the highest return relative to their risk. So, I sold a fairly valued stock to download one that I thought was very undervalued. What about my small loss on the Citi stock?