The Five Rules for Successful Stock Investing: Book Review

There are some books on investing that are good for beginners while there are some which are good for experienced investors. But 5 rules for successful stock investing by Joe Mansueto and Pat Dorsey is the one which is good for beginners and experienced investors also can learn a lot. Pat is the founder of Dorsey Asset Management. Prior to starting Dorsey Asset, Pat was Director of Research for Sanibel Captiva Trust, an independent trust company with approximately $1 billion in assets under management serving high net worth clients.  In this book Pat has simplified the research work into five steps

1. Do homework

2. Find economic moats

3. Have margin of safety

4. Hold for long haul

5. Know when to sell

The Five Rules for Successful Stock Investing

The above 5 rules might sound so obvious rule, but very few people actually follow it. He talks about all the above 5 rules in details and how it can be applied

1. Do homework

Here the author talks about the importance of understanding the accounting part so that you can understand the financial situation of the company. He talks about the important information one need to extract from the annual reports, checking the industry competitor and going through the past financial statements. Thorough investigation of the company is the mandatory homework for investors.

2. Finding economic moats

The term economic moat describes the economic advantage the company has which gives it an edge over other companies in the same industry. He talks about the things that separate a bad company from a good company or a good company from a great company.

3. Have margin of safety

Even a good investment at wrong price is bad. You should pay the right price for the stock which gives you margin of safety. If the price you pay is too high the rewards will be limited and risk will be high. The size of margin of safety should be larger of volatile companies having doubtful future and small for companies having stable predictable income.

4. Hold for long

Here the author talks about holding the stock for a longer term. He recommends to stay invested rather than trying to trade

5. Know when to sell

Selling at right time is also very important. Though holding period for long-term investors is infinite but its not easy for any business to continue doing well for years. Many investors sell their winning stock too early and continue losers for too long Auther discusses in detail how to keep track on company performance and when to sell and when not to sell.

Buy:  The Five Rules for Successful Stock Investing online 

In this book an investor can learn. How to dig into a financial statement and find hidden gold. How to find great companies that will create shareholder wealth. How to analyze every corner of the market, from banks to health care

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