The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market Paperback – December 29, 2004

Have been meaning to put in a good word for this book for a long time. It's a gem. I've read an embarrassingly large number of introductions to investing in equities and this is probably the best. Other books purport to tell you how to identify hot stocks; Dorsey shows how to value companies. This isn't just a matter of understanding PE ratios and other traditional metrics, which most books explain more or less adequately. Instead, it means analyzing balance sheets and cash flow and income statements. _Five Rules_ provides as reader-friendly an introduction to assessing a company's financial statements as I've come across, with plenty of real-world examples. The object in the end is to determine the present value of a company's future cash flows, and Dorsey's explanation of a simplified version of Fisher's and William's discounted cash flow model is lucid and lively. Clorox is the company evaluated in this chapter, and en route there are instructive comparisons of HP and Dell, Best Buy and Circuit City, and, finally, AMD and Biomet. Chapter 8, Avoiding Financial Fakery, is particularly helpful. Obviously, having read this book and nothing else, you're not going to be able to spot something fishy in the footnotes to Microsoft's income statement that has escaped the attention of all the analysts. But for someone without a background in accounting, _Five Rules_ is a godsend.Dorsey then conducts a very informative tour d'horizon of 13 industries. It should go without saying that before you invest in a company, you'd want to find out something about the economics of its industry, so you can compare apples with apples. The chapter on health care is especially good, but I found them all excellent.In an Ameritrade ad that aired this week, a teenager asks her dad for $80 for a pair of jeans. The dad is nonplused, but the girl assures him that everyone is buying these jeans. He asks her who the manufacturer is, promptly logs onto Ameritrade, checks a chart, and buys the company's stock. The guy then gives his daughter the $80, a reward for the hot tip, presumably. He might do OK this time, but you have to figure he'd be a lot better off in the long run investing a fraction of that $80 in _Five Rules_.Bottom line: there are a ton of books on trading strategies, but if you're looking for a practical book on value investing, this is the best.

This is a MUST HAVE really. This book lays out the bases for anyone who is really interested in engaging with the stock market. I must say that it's the starting point for every serious investor.

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., but getting into the accounting and financial terminology for most of 350 pages can be exhausting. The back half of the book is downright revolutionary in that it explores the different investment sectors (e.g. health care, retail, consumer products) and tells you how to analyze companies within those sectors.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? Maybe. Dorsey explains it to you and you say, "Yeah, that makes sense." Any schlub can whistle on down, rent some space and start cooking meals for people. 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).