Pat Dorsey provides a practical framework for integrating the realities of a changing future into today's investment decisions. A little art and a little science--key ingredients to successful long-term investing.
Hoboken, NJ (PRWEB) March 19, 2008
Investors who want to make money in the current market often look for companies with a special edge over the investment universe. A more effective long-term approach is to select companies that trade at attractive prices and have "economic moats"-- sustainable advantages that protect a company from competition like a moat protects a castle. This finely tuned and well-tested strategy is the focus of the newest book in the Little Book Big Profits series, The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments (Wiley, March 2008, ISBN-13: 978-0470226513; $19.95, Hardcover) by Pat Dorsey, director of equity research at Morningstar, with a Foreword by Joe Mansueto, founder and CEO of Morningstar, Inc.
Dorsey reveals the basic framework of economic moats; a concept pioneered by Warren Buffett and shows investors how to identify companies that have a competitive edge over the long haul. Companies like Anheuser-Busch, Oracle and Johnson & Johnson are all extremely profitable and have been able to withstand intense competitive threats for many years, yet they still produce very high returns on capital.
The Little Book That Builds Wealth uses these four sources of competitive advantage to illustrate the best way to find and identify economic moats:
- Intangible assets: Products or services that can't be matched by competitors - like brands or patents or regulatory licenses. For example, consumers will pay more for a piece of jewelry just because it comes from Tiffany & Co.
- Switching Costs: Switching costs are a valuable completive advantage because a company can extract more money out of its customers if those customers are unlikely to move to a competitor. For example, banks and the company Intuit (QuickBooks and TurboTax) have meaningful switching costs for users.
- The Network Effect: The value of a business product or service increases with the number of users. One example is American Express and other credit cards, online auctions and financial exchanges.
- Cost Advantages: Companies that have lower costs than the competition due to scale like Exxon Mobile or because they have better locations, cheaper processes and unique resources.
In addition to learning how to find companies that fit these criteria, Dorsey shows how to recognize economic moats that are eroding and how management can both create and destroy moats. Interesting case studies include companies like Deere & Company, Martha Stewart Living Omnimedia, and others.
Economic moats, like moats that protect medieval castles, allow companies to reap and sustain profits over time. The Little Book that Builds Wealth gives readers a valuable opportunity to leverage this strategy so they can build a portfolio of well priced stocks that will greatly improve their odds of doing well in the stock market now and in the future.
From the Bestselling Little Book Big Profits Series. . .
The Little Book That Builds Wealth
The Knockout Formula for Finding Great Investments
By Pat Dorsey
"Pat Dorsey provides a practical framework for integrating the realities of a changing future into today's investment decisions. A little art and a little science--key ingredients to successful long-term investing."
--Larry D. Coats, Chief Executive Officer, Oak Value Capital Management, Inc.
About the author: Pat Dorsey, CFA (Chicago, IL) is Director of Equity Research at Morningstar, Inc. He played an integral part in the development of the Morningstar Rating™ for stocks, as well as Morningstar's economic moat ratings. Dorsey is also the author of The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market (Wiley). He holds a master's degree in political science from Northwestern University and a bachelor's degree in government from Wesleyan University. Please visit http://www.findingmoats.com.