Morningstar Stocks 500

This is a very comprehensive resource for stock research ideas. I keep it handy and refer to it frequently.

There is an old saying that people spend more time studying which refrigerator to buy than how they invest for their retirement. It is a sad saying because it is probably true in more cases than we would like to admit. There is also an awful lot of evidence that people are more often better off with a very low cost index fund than in picking stocks or even investing in mutual funds. Why? Because over the long haul, there aren't many who can consistently provide higher than market returns. And it is even more difficult to identify who those folks will be in advance. Still, it is nice to look for the next Microsoft, or to figure out when it would be a good time to get into a good company. What too many people do is buy after the run has started and they end up providing capital gains possibilities for others. You may have heard of the greater fool theory. If not, feel free to email me and I can explain it to you. While the web is full of information about companies, one has to do an awful lot of analysis and develop one's own perspectives about when to buy, when to hold, and when to sell. Again, during the learning curve one makes it possible for others to make money by taking your hard earned money away from you in transaction costs and in helping you buy high and sell low. This terrific book has several virtues for the person wanting to buy some stock in companies that are likely to be good. However, the authors don't simply list 500 stocks and say, "Have at it." Far from it. They provide a very interesting page on each one of the companies and that page is crammed full of valuable information. The obvious eye catcher are the star ratings. However, they do not say whether or not this is a sound company. Morningstar uses its star ratings to communicate the relative attractiveness of the company as an investment at its (then) current price given all the other aspects of its condition and position. I also appreciate the fair value price (the discounted cash flow value divided by the number of outstanding shares as Morningstar has evaluated their likely future cash flows). The last close, consider buy, consider sell, and yield are also interesting indicators for a person trying to understand that company. Morningstar also provides a brief summary of the business, a rating of the stewardship of present management and why they gave that rating. There is also a good amount of historical financial information, ratios, competitors, comparisons of financial performance to those competitors, and about a third of a page "thesis" on the condition and prospects of that company as the named Morningstar analyst sees it on the date given for that article. There are also about fifty pages of interesting short articles at the front of the book that explain these reports to the reader, the thinking behind some of their concepts like the competitive moat size. These pages also provide all the companies simply by name. Some are also singled

It's best to do your own research first, but of course a second opinion can never hurt. That's how I used this book for most part, but also got some ideas. I used this book for an experiment; I made up a mock porfolio of stocks I had done research on, and then took 16 totally random companies that this pick had rated with 5 stars, which is the highest rating. 12 of the 16 companies made money, while 4 didn't. Over 9 months, I gained about 10.5%, which doesn't factor in dividends, or fees for that matter. On the other hand, the stocks that I had actually researched, did about the same, 10%. Overall, the book gets a 4.5. They strike a good balance between information, and quantity of top stocks. A beginner may not enjoy this book off the bat, because there are no explanations of the numbers, but after you learn a few things, the rest falls into place. They have the basic numbers for all the companies listed, but certainly, by the time the book comes out, those numbers will have changed, and at years' end, they will most likely be quite different. The vital info is across the top, and makes for quick reference. Do your own research, use this book for a second opinion. Morningstar is without a doubt one of the most trusted names in the business.

This is without doubt an excellent starting point for investors (traders beware, this is of not much use to you!). By using traditional value analysis and their own business model analysis, Morningstar provides a "fair/intrisinc value" along with what it considers are "Buy below" and "Sell above" prices. In addition, the analysts assign a "moat" for the company reflecting its competitive advantage. Based on the current price and the fair value, the analysts provide star ratings for each stock. The book provides all this information and more for 500 stocks. The early parts of the book provide information on their methodology. The book also organizes their stocks into the sectors and according to different parameters such as price/earnings ratio, etc. While 500 stocks may be considered to be too big a sample for a "short list" for investments, it is still extremely valuable. For the price, no other source can provide such detailed, independent research. A must buy for any investor.

Morningstar grades the stocks in its universe with one to five stars. This book has one page overviews of the best 500 stocks in that universe, rated and discussed in some detail. Morningstar uses a "value investor" approach to stock evaluation. I use this book in conjunction with Morningstar's StockInvestor newsletter, and I am pleased with the results.