The Little Book That Builds Wealth: Morningstar's Knock-out Formula for Finding Great Investments

Think of a strong brand. Take Tiffany's, explains Dorsey. Remove a Tiffany diamond from the blue box, and it looks no different than one sold by Blue Nile, he explains. Yet, Tiffany's is able to charge more than competitors. Or take Bayer aspirin, says Dorsey. Bayer can charge almost two times as much as generic aspirin, making it a power brand. If a company can charge more for the same product just by selling it under a brand, it's likely that you have a wide economic moat and a stock that is worth considering. These are simple, straightforward lessons any reader can benefit from.

A book that fulfilled my expectations. Put the quality in front of the numbers and gave me specific methodology to look through companies choosing those that are more important to those that are just part of the crowd. I believe that I read through business articles with a different set of glasses and see them through a different prism.

If Michael Porter's "Competitive Advantage" can be seen as the first book that conclusively illustrates "managerial" competitive advantage, Pat Dorsey's "The Little Book That Builds Wealth" can be seen as the first book that conclusively illustrates "investing" competitive advantage (I do not regard Warren Buffett's annual reports as a book). Many people invest by reacting, "My brother-in-law recommended it" or "I read about it in Money". It's also easy to get distracted by daily price gyrations and pundits who pontificate about short term market swings. Far better to have a conceptual anchor to help you evaluate stocks and build a rational portfolio. That's when investing competitive advantage, what Warren Buffett calls economic moats are invaluable. This book primarily deals with businesses that can generate above-average profit for many years, despite intense and constant competitive threats. Return on capital is the best benchmark of a company's profitability. It measures how effectively a company uses all of its assets - people, factories, investments - to make money for shareholders. Companies with strong competitive advantage can regularly post return on capital at 20+ percent, which is a rate of return very few money managers can achieve over long periods of time. This book provides a sensible framework for identifying companies that can sustain high return on capital. It tells the reader how to look for durable competitive advantage in choosing equities. The 4 sources of competitive advantage are: (1). Intangible assets; (2). Switching costs; (3). Network effects and (4). Cost advantage. These 4 sources of competitive advantage are elaborated throughout the book. Digest this book and you will develop a solid foundation for making smart investing decisions.

Pat Dorsey's Little Book That Builds Wealth really is a big book that contributes volumes to the investment universe. Overlaying Pat's explanation of the different types of moats on Warren Buffett's portfolio helps the professional and the private investor understand the very important investment moat principles. Coke is a brand or intangible asset moat. Wells Fargo is a switching cost moat. American Express is a network effect moat. And although no longer publicly traded and now a wholly owned subsidiary of Berkshire Hathaway, GEICO is a cost advantage moat. This little book is a must read for every participant of the stock market." -- Robert P. Miles, author The Warren Buffett CEO

I got this book on Friday from the local bookstore as I am big fan of Pat Dorsey's writing. It was an interesting read ( i still have 50 more pages to go), Chapter 3 to Chapter 7 are the core of identifying companies with Moat. Myself being a momentum investor, i had a few themes that I could use from this book. The examples selected to cover the concepts supported in this book was glaringly beautiful. This is definitely a gem to hold in the investors library. Of all the Littlebooks that have been published so far the growth investing and this one has been the good reads. Definitely a five star for this one.