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

Becoming an investor who can quite regularly beat a broad based index (e.g. S&P 500) is near impossible. Just ask two of the most famous investors ever: John Bogle of Vanguard (who wrote his own "Little Book" warning investors to stay away from anything but low cost index funds) and Warren Buffett (of Berkshire Hathaway who also recommends index funds for the average investor). They point out that numerous studies show professional money managers (mutual funds) fail to beat the index funds they set out to beat time and time again--and trying to find the few mutual funds that will beat the index is close to a fool's errand. And when regular folks try to pick individual stocks, the results are even worse. Unfortunately, there is one problem with index fund investing: it's boring. Very boring. Moreover, we, for better or worse (worse in the case of investing in capital markets), don't like to be "average" and index fund investing by definition will only yield "average" results.

So investors try very hard to be more than average. And they start by buying books like this one.

This is where Dorsey comes in. He borrows Warren Buffett's now famous concept of 'moats', which is just another term for a structural competitive advantage of a business, and shows his readers how to find them, evaluate them, and then use them to make a profit by investing in individual stocks. Dorsey's game plan is straightforward: find a great business with a moat and buy it only you can get it for less than it's intrinsically worth. The book is well-organized, uses plain-written language and is easily understandable; Dorsey's categories of different moats are well thought out and he provides multiple examples in each moat category.

Here's my problem with this book: Dorsey has you believe that if you can master the concept of moats then you, little you, should spend some time trying to "beat the market." To do this right, however, requires more time than almost any investor (even those who are retired or fanatical) has. First, you have to find a great business with a moat (not as easy as it sounds and it entails both qualitative and quantitative analysis). Then you have to value it (also not easy). Then you have to figure out how much of your portfolio to invest in that company (this step Dorsey conspicuously leaves out which is critical and often overlooked - I would recommend the Kelly Formula outlined in the book "Fortune's Formula"). Then you have to stay up-to-date with the corporation (and its competitors) by reading news stories, press releases, and quarterly reports. Finally you have to watch the stock price: if the stock goes down a lot but the moat and intrinsic value hasn't shrunk, you should buy more of the stock (this is hard for most investors to do) and if the price goes up and the moat or intrinsic value hasn't grown as fast as the stock price, you should sell some of the stock. Get any of these steps wrong along the way and you are sunk. Oh, and you will likely be following multiple companies in your portfolio. Are we still having fun?

As you can now start to tell, applying this "little book" will take a lot of your time. Of course, you could beat the market, but chances are you will make a few mistakes that could cost you a lot of money. My recommendation is to use the book instead in two counterintuitive ways. First, use it to understand what make a great business "great" and if you are thinking about opening your own business, figure out how you can create a moat for it, no matter how small. Second, if you are working in corporate America use the concept of moats to make your company better.

But if you use the book for what and who it is intended for, be forewarned.

This is a quick, easily comprehensible, read to understand the philosophy of Morningstar's analysis approach and fundamental investment thesis. Well worth the money.

Becoming an investor who can quite regularly beat the largest index funds (e.g. S&P 500) is near impossible. Just ask two of the most famous investors ever: John Bogle of Vanguard (who wrote his own "Little Book" warning investors to stay away from anything but low cost index funds) and Warren Buffett (of Berkshire Hathaway who also recommends index funds for the average investor). They point out that numerous studies show professional money managers (mutual funds) fail to beat the index funds they set out to beat time and time again--and trying to find the few mutual funds that will beat the index is close to a fool's errand. And when regular folks try to pick individual stocks, the results are even worse. Unfortunately, there is one problem with index fund investing: it's boring. Very boring. Moreover, humans, for better or worse (worse in the case of investing in capital markets), don't like to be "average" and index fund investing by definition will only yield "average" results.

So investors try very hard to be more than average. And they start by buying books like this one.

This is where Dorsey comes in. He borrows Warren Buffett's now famous concept of moats, which is just another term for a structural competitive advantage of a business, and shows his readers how to find them, evaluate them, and then use them to make a profit by investing in individual stocks. Dorsey's game plan is straightforward: find a great business with a moat and buy it only you can get it for less than it's intrinsically worth. The book is well-organized, uses plain-written language and is easily understandable; Dorsey's categories of different moats are well though out and he provides multiple examples in each moat category.

Here's my problem with this book: Dorsey has you believe that if you can master the concept of moats then you, little you, should spend some time trying to "beat the market." To do this right, however, requires more time than almost any investor (even those who are retired or fanatical) has. First, you have to find a great business with a moat (not as easy as it sounds and it entails both qualitative and quantitative analysis). Then you have to value it (also not easy). Then you have to figure out how much of your portfolio to invest in that company (this step Dorsey conspicuously leaves out which is critical and often overlooked - I would recommend the Kelly Formula outlined in the book "Fortune's Formula"). Then you have to stay up-to-date with the corporation (and its competitors) by reading news stories, press releases, and quarterly reports. Finally you have to watch the stock price: if the stock goes down a lot but the moat hasn't shrunk, you should buy more of the stock (this is hard for most investors to do) and if the price goes up and the moat hasn't grown larger, you should sell some of the stock. Get any of these steps wrong along the way and you are sunk. Oh, and you will likely be following 5-20 companies since no one has just five stocks in a portfolio. Are we still having fun?

As you can now start to tell, applying this "little book" will take a lot of your time. Of course, you could beat the market, but chances are you will make a few mistakes that could cost you a lot of money. My recommendation is to use the book instead in two counterintuitive ways. First, use it to understand what make a great business "great" and if you are thinking about opening your own business, figure out how you can create a moat for it, no matter how small. Second, if you are working in corporate America use the concept of moats to make your company better.

But if you use the book for what and who it is intended for, be forewarned.

Have not finished reading book as yet, but thus far I am picking up good, useful investment information and insights. The only omission I sense, so far, is that there may not be enough "actionable" information (i.e, much theory, but lack of specific recommendations based on that theory). But I will not know that for sure until I finish the book.

Reviewing a book like this today is like joining a weight-loss program and concluding on the first day whether or not you got your money's worth. Too early to tell. Ask me again after I've put the lessons in this book to work. Like a year from now. (Gave it a one-star rating because this system wouldn't take my submission unless it included a rating.)

This is the abbreviated version of Mr. Dorsey's earlier book "The Five Rules for Successful Stock Investing."

I was very impressed with the first work and keep it in the investing library to refer to from time to time.

This book is really a condensed version of that book. It's what to read if you don't want to invest the time to read the bigger book.

There are many good points in the book, but you'd be better served by reading the bigger book.

I bought this book because i was so impressedwith his first book, and still am, but there was nothing new here.

I want to emphasize Mr. Dorsey has a lot of good advice in either book. He's done a great service in publishing them, just choose one. Or perhaps read the little book first and then the bigger book.

The "Little Book" series is turning out to be both educational and must have for the investor's book shelf. Though the others are noteworthy on their own, one could argue that this 5th installment in the series is the best to date.

The four (4) items above are what the book's main theme is about and one of the better books out there outlining what a moat is and that puts it all in perspective with real concrete examples, or maybe the only book that does! In addition, in Chapter 2 we learn up front what is often confused as a moat but which is not, like great products, or a strong market share, plus others. Just because a company has a great product, one should not conclude that it is a great company with a competitive advantage as that would be a mistake.

Other good chapters like Chapter 8 help determine if your moat is eroding, or Chapter 12 of what a moat is worth. Also included are valuation discussions which are good, but have been covered by Benjamin Graham or the 2nd series installment in Little Book of Value Investing by Christopher Browne. Irrespective, good reading throughout.

Much like Adam Smith pointed out the importance of division of labor and that the widening of the markets encourage technological innovation, in the ever progressing investment and business world of creative destruction, one must have a comparative advantage to survive and prosper for long periods of time. Also like Warren Buffett and Charlie Munger transitioned from investing in "cigar butts" to paying up for value to take advantage of the longer lasting power of the comparative advantage, this book goes into more details of what makes up and constitutes that advantage in what most now commonly call "moat" as in "to protect the castle."

All in, a worthy addition to any serious investor's book shelf and a big thanks to Pat and to the supporting Morningstar team. Well done!

The "Little Book" series is turning out to be both very good and educational. Though the others are noteworthy on their own, one could argue that this 5th installment in the series is the best to date.

Much like Adam Smith pointed out that the division of labor and the widening of the markets encourage technological innovation, in the investment and business world of creative destruction, one must have a comparative advantage (i.e. "moat") to survive and prosper for long periods of time. The four (4) items above are what the book's main theme is and one of the better books out there outlining what a moat is and that puts it all in perspective with real concrete examples, or maybe the only book that does! In addition, in Chapter 2 we learn up front what is often confused as a moat but which is not, like great products, or a strong market share, plus others. Just because a company has a great product, one should not conclude that it is a great company with a competitive advantage as that would be a mistake.

Other good chapters like Chapter 8 help determine if your moat is eroding, or Chapter 12 of what a moat is worth. Also included are valuation discussions which are good, but have been covered by Benjamin Graham or the 2nd series installment in Little Book of Value Investing by Christopher Browne. Irrespective, good reading throughout.

All in, a worthy addition to any serious investor's book shelf and a big thanks to Pat and to the supporting Morningstar team. Well done!

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.

This is a remarkably pithy discussion on what constitutes a "real" moat - competitive advantage that is sustainable. Regular readers/subscribers(like myself)of Morningstar products are already familiar with Morningstar's views on the importance of picking companies with moats for long term investing. This book essentially distills all such discussions into a very quick guide on "how to find good investments that can build wealth?". The use of excellent examples and a very down-to-earth (typical of the Little book series) discussion style makes this book an easy and useful read. Prospective readers need to be warned on two aspects - unlike the other books in the series (value investing, growth investing, etc.) this book doesn't have a specific "formula" but more a discipline on stock selection. (to borrow a cliche'd expression, the book aims to provide a method to fish than a fish itself). Secondly, regular Morningstar readers will be hard pressed to find anything new in these discussions in this book. For them, The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market may be more useful. For readers just being introduced to Morningstar and its approach, both books are solid additions to a patient investor's library. You can round out that collection with The Ultimate Dividend Playbook: Income, Insight and Independence for Today's Investor.

Overall, an easy read that gives very worthwhile discussion on identifying companies with sustainable advantage (and how to identify traps in perceiving incorrectly the existence of such an advantage).