Book Summary: The Five Rules for Successful Stock Market Investing

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“The Five Rules for Successful Stock Market Investing” by Pat Dorsey is an excellent starting point for those looking to get into stock picking. The first section of the book outlines Dorsey’s investment philosophies and the second section of the book is a compilation of writings from Morningstar analysts that identifies properties of excellent companies in different industries.

Here are my top three takeaways from the book:

1. Remember the five core principles.
2. Applying the 10 minute test.
3. Learn to analyze a stock.

The Five Rules

The five rules of Dorsey’s investing philosophy are:

1. Do your homework. Do not invest in companies that you do not understand.
2. Find companies with a strong competitive advantage. These companies will tend to have more stable cash flows, growth potential and/or pricing power in their respective industries.
3. Applying a margin of safety to the intrinsic value of the security. This typically ranges from 20–60% depending on how risky the company is or the certainty in your valuation.
4. Hold for the long term. Long term investing is far more favorable than short term investing. Over a long…