Book Summary: The Little Book that Builds Wealth
Pat Dorsey was the Director for equity research at Morningstar from 2000 to 2011 and he now heads Dorsey Asset Management. In “The Little Book that Builds Wealth”, Dorsey introduces his investment philosophy in a concise 200 page book. This is an excellent book for anyone interested in value investing.
My key takeaways from this book are as follows:
- Find companies with a strong competitive advantage to invest in.
- Value those companies in (1) and buy as appropriate.
- Know when it’s time to sell.
Companies with Strong Competitive Advantage (“Moats”)
Companies with a competitive advantage have what Dorsey calls “moats” in their business. A moat enables a company to protect it’s long term profitability and market share from competitors. These companies tend to have more predictable cash flows, making them easier to value. Dorsey believes that a moat is the main factor in selecting good stocks. When caught between investing in a company with no moat and a great management and another company with a wide moat and a mediocre management, Dorsey would recommend the latter. “Bet on the horse, not the jockey”.
Dorsey categorizes moats into four different types:
- Intangible assets
