Kapil Lehar

Book Review: The Five Rules for Successful Stock Investing

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Author: Pat Dorsey

Genre: Equity Investment

Details:

When someone asks me for the very first book to read when starting out in the stock market and investment, I always have a very clear answer. Start with “The Five Rules for Successful Stock Investing” and then read “One up on Wall Street”

As a beginner, I started with books like The Intelligent Investor as most of the blogs and YouTube videos recommended it. Nobody mentioned how hard it was to start with something like “The Intelligent Investor”. It’s information overload for a newbie. Today I know very well what situation other investors are when they are just starting out. 

This book is so undervalued for the beginners out there, if it was a stock I would sell my house to buy it. That is the level of content quality Dorsey can assure you. It is not very prominently known because of a misleading title. Yes, a misleading title in a good sense! The book is not just about the 5 rules of successful stock investing, it is much more than that.

The five rules of investing are:

  • Do your homework
  • Find Economic moats
  • Have a margin of safety
  • Hold for the long run
  • Know when to sell.

Each section is well explained and is further subdivided into subsections like the topic on Moat. Alternatively, you can also read another well-written book by the same author “The little book that builds wealth”

Other important discussions are but not limited to:

  • Seven mistakes to avoid
  • Moats
  • The Basics of Investing
  • Financial Statements
  • Analyzing the company end to end

Each chapter has an Investors checklist which focuses on the key lessons of the chapter.

There is a section in the end which emphasize on the various sectors of investment, how those sectors work and what ratios or parameters to look for when analyzing those stocks. For e.g. some ratios may work better in some industries and others may not. For e.g. Energy companies have a reserve replacement ratio which can tell you a lot about the future of the company, but it doesn’t apply to banking or any other sector. While it is important to evaluate the NPA of banks that may not be relevant to any other sector.

Some of the various sectors/Industries covered are but not limited to:

  • Banking Sector
  • Energy
  • Health Care & Pharma
  • Consumer Services
  • Software and Hardware
  • Media and Telecom

Five years of fast growth in perfect economic conditions doesn’t really tell you much about credit quality, after all. If you invest in fast-growing lenders, watch them carefully.

Pre-requisites before reading the book: None

Is the content relevant even today? Yes

Vocabulary and Understandability: Easy

Level of investment expertise required: Any

How can it benefit you?

Grab this book if you are a beginner or want to learn how to analyze different sectors/Industries of the stock market. This book will teach you more than 5 rules of successful stock investing. It will make you a better investor in all aspects of stock investing.

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