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The Five Rules for Successful Stock Investing

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The Five Rules for Successful Stock Investing

Morningstar's Guide to Building Wealth and Winning in the Market


15 min read
10 take-aways
Audio & text

What's inside?

Do your investing homework to find strong companies with solid track records. Beware: learn to read the numbers and more.

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Editorial Rating



  • Applicable


The best investing principles, as clearly reiterated here, are stable and evergreen. As an investor, you’ll welcome author Pat Dorsey’s unambiguous, straightforward presentation of the always valid wisdom of the markets. This conveniently organized book offers several chapters of general relevance to investors in all markets and industries, including an industry-by-industry examination of the determinants of value. The title is cute, but the content isn’t about the title’s rules - it is about learning and obeying the basics of stock investing. recommends the author’s long term perspective. Many of the directions he sets for potential investments could still be valid years hence.


Rule 1: Do Your HomeworkHomework is the anchor of a sound investing strategy. Conduct thorough research to achieve an in-depth understanding of a company or industry before you invest in it. If you don’t have time to be that diligent, don’t buy stocks. It’s that simple. You can’t make consistent profits in the market without research. You win or lose according to whether you do the work or not. When you buy a stock, someone is selling it, probably a professional investor or an institution directed by people who understand the stock thoroughly. If you buy from people who know more than you about what they’re selling, and you sell to people who know more than you about what they’re buying, you’ll end up knowing much more than they do about being broke. Doing homework helps you buy stock in good, solid businesses and ensures that you won’t buy stocks when the price is in free fall. It will help you avoid frequent, costly trades and resist the market’s manias and dips so that you buy — and sell — strategically.Seven Investing SinsYou can commit far more than seven sins in investing, but these are the most deadly: Trying to hit home runs — Every generation confronts a stock that...

About the Authors

Pat Dorsey, CFA, is director of stock analysis and head of the equity analysis team at Morningstar, Inc., a Chicago research firm. He appears weekly on the Bulls and Bears financial show on FOX News Channel.

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