Pat Dorsey – The Five Rules For Successful Stock Investing

Pat Dorsey was Director of Equity Research at Morningstar from 2000 until 2011. His book “The Five Rules for Successful Stock Investing” was written during that time and is a good first book to start your investing education. After 2011 Pat Dorsey founded Dorsey Asset Management where he is still working. I won’t be able to cover the entire book, but will pick out a few important aspects why everybody should read the book – people who are just beginning their investment career as well as long-time investors.


Quick Overview

Although the title might suggest that the book is about those five rules of stock investing, the book is not really structured about those five rules. That is not to say he ignores the five rules completely, but mainly the book is divided in two big parts. In the first half of the book (chapters 1-13) Dorsey is writing about the basics in stock investing. Although I would say this part of the book is similar to many other investing book who cover the basics of value investing, I don’t want to say you shouldn’t read it. On 180 pages Dorsey provides a very good introduction to the basics of investing. But the strengths of his books and the reason why you should read it is the second part. In chapters 14-26 Dorsey talks about thirteen different sectors or industries individually.


The Five Rules

The five rules Pat Dorsey talks about in his book are:

  1. Do your homework
  2. Find economic moats
  3. Have a margin of safety
  4. Hold for the long haul
  5. Know when to sell

Economic Moats

An important theme Pat Dorsey is often talking about are economic moats. If you want to get a first impression and check out his way of thinking I recommend watching the video about the talk he gave at Google.

In Chapter 3 Dorsey talks about economic moats, a topic that is often overlooked in investing as many people mostly focus on numbers and quantitative aspects and forget the qualitative aspects of investing. Warren Buffett and Michael Porter were among the first to talk about structural advantages, that allowed companies to stay ahead of competitors for a very long time.