The Knockout Formula for Finding Great Investments
Pat Dorsey's The Little Book That Builds Wealth is like the other books in the series – simple and short. Dorsey is a director at Morningstar and has been instrumental in working on their economic moat ratings. Anyone who has followed Warren Buffett would know of his penchant for companies with economic moat. This book provides practical framework that will help investors identify economic moats.
According to Dorsey, the idea of an economic moat refers to how likely a company is to keep competitors at bay for an extended period. Key to finding superior long-term investments is buying firms that are likely to stay one step ahead of their competitors, as this characteristic shows strength and sustainability of the firm's competitive advantage.
Spread over 14 chapters, it focuses on economic moats and how one can benefit from them. The book enlightens on how to identify moats and how to deal with eroding moats. Some of the examples shared in the book are dated and some of them are fast changing in their sustainability as a company with moat.
The chapter on intangible assets would be of interest to anyone willing to read on economic moats. The example of Sony is interesting, with which the author explains how despite being valuable, people would choose an identical item with a different brand on it. What you need to know is that patents and regulations are also good moats, but the most valuable ones are those that are composed of lots of small patents and regulations, not a few big ones.
The book works as a strong introduction to the art of investing. It will help you develop necessary competitive advantage to identify firms with economic moat to invest in and build wealth.