The Five Rules for Successful Stock Investing

Introduction: Picking Great Stocks Is Tough 

It’s the Business that Matters 

The Long-Term Approach 

Having the Courage of Your Convictions 

Let’s Get Started 

Chapter : T Five Rules for Successful Stock Investing 

Do Your Homework 

Find Economic Moats 

Have a Margin of Safety 

Hold for the Long Haul 

Know When to Sell 

Investor’s Checklist: The Five Rules for Successful Stock Investing 

Chapter : Seven Mistakes to Avoid 

Swinging for the Fences 

Believing that It’s Different This Time 

Falling in Love with Products 

Panicking When the Market Is Down 

Trying to Time the Market 

Ignoring Valuation 

Relying on Earnings for the Whole Story 

Investor’s Checklist: Seven Mistakes to Avoid 

Chapter : Economic Moats 

Evaluating Profitability 

Building an Economic Moat 

How Long Will It Last? 

Industry Analysis 

Investor’s Checklist: Economic Moats 

Chapter : The Language of Investing 

The Basics 

Where the Money Goes 

Practical Financials—The Statements in Use 

Investor’s Checklist: The Language of Investing 

Chapter : Financial Statements Explained 

The Balance Sheet 

The Income Statement 

The Statement of Cash Flows 

Conclusion 

Investor’s Checklist: Financial Statements Explained 

Chapter : Analyzing a Company—The Basics 

Growth 

Profitability 

Financial Health 

The Bear Case 

Conclusion 

Investor’s Checklist: Analyzing a Company—The Basics 

Chapter : Analyzing a Company—Management 

Compensation 

Character 

Running the Business 

Investor’s Checklist: Analyzing a Company—Management 

Chapter : Avoiding Financial Fakery 

Six Red Flags 

Seven Other Pitfalls to Watch Out For 

Investor’s Checklist: Avoiding Financial Fakery 

Chapter : Valuation—The Basics 

Paying Up Rarely Pays Off 

Using Price Multiples Wisely 

Say Yes to Yield 

Investor’s Checklist: Valuation—The Basics 

Chapter : Valuation—Intrinsic Value 

Cash Flow, Present Value, and Discount Rates 

Calculating Present Value 

Fun With Discount Rates 

Calculating Perpetuity Values 

Margin of Safety 

Conclusion 

Investor’s Checklist: Valuation—Intrinsic Value 

Chapter : Putting It All Together 

Advanced Micro Devices 

Biomet 

Conclusion 

Chapter : The 10-Minute Test 

Does the Firm Pass a Minimum Quality Hurdle? 

Has the Company Ever Made an Operating Profit? 

Does the Company Generate Consistent Cash Flow from Operations? 

Are Returns on Equity Consistently above 10 Percent,

with Reasonable Leverage? 

Is Earnings Growth Consistent or Erratic? 

How Clean Is the Balance Sheet? 

Does the Firm Generate Free Cash Flow? 

How Much “Other” Is There? 

Has the Number of Shares Outstanding Increased Markedly

over the Past Several Years? 

Beyond the 10 Minutes 

Chapter : A Guided Tour of the Market 

Where to Look 

Conclusion 

Chapter : Health Care 

Economic Moats in Health Care 

Pharmaceuticals 

Generic Drug Companies 

Biotechnology 

Medical Device Companies 

Health Insurance/Managed Care 

Investor’s Checklist: Health Care 

Chapter : Consumer Services 

Companies We See Every Day 

Restaurants 

Retail 

Conclusion 

Investor’s Checklist: Consumer Services 

Chapter : Business Services 

Outsourcing Trend 

Economic Moats in Business Services 

Technology-Based Businesses 

People-Based Businesses 

Hard-Asset-Based Businesses 

Investor’s Checklist: Business Services 

Chapter : Banks 

It’s All about Risk 

Managing Credit Risk 

Selling Liquidity 

Managing Interest Rate Risk 

Economic Moats in Banks 

Hallmarks of Success for Banks 

Investor’s Checklist: Banks 

Chapter : Asset Management and Insurance 

Asset Management 

Life Insurance 

Property/Casualty Insurance 

Investor’s Checklist: Asset Management and Insurance 

Chapter : Software 

Segments of the Software Industry 

Economic Moats in the Software Industry 

Software Accounting  

Red Flags 

Hallmarks of Success for Software Companies 

What’s Not to Like about Software? 

Conclusion 

Investor’s Checklist: Software 

Chapter : Hardware 

What Drives the Hardware Industry 

Hardware Industry Dynamics 

Economic Moats in Hardware 

Hallmarks of Success for Hardware Companies 

Investor’s Checklist: Hardware 

Chapter : Media 

How Media Companies Make Money 

Economic Moats in Media 

Publishing Profits 

Broadcasting and Cable 

Investing in the Entertainment Industry 

Hallmarks of Success in the Media Sector 

Risks in the Media Sector 

Investor’s Checklist: Media 

Chapter : Telecom 

Telecom Economics 

Economic Moats in Telecom 

Hallmarks of Success in Telecom 

Conclusion 

Investor’s Checklist: Telecom 

Chapter : Consumer Goods 

How Companies Make Money in Consumer Goods 

Key Strategies for Growth 

What’s Not to Like in Consumer Products 

Economic Moats in Consumer Goods 

Hallmarks of Success in Consumer Goods 

Conclusion 

Investor’s Checklist: Consumer Goods 

Chapter : Industrial Materials 

The Problem with Cyclicality 

Economic Moats in Basic Materials 

Economic Moats in Industrial Materials 

Hallmarks of Success in Industrial Materials 

Red Flags 

Finding Opportunities in Industrial Materials 

Investor’s Checklist: Industrial Materials 

Chapter : Energy 

From the Ground 

To the Pipelines 

To the Refineries 

To the Consumers 

Providing the Services 

The Impact of Commodity Prices 

Economic Moats in Energy 

Hallmarks of Success for Energy Companies 

Risks in the Energy Sector 

Conclusion 

Investor’s Checklist: Energy 

Chapter : Utilities 

Electricity Primer 

Regulation, Regulation, Regulation 

Financial Characteristics of Utilities 

Hallmarks of Success for Utility Companies 

Risks in the Utilities Sector 

The Big Picture 

Investor’s Checklist: Utilities 

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