The Five Rules for Successful Stock Investing: Morningstar's Guide to Building Wealth and Winning in the Market

inventory turnover by dividing a company’s cost of goods sold by its inventory level.

Successful investing is built on five core principles: 1. Doing your homework 2. Finding companies with strong competitive advantages (or economic moats) 3. Having a margin of safety 4. Holding for the long term 5. Knowing when to sell

you can use it to calculate an operating margin, which is fairly comparable across firms and across industries.

Think of the time you spend on research as a cooling-off period. It’s always tempting when you hear about a great investment idea to think you have to act now, before the stock starts moving—but discretion is almost always the better part of valor.

The basic equation underlying a balance sheet is: Assets − Liabilities = Equity

Do Executives Have Some Skin in the Game? That is, do they have substantial holdings of company stock, or do they tend to sell shares right after they exercise options? As a shareholder, I want management to have meaningful equity in the company.

The brand has to justify the cost of creating it by actually making money for the firm, and sustaining a powerful brand usually requires a lot of expensive advertising.

Be highly skeptical of firms for which goodwill makes up a sizable portion of their book value. The P/B may be low, but the bulk of the B could disappear in a hurry if…

Some highlights have been hidden or truncated due to export limits.

The essence of risk is uncertainty, and it’s tough to value what you can’t see. Firms with extremely complex businesses or financial structures are riskier than simple, easy-to-understand firms because there’s a greater chance that something unpleasant is hiding in a footnote that you missed.