Comments on: Review: The Little Book That Builds Wealth

By: bodhi

bodhi — Mon, 24 Mar 2008 07:52:45 +0000

further to the above, take some real life examples to show how flawed those metrics are:

1. price to sales – I set up a lemonade stand and sell my lemonade below cost, perhaps because I’m math-challenged. Of course I have higher total sales than the guy down the street. Is my lemonade stand worth twice as much if my sales are twice as high? No. I’m in the red and he’s in the black.

And if the sector you’re looking at is too early cycle for ANYONE to have earnings or cash flow, avoid it, use DCF, quant/momentum trade it, or realize it’s a complete spec. and for fun. N.B. price/sales relative to sales growth was a realllly popular one to use on tech stocks, ’round about 2 months before Mar 13/2000 implosion.

2. price to book – uses out of date info (just for a start – there’s lots more wrong with it). Your flat screen LCD TV from 4 years ago has a book value of $3000. Your neighbour’s, that he bought yesterday, book value $800. Identical TVs. Is yours worth 4x your neighbour’s? um no, not at a garage sale. It’s that big garage sale called the stock market that counts, not the book value.

By: bodhi

bodhi — Mon, 24 Mar 2008 07:34:58 +0000

price to sales and price to book?? you have to be FREAKING kidding me. the best advice here is to find out what metrics the sector trades on (get some Wall Street research – you can purchase loads at Reuters; or find a site that records portfolio managers’ televised views and conversations by stock name – eg. Stockchase.com here in Canada) and use those. Price to book wouldn’t get you too far with REITs, for example, which trade off P/AFFO and NAV discounts. If you INSIST on general metrics, the two USEFUL ones are P/E and EV/EBITDA.

By: George

George — Sat, 22 Mar 2008 02:51:19 +0000

Nice review, Trent. I need to get a hold of a copy of this book. Economic moats are the central component of my Fat Pitch investing style. I’ve read a lot of Pat Dorsey’s articles in the past, but somehow I missed the fact that he was writing this book until I read your review. I decided to bookmark you article at Value Investing News so other investors get a chance to find your post.

By: Frugal Dad

Frugal Dad — Fri, 21 Mar 2008 17:12:56 +0000

Great review, Trent – as always! I’ll add this one to my 2008 book series. Sounds like a good read, and if there ever was a model to follow it would be Buffett’s! I imagine the “When to Sell” section was particularly relevant given the recent market downturn, and the “herd” of sellers.

By: 7million7years

7million7years — Fri, 21 Mar 2008 15:05:34 +0000

For a detailed step-by-step strategy, read Phil Town’s “Rule # 1 Investing” … I mention it in a number of places on my blog because it is such an easy/good way to implement Buffet-like strategies …

By: ongrowthtrack

ongrowthtrack — Fri, 21 Mar 2008 14:52:43 +0000

Thanks for the review trent, I want to check this out now. Increased dividends are not a sure indicator like every thing else, but worth an investigation.

By: Tyler @Dividend Money

Tyler @Dividend Money — Fri, 21 Mar 2008 14:44:34 +0000

Trent,
This book appears to be geared toward the conservative investor and it is likely that a lot of these companies will pay a dividend.
We may be able to take this a step further by looking at the dividend growth rate of these companies with a moat to identify those that pay increasing dividends year after year.
An increasing dividend is like getting a raise for simply holding the stock.
Just a thought.
Thanks again for the review!!
-Tyler

By: Saving Freak

Saving Freak — Fri, 21 Mar 2008 14:09:32 +0000

Before I read the last paragraph of this post I was thinking this sounds a lot like Warren Buffet. This synopsis is a great example of how to pick companies that will experience long term growth. Just find the ones with an advantage and ride them to the bank.