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

The nice thing about yields, as opposed to P/Es, is that we can compare them with alternative investments, such as bonds, to see what kind of a return we can expect from each investment. (The difference is that earnings generally grow over time, whereas bond payments are fixed.)

interpret ROIC just as you would ROA and ROE—a higher return on invested capital is preferable to a lower one.

Compensation is the easiest of the three areas to assess because the bulk of the information is contained in a single document, usually called the proxy statement. This is the form that companies mail shareholders around the time of the annual meeting, and it details how much executives are paid and what perks they get.

Does the firm’s product require a significant amount of client training?

To invest successfully means you need to buy great companies at attractive prices.

But now, many companies are creating wealth through intangible assets such as processes, brand names, and databases, most of which are not directly included in book value. For service firms, in particular, P/B has little meaning. If you used P/B to value eBay, for example, you wouldn’t be according a shred of worth to the firm’s dominant…

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Do You Have Too Much Money in One Stock? This is the best reason of all to sell because it means you did something right and picked a winner. The key is to not let greed get in the way of smart portfolio management.

you’re mainly going to be interested in the balance sheet, the income statement, and the statement of cash flows.

revenues minus cost of sales and all operating expenses. Theoretically, it represents the profit the company made from its actual operations,

go to the line in the pension footnote labeled either “net pension/postretirement expense,” “net pension credit/loss,” “net periodic pension cost,” or some variation. Companies usually break out the contribution of pension costs to profits for the trailing three years; therefore, you can see not only the absolute level of pension profit or loss, bu