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My goal in this book is to show you how to think for yourself, ignore the day- to-day noise, and make profitable long-term investment decisions. Here's our road map.

First, you need to develop an investment philosophy, which I'll discuss in Chapter 1. Successful investing is built on five core principles:

•  Doing your homework

•  Finding companies with strong competitive advantages (or economic
moats)

•  Having a margin of safety

4. Holding for the long term
J. Knowing when to sell

Building a solid stock portfolio should be centered on these five ideas; once you know them, you'll be ready to start learning how to look at companies.

Second, I'll take a step back and review what not to do—because avoiding mistakes is the most profitable strategy of all. In Chapter 2, I'll go over the "Alice Lowenstein, "The Low-Turnover Advantage," Morningstar Mutual Funds, 30 ( August 15, 1997 ): S1-S2. most common mistakes that investors make. If you steer clear of these, you'll start out ahead of the pack.

In Chapter 3, I'll show you how to separate great companies from mediocre ones by analyzing competitive advantages, which we call economic moats. I'll explain how economic moats are what help great companies keep their top-tier status and why they're a big part of what separates long-run winners from flashes in the pan. Understanding the sources of a firm's eco­nomic moat is critical to thoroughly analyzing a company.

Chapters 4 through 7 show you how to analyze companies by reading their financial statements. First, I'll describe how financial statements work—what the line items mean and how the different statements fit together. Once you know how to read balance sheets and income statements, I'll show you a five-step process for putting all the numbers in context and finding out just how solid a company really is. I'll also show you how to evaluate management.

In Chapter 8, we'll look at how you can detect aggressive accounting, and I'll tell you what red flags to watch out for so you can minimize the odds of a big blowup in your portfolio.

In Chapters 9 and 10, I'll show you how to value stocks. You'll learn the underlying theory of investment value, when ratios such as price-to-earnings are (and aren't) useful, and how to figure out whether a stock is trading for more or less than its intrinsic value. The cheapest stock isn't always the best investment, and what looks expensive may actually be cheap when viewed from another angle.

Chapter 11 provides two case studies. I'll apply the tools presented in the previous chapters to two real-world companies, so you can see for yourself how the process of fundamental analysis works in practice.

In Chapter 12, I'll explain the 10-Minute Test, a quick-and-dirty checklist that can help you separate firms that are unlikely to be worth your time from the ones that deserve a thorough, in-depth examination.

In Chapters 13 through 16, I'll lean on Morningstar's team of equity an­alysts to give you tips for analyzing different sectors of the stock market. From semiconductors to drugs to banks, we'll tell you exactly what you need to know to analyze companies from every corner of the market. You'll learn what industry-specific characteristics separate the great firms from the also-rans, what industry jargon means, and "which industries are more (and less) likely to offer fertile hunting ground for great investment ideas.

Finally, "we'll wrap up with some recommended readings for those who want to learn more.

The structure of the book is the same as the basic investment process that "we advocate: Develop a set of investing principles, understand the company's competitive environment, analyze the company, and value the stock. If you can follow this process "while avoiding most big mistakes, you'll do just fine as an investor.

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