The Little Book That Builds Wealth

Reviewed by Diario de un Inversor · UpdatedJune 13, 2026

Our review

Pat Dorsey, former director of equity research at Morningstar, built in this book the clearest available guide to the concept of the economic moat: the durable competitive advantage that allows a company to defend its margins and market share against competitive attack for years or decades. Dorsey identifies four sources of genuine moat — intangible assets, high switching costs, network effects, and cost advantages — and carefully distinguishes which are real moats and which are temporary advantages disguised as moats, a common investor error. The book is notably practical: rather than remaining theoretical, Dorsey offers concrete sector-specific examples that allow the reader to apply the framework to real companies. The limitation is that the book dates from 2008 and some sectors have changed materially — moat analysis in technology would require updating. Nevertheless, the analytical framework is robust enough to apply with nuance to the current environment. It is probably the most useful book in Wiley's «Little Book of Investing» series.

Key takeaways

• Only four sources generate real and durable economic moats: intangible assets, switching costs, network effects, and structural cost advantages.
• A company with a moat can generate returns on capital far above its cost of capital for extended periods.
• High margins without barriers to entry are an invitation to competition, not an indicator of durable quality.
• Growth without returns on capital above the cost of capital destroys value, even if the income statement does not show it immediately.

Fact

Published in 2008, Pat Dorsey served as director of equity research at Morningstar for over a decade before founding his own investment firm, Dorsey Asset Management.